Jason Lindquist (jlindquist) wrote,
Jason Lindquist

Historical tax rates and economic recovery

As we start to discuss a national economic plan, it's worth looking at some historical numbers: One, Two, and Three. The first article lists the top marginal tax rate (the tax rate on the highest income level, which the vast majority of Americans don't earn) from 1913 to the present. The second shows the same data, plus the lowest bracket, plus the income thresholds, plus the personal exemptions. The third is a broader narrative.

If you don't understand marginal tax rates, have a look at Wikipedia's article on the US federal tax system. (And if you think Obama's campaign plan to raise the top tax rate to 39.4% applies to you, definitely go read that. You probably don't understand it.)

The big Reagan tax cut in 1982 brought the top marginal tax rate down from almost 70% to 50%. Midway through his second term (1987,) it fell to 38.5%, and down to 38% in '88. Poppy Bush's "read my lips" pledge kicked it up to 31% in 1990, then Clinton raised it to 39.6% in '93. The big W tax cut lowered it to 35% in '03.

If you think that's bad, the top rate was 94% the last two years of World War II (1944-45). It was down in the 80s the next four years, then rose to 91% in 1950 and stayed around there until 1964. (Understand that: it rose to 91% under Eisenhower.) But what's key is the income thresholds. That WWII 94% rate? That was on income earned above $200K. That's still a lot of money now, but in 1944, that was positively exorbitant--per the third article: "one thing to consider though is that $200,000 in 1944 is the equivalent of $2,290,909.09 in 2006 according to the Department of Labor’s Bureau of Labor Statistics inflation calculator" The tax increase Obama discussed during the campaign would raise the top rate back to 39.4%--but that only affects people making over $350K.

Conservatives and Republicans have often referred to the '50s as the "good old days". The economy was booming--indeed, much of our current infrastructure was built then, the "ownership society" of owning a house with a white picket fence really grew then. And the tax policy made it fruitless to pay corporate executives more than $200K. In 1965, $200K is equivalent to about $1,349,000 in 2008 dollars. What if we did that today? What if every dollar you made above $1,349,000, you only kept thirty cents?

But like Jed Bartlet once said, everyone's concerned for the day they're gonna be rich. We'd never get a 70% rate passed again, much less 91%. Not on $1.3 million. Maybe we could swing it on $10 million. Who really gives a fuck if A-Rod has to cough up seventy cents of every dollar between $10M and whatever the fuck it is he makes a year now? So what if we did re-introduce a confiscatory rate on truly exorbitant income levels? You and me don't get hurt. But A-Rod and Bob Nardelli do. So maybe their teams and companies would stop paying them such large salaries. What could they do with the money instead? Pay it out to shareholders as dividends? Keep ticket prices stable? (Or even lower them!) Spend it on R&D, or rank-and-file employee benefits?

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