IMHO this is the effect of this nonsense to those who "Want to cross the AISLE"
Posted on 01/08/2019 10:28:11 AM PST by Signalman
There’s one regard in which some fiscal liberals want us to return to the “good ol’ days” – insanely high tax rates, especially on the wealthy.
While the top tax rate is 37% today (previously 39.6%), debating raising or lowering the rate a few percentage points is pale in comparison to the rates of 70-90% we had in the past, we’re told.
“When radical, socialist Dwight D. Eisenhower was president, I think the highest marginal tax rate was something like 90 percent” Bernie Sanders informed us, speaking tongue in cheek in regards to that “socialist” quip.
“That 90% top rate in the 60s wasn’t as crazy as modern context might make it seem. And remember, the economy thrived” tweeted New York Times columnist Paul Krugman, who somehow has a Nobel Prize in economics.
“The income tax rate, through the early 60s… is I think 91% on incomes over $200,000.” said author Malcolm Gladwell. “The thing is, if you bring this up now, people don’t even believe you that was in place 50 years ago.”
Gladwell is famous for stating that it takes 10,000 hours of practice to master a skill, but it doesn’t take more than 10 minutes of research into historical tax rates to prove the above arguments wrong.
As everyone that has filed taxes knows, the marginal tax bracket they fall into isn’t the effective tax rate you pay, because of deductions, and other factors. In the past, the tax code was ridden with loopholes.
When the Revenue Act of 1935 was passed, raising the top income tax bracket to 75%, literally only one person paid it; John D. Rockefeller.
Krugman and company are right in that tax rates on the rich used to be much higher.
But the tax rates that the rich actually paid? Not so much.
It is true that we did use to have massively high marginal tax rates, but it was never the case that we had high effective marginal tax rates. Nor are the top rates comparable of the past comparable in the levels of income they affect. The new top income tax rate for households of 37 percent kicks in at $315,001 of income. The 91% rate in 1955 kicked in at an inflation adjusted $3.5 million in todays income.
As you can see in this chart from the Congressional Research Service, the top effective income tax rate in America has never exceeded 30 percent.
If we isolate just the much-maligned top 1% of income earners, their tax rate is less than 6 percentage points lower today than what it averaged in the 1950s. A decline for sure, but hardly the 60-or-so percentage point decline claimed.
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Yes, but there were deductions and loopholes galore.....................
FDR actually wanted a 100% top bracket. In essence a cap on how much money any one American could earn.
91% was the result of compromise with Republicans in Congress.
Nothing ever good comes of it when Republicans agree to compromise.
Yes, that was the whole point of the article. Many people don’t understand the difference between the Marginal Tax rate (What the government says you should pay) and the Effective Tax Rate (What people actually pay in taxes)
Great illustration of this at the link! Bongino (and the guy who wrote it for him) is great!
And some say/think slavery has been eradicated in the U.S.
Oh, the once Republic and Land of the Free
Consumer interest for starters.
People’s income used to be lower. Rich people lived off investments rather than a paycheck. You told the government how much you made. Imputed income was seldom seen
Yes, and then there was a $600 limit on bank taxable interest. That went away in the 80’s under Reagan’s tax deal with Tipp O’Neill.........That would be nearly $1500 today. They should bring it back.................
Taxes on the rich always fall back to the middle class, why?
Because the rich have lawyers, accountants, lobbyists that rework their books according to new definitions of income, exemptions, passivity, investment, offshore transfers.
As billionaire Warren Buffett once remarked, “my secretary pays taxes at a higher rate than I do”.
So what happens then?
The income money of the rich is redefined, reworked, disappears, jobs leave, factories leave, money leaves in a stampede ... leaving the middle class ...
to pick up the tab.
This is why the Income tax as a tax system is a failure. The sixteenth was written by a group that at the same time installed the central bank. That’s not a coincidence.
The best tax system is based on a uniform consumption tax with uniform tax credits built-in.
The other point they never mention is the income tax started at a high marginal rate i.e. in 1963 it was 20% from zero adjusted income to $4000. I think the standard deduction was the lesser of 1000 or 10% of your AGI. I know because with an income of about $1800 I had to pay blasted income tax on a part time school job. Today, that qualifies for zero tax and a check from the government even if it the income is adjusted for inflation.
When tax rates were highest, corporations didn’t have a lot of options for placing their HQ. You couldn’t have a video conference with factory managers all over the world. You didn’t have shipping channels (train, truck, ship, plane) from most countries that could compete with the US. You couldn’t get educated workers all around the world or manage them from anywhere else in the world. Banking, courts, and so many other services a company uses were not available in many areas to the level a large company needs.
The US and a few other countries had a monopoly on “incorporation services”. These days a company (startup or multi-billion brand) would be stupid not to shop around for the best incorporation provider. The business can be run with an HQ in 100+ countries. The “fee” for these services is the tax rate and different providers can have a $billion/year difference in cost. Most countries would love to see a 70% tax rate for US corporations or individuals because that makes it easy for them to compete for business.
And HQ doesn’t really matter. Any large company has 100s or 1000s of separate corporate entities around the world. Profit can be realized wherever the tax cost is cheapest. France does not want “Coca Cola Paris, Inc” to send 70% of profits to the US. They will help Coke avoid any 70% US tax. And help individuals transfer income to French companies in a way that bypasses the 70% tax. Warren Buffet (a fav “rich guy” for the left) never pays taxes because he immediately reinvests through various corporate entities and doesn’t collect profit - every “rich guy” will do that if taxes go extreme.
I recall that Ronald Reagan limited himself to only one picture per year … because the additional income would be taxed away, and he would actually lose money.
My late father-in-law was a CPA from Ike to Clinton in office and he said he had one client in the late 50’s who actually didn’t have a loophole and only a couple of deductions they could take and they pay in the 80% range one year. After that they made sure they had deductions lol!
The truly wealthy only pay Capital Gain taxes. Income tax was designed to keep you poor.
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