The Truth (About Taxes), Justice and the American Way
With all the noise coming out of Washington recently over whether or not we should raisemarginal tax rates on the wealthiest Americans, I became curious to know whether the claimsbeing made by Paul Ryan and the Republicans were accurate. After all, I am the small businessowner, that engine of job growth that is theoretically going to stop hiring and investing if marginal tax rates go up by 4.6%. To be honest with you, when I heard this I felt pretty stupid.I had never even thought about the top marginal tax rate when deciding whether to hire moreemployees. Naively, the only thing I looked at was whether we needed the additional people tooperate the business.
So I decided to do some research… on the Internet.
I am of part of that lost generation that stillthinks the Internet is cool. I never cease to be amazed by what I can look up on line. My kidson the other hand think of the Internet as just another appliance, like the TV or therefrigerator. In any eve
nt, I entered “top marginal tax rates” into Google and up came a
plethora of sites.
The best one was “TruthAndPolitics.org.”
They provided a table of both thetop marginal tax rate year-by-year and the income level where the top rate kicked in. I have toadmit, I was fascinated by what I discovered. First, as many of you probably know, there wasno income tax in this country before 1913.
What you probably don’t know was that when the
Federal Government first established an income tax, the top rate was only 7% and applied onlyto income over $500,000
in 1913 dollars.
In today’s dollars that would be $11.4 million.
Clearly income tax was not something the man in the street needed to concern himself with in1913.As it turned out, however, income tax was like heroin
once you start you keep needing more.By 1918 the top rate had jumped to 77% but applied only to people making more than $1.0million a year ($16 million in 2011 dollars). Then in 1922 the rates started to fall getting as lowas 25% by 1925 where they essentially stayed until 1932 when they were raised to 63%. It isinteresting to note that the lowest rates in our history preceded the greatest economicdepression of all time. Rates were raised again in 1936 to 79% and again in 1942 to 88%. Thenfrom 1942 to 1963, 21 years, the top rate stayed between 88% and 94%. The top tax bracket,however, from 1948 to 1964 was $400,000. While this was quite a bit lower than the $1.0million of 1918, it was still between $2.9 million and $3.75 mill
ion in today’s dollars.
In 1964the top rate was lowered to 77% and by 1971 had fallen to 70% where it stayed until RonaldReagan reduced the top rate to 50% in 1982. Then in 1987, things really started to get fun asRonald Reagan and the George Bush (the first) lowered the top rate to 28%. This turned out to
be too much fun, however, and George (“Read my lips”) Bush was forced to raise rate back up
to 31%, which as we all know, cost him the election. This set the stage for Bill Clinton, whoraised the top rate to 39.6% where it stayed for all eight years of his presidency. Then in 2003