Because there seems to be some confusion, here’s a chart of the top marginal income tax rates. *
Top Marginal income tax rates
You’ll notice that as the rate has dropped, the economy has worked worse and worse for ordinary people. Correlation (though I believe strongly in causation in this case) but also it shows that high marginal progressive tax rates do not hurt the economy, contrary to what some think.
(*35% is still the top rate as of this writing).
anonymous
Nevermind the tax rates. You have no idea what the back door tax cuts for the rich are because the IRS is so understaffed, the code is needlessly complex, and the resources are disproportionately allocated to auditing the little guys while the “gray areas” are always created for the rich. Even if tax rates were raised to where they should be (not that anybody is even considering that), good luck trying to administer that. The rising ecomomy (even if it was all just illusion) hid a multitude of sins. Every other regulatory agency has been captured by the oligarchs. The IRS is no different.
anonymous
It’s silly to discuss income tax rates outside of a discussion of what is considered “income.” Here is Lloyd Blankfein’s 2007 compensation (from Wikipedia):
“While CEO of Goldman Sachs Group in 2007, Blankfein earned a total compensation of $53,965,418, which included a base salary of $600,000, a cash bonus of $26,985,474, stocks granted of $15,542,756 and options granted of $10,453,031.”
How much of that $54 million is “income” taxed at the top marginal tax rate and how much will only be taxed when LB cashes in his stocks and options, that is, at the capital gains rate? Raise the “income” tax rate, and LB gets his compensation shifted to “non-income.”
A relative dies and you receive an inheritance? Apparently, that’s not “income.” It’s just magic money from the grave that should not be subject to a tax.
Similarly, the taxes (not) paid by large corporations need to be part of the discussion.
And, to take one example, what about the retroactive credits that home builders were given last year? Several hundred million dollars applied to previous years’ income. Magically reclassified as not income and therefore not taxed.
ds
true to some extent, but the major reductions during the 1980s were also accompanied by stricter rules regarding deductions and tax shelters. Those 90% rates back in the 50s were effectively much lower — you could drive a truck through the loopholes back then.
taxes have become more flat/regressive over the past 30 years, but i dont think this marginal change can explain the explosive growth in income inequality over the same period. The main culprits in my opinion are the decimation of our manufacturing sector and an over reliance on private finance to cover the slack aggregate demand generated by our enormous trade deficits.
realworld
It would be very interesting to overlay some other benchmarks on this such as employment rates, real income by band (30%, 50% 70%,90%,99%), real per capita GDP, etc.
zot23
One of the greatest loopholes IMHO is the disparity between taxes on working wages and on capital gains. As an investor I love it, only need to hold an investment for a year or so and magically makes another 20% in profit. As an American citizen it sucks, I just sat on my ass and the system footed the bill while someone busting their hump in a ditch somewhere paid full price. I don’t see how what I did was more valuable to society or difficult to enact.
We’re coming to the crux of it though friends. Once sovereign defaults kick in and insolvent banks fail in the next few years, there will be no more solutions other than widespread pain and austerity. Not looking forward to it, but I can’t see a way out of this toilet except through the drain.
Martin Bento
The problem with substantially taxing the rich the way we did in the 50’s is that in our globalized world, it is too easy for the wealthy to simply redomicile, renouncing citizenship if necessary. In the 50s, a rich man who wanted to become a citizen of Paraguay for tax purposes would be very isolated, face a lot of inconveniences, and not be able to still run a corporation. This is no longer true. If we decided to tax Larry Ellison at Eisenhower-era levels, marginal rate of 90% or so, he would simply move to Malaysia or somewhere, gradually taking Oracle and its jobs with him. And how could we prevent this? A place you cannot leave is a prison and turning countries into such prisons is the hallmark of police states.
So we need to go after the structures that generate the inequality in the first place. Agenda item one is to return to taxing corporations. For real, I mean, not just in theory. Oracle will always want access to the US market and the protection of US laws, wherever Ellison lives.
Going beyond this to more fundamental change, we should revisit state and worker ownership of companies. There have been a lot of forms tried, mostly in Europe, with a mixed but largely promising record. We need to draw some conclusions about what forms work and under which conditions.
And we need to develop an alternative financial system that can start small and scale, so that bugs can be worked out before the consequences of failure are serious.
Ian Welsh
living in Paraguay or Malaysia isn’t all it’s cracked up to be. There ain’t no New York in either of those countries. But yes, taxing corporations is necessary, as is taxing income at source. You don’t get to live in Paraguay and make your money in the US without being taxed at US rates. Oracle isn’t moving to Paraguay.
anonymous
Apropos of your argument for progressive tax rates:
“Fourteen Ways a 90 Percent Top Tax Rate Fixes Our Economy and Our Country”