Our current tax rates
Merrian-Webster defines radical as: very different from the usual or traditional: Extreme (Webster). Conservatives have labeled Alexandria Ocasio Cortez’s proposal for a 70 percent marginal tax rate on income over 10 million dollars as radical. However, the reality is that the tax rates we have now are radical.
Federal income tax began in 1913 and over its 106 year history, the highest marginal tax rate has been at or above 70 percent for nearly half of the time. As the table below shows, the marginal rates were 70 percent or higher between 1918 and 1921 and 1936 and 1980. Starting in 1980, the tax policy has been to cut the top marginal rate. As a result, this rate has been under 40 percent since 1987. So introducing a high marginal task is returning to policies that we had used for many years. It is hardly a new radical policy.
Note: Table makes a number of simplifications. See source: (Taxpolicycenter).
Radical Change: The Reagan Tax Cuts
The radical change in tax policy occurred in 1981 and 1986 under Ronald Reagan. The Reagan tax cuts were huge. The 1981 act, combined with another major tax reform act in 1986, cut marginal tax rates on high-income taxpayers from 70 percent to around 30 percent (History). It also lowered the corporate tax rate from 46 to 34 percent (Taxfoundation.org). The Trump tax cuts lowered the corporate rate even further to 21 percent.
Reagan based his argument for lowering the tax rates on a then new idea called supply side economics. This idea argued that cutting taxes on the wealthy would stimulate the economy through business growth. Although economic theory supports the idea that tax cuts stimulate the economy, the idea that cutting marginal rates that affect the wealthy would be particularly boosting to the economy has not been demonstrated. Using data from 1963 onward, Politico shows the correlation between tax cuts for the wealthy and economic expansion is weak (Politico).
A RETURN TO THE PAST
At some level, Americans have come to accept the radical ideas of supply-side economics. Some 40 years later, these ideas have yet to be proven. However, many people view a marginal tax rate of 70 percent as too high and too radical. In fact, we’d be returning to rates that existed for many years and under which we thrived.
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