Really? That’s the entire argument for lowering taxes.
In fact, it’s hard to argue that a 91% marginal tax rate doesn’t seriously alter economic decisionmaking. When path A means you pay 0% and path B means you pay 91%, everyone’s going to go down path A, whether or not that’s better for the economy as a whole.
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Almost everybody went down path A. The economy boomed. So it couldn’t have been that bad.
Or, other factors were more important than tax policy. Such as population growth.
Even if the whole thing “worked” somehow, I fail to see why we’d want to have a tax rate almost no one paid. What’s the point of that? If the effective rate on rich people is 35%, why not just dispense with the stupidity and just tax them all at 35%?
To make them invest in domestic economic growth instead of moving the money overseas or gambling with it.
The effective income tax rate on the top 1% of taxpayers was 33% in 1952.
In 1963 it was 27%.
SOURCE: Joseph A. Pechman, The rich, the poor, and the taxes they pay (1969)
If you look at exactly what deductions were used, that wasn’t what the incentives were. It was mainly just politically motivated exemptions, as it still is today. There are very few tax breaks which are endorsed by economists.
So economists recommend a 100% tax rate? Your arguments are very odd. It’s very simple, either taxes have an effect on the economy, or they don’t. If they do, then I’d say we encourage that, but if you’re right and they don’t, why shouldn’t they be raised to pay our bills? Or do you just want to play both sides of three different coins depending on which one of your arguments makes no sense?
I think that it’s nice to know what these numbers actually are.
That being said, the 50’s were a time of expansion. I don’t think it’s argued by serious economists that higher taxes on rich folks during a time of expansion would be helpful. After all the more money in private hands, the more investment. The path some leftist economists suggest is to raise taxes in order to pay for make-work projects during a recession. That’s what happened in the 30’s and that worked out so well, don’t ya know?
So what? Who the hell is arguing in favor of a 91% true, i.e., effective tax rate? Can you cite even one instance of anybody seriously advocating this?
Since NOBODY is actually “talking about going back to” an illusory 91% effective tax rate, your criticism is pointless.
Great! What’s that? Double what it is today? Let’s double the effective tax on the rich. That is what you’re advocating… correct?
I am gratified to hear that no one supports going back to 50s tax rates. Sometimes I’m very glad to be wrong.
I think the current effective rate is around 25%. Maybe 20%. Given that the current top rate is 33%, it would seem that reducing deductions would be more effective than raising tax rates, which would just be avoided anyway. of course, that’s what Congressmen want, they don’t want to pay higher taxes. They want to tax “people like me”, not “me, personally”.
I’m all for reducing reductions. It’s just a lot hared to do than changing a number from 35 to 38.
If we’re talking about comprehensive tax reform, definitely. If we’re only talking about reforming the top income groups then it should be less hard. Rich people can choose between fewer deductions or a higher rate. Problem is, Congressmen have the ultimate vote and they don’t want to pay higher taxes, so they usually opt for higher rates and exemptions carved out just for them and their close supporters.
There may be some people who support reinstating the MARGINAL tax rates that were in effect in the 1950s (when the top marginal rate was 91%).
But nobody supports having a maximum EFFECTIVE tax rate of 91%. So your dire warnings about how disastrous that would be are completely superfluous.
Then I should think this thread must be making you pretty happy.
Oh, I’m sure you could find any number of posters on this MB who would like there to be a 90% tax bracket for “the rich”. But no one with any actual ability to change the rates (that is, people in Congress and the Administration) is advocating it, so it’s really just a strawman.
How is supporting high marginal rates that aren’t effective a defensible position? It’s more efficient to just have the effective rate be the marginal rate.
Where are these claimants? I am personally aware of only one such post in which the concept of a “marginal tax rate” was misunderstood.
What were these “politically motivated exemptions”? You do realize that the mother of all tax avoidance schemes is reinvestment? I would like to meet the economist that does not endorse reinvestment.
Liberals are usually talking about the marginal rate, not the effective rate, because THAT is what they want to change. And very few people want to move back to 91%.
Noone ever said they did.
See the word “amended” before “AGI” You know why that’s there? Its because in the past, (from 1954 to 1986) you didn’t have to pay taxes on half your capital gains. They “amended” the AGI to gross it up for the exempted capital gains.
You should google “carried interest” and catch up on what people are talking about. Carried interest is what we call it when a hedge fund manager pays capital gains rates on their compensation.
The baby boomers were kids for a lot of that growth. Lemonade stands and newspaper routes have a limited effect on the economy.
Do you seriously not understand the concept of a progressive system?
What percentage of people do you think pay the top marginal rate today?
Taxes are not as easy to avoid as you might think. Top rate is 35% (39.6 starting next year).
The highest top marginal rate I have heard a serious tax policy person talk about is 50%
I’m not sure you understand how the word effective is used when we talk about effective tax rates.
That would be what is called a “flat tax”.
A progressive income tax system has so-called “marginal” tax rates that apply to different parts of one’s income. E.g., the first $20,000 of income might be taxed at rate x%, while everything from $20K to $80K is taxed at a y% rate, and everything over $80K is taxed at z%, to take a very simplistic example.
The effective tax rate is the total amount of income tax one pays under such a system, divided by the total amount of income one has. For instance, if you make $22,000 of income, you’ll be taxed x% of $20K plus y% of $2K. So your effective tax rate will be greater than x%, but probably much closer to x% than to y%.
The technical term “effective tax rate” is not meant to imply that the tax system is necessarily working effectively or efficiently or doing what it’s supposed to do, which is how you seem to be misunderstanding it. One’s effective tax rate is just the weighted average of different marginal tax rates on different amounts of one’s income.
If you want the effective tax rate to be a single percentage amount that applies equally to every dollar of one’s income, then as I said, that’s a flat tax.