A Tax Rate Increase

Since the inception of the income tax when the maximum marginal tax rate for an individual was above 50% there has been economic stability. When it was below 50% there have been economic bubbles, boom and bust cycles.

In 1913 we got the income tax with the top income rate of 7%. In 1917 the top rate was raised to 67% and it fluctuated between that and 46% with the high being 77% until 1925. Then it was lowered to 25% where it stayed, except for 24% in 1929, and we had the “Great Depression”. In 1932 it was increased to 63% and from then until 1987 it was no less than 50%. Most of that time it was well above 50% with the highest being 94% in 1944 and 1945. Through most of the ‘50s and in to the ‘60s it was 91%. The economy was pretty stable during that time.

The top tax rate wasn’t paid on the total amount of income. It was a graduated rate. The first few hundred dollars went tax free. Then from some figure to another higher one the taxes were at a higher rate. There were several brackets each with its own tax rate. Only the amount above the top bracket was taxed at the top rate.

The top marginal tax rate was dropped to well below 50% to a low of only 28% from ‘88 to ‘90. Ever since we have had the old low tax rate cycles of bubbles growing and bursting. Now it is only 35% and once again America is in real economic trouble.

During the time since the top income rate has been below 50% the rich have increased the disparity between their income from about 20 to over 400 times that of the average worker. There has been a tremendous increase in the wealth of the country but it has all gone to the richest few, those who own the majority of stock in the corporations. And the average citizen has less buying power now than they had before the tax rate was lowered.

American business has been sending jobs to other countries to cut costs so they can sell their goods for less. Unemployment rates have soared! Consequently revenue from taxes has not kept up with the demands of the country. On top of that we have been fighting two wars without paying for them. President Obama has submitted a budget proposal of 3.8 trillion dollars with a deficit of 1.56 trillion. The national debt has increased to 11.4 trillion dollars. Lower taxes have not served the country well!

In light of historical statistics we should increase the top tax rate back to where it was during the times of greatest stability, above 50%, about 70% to 90%. This would place a significant part of the tax burden back on those who benefited the most from the tax structure of the passed years when the top marginal rate was below 50%. It would give the country a lot more money to reduce the deficit and pay for the financial obligations like Social Security, Medicare, education, the infrastructure and defense. It is the intelligent thing to do. It is necessary if we are to get out of the economic doldrums we are in within the next decade or more.