James Pethokoukis

Politics and policy from inside Washington

After FDR’s New Deal …

April 12, 2010

The death of FDR in 1944 meant no New Deal, The Sequel. What did happen? This (via the WSJ):

Instead, Congress reduced taxes. Income tax rates were cut across the board. FDR’s top marginal rate, 94% on all income over $200,000, was cut to 86.45%. The lowest rate was cut to 19% from 23%, and with a change in the amount of income exempt from taxation an estimated 12 million Americans were eliminated from the tax rolls entirely.

Corporate tax rates were trimmed and FDR’s “excess profits” tax was repealed, which meant that top marginal corporate tax rates effectively went to 38% from 90% after 1945.

Georgia Sen. Walter George, chairman of the Senate Finance Committee, defended the Revenue Act of 1945 with arguments that today we would call “supply-side economics.” If the tax bill “has the effect which it is hoped it will have,” George said, “it will so stimulate the expansion of business as to bring in a greater total revenue.”

Me: Research indicates that top U.S. tax rates are already on the wrong side of the Laffer Curve. And our corporate tax rates are highly uncompetitive internationally. All play into a New Normal thesis over the long term.

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