James Pethokoukis

Politics and policy from inside Washington

A 91 percent tax rate? Really?

November 18, 2010

So is the liberal Democratic position that tax rates don’t really matter? First comes a deficit reduction plan put forward by Rep. Jan Schakowsky would reduce the budget deficit by $427 billion in 2015 by raising taxes by $283 billion, cutting defense by $111 billion and only ever-so-slightly trimming nondefense discretionary spending by $8 billion and Medicare by $17 billion. She doesn’t do a long term analysis because unless you cut entitlements or jack taxes through the roof (and ignore the subsequent economic impact), the numbers won’t work.

Then we have this amazing op-ed in the LA Times by one Moshe Adler:

What did the new president do about the economy? President Clinton in 1993 proposed to raise the highest marginal tax rate immediately from 31% to 39.6%.  … In the seven years that followed, the unemployment rate decreased steadily, every single year, until it reached 4% in 2000. .. The highest tax rate is currently 35%, and if the George W. Bush tax cuts are allowed to expire, this rate will return to 39.6%. But charging the same tax rate for all levels of income above $380,000 is unfair. The highest marginal tax rate should be what it was during the Eisenhower years — 91% — and one way to reach it would be in steps of, say, a 1% increase for every $1-million increment in family incomsecond million would be taxed at 40.6%, and the third at 41.6%. A family whose income exceeds $53 million a year would pay the maximum rate of 91% on each dollar above this sum.

Again, when Clinton signed his tax increase in August 1993, the economy had been growing for 10-straight quarters and was able to power through the tax hikes. Clintonomics started on third base and Adler thinks it hit a triple. As for raising top rates to 91 percent? Look, even Paul Krugman doesn’t advocate that. There is a mountain of evidence, both from academic research and historical experience, that suggests such a move would crush economic growth and leave America in a poor competitive position. Fun fact: Tax rates are way lower today than in the 1950s and yet tax revenue as a share of the economy is just as high. Guess the Laffer Curve does work after all.

Comments

Love the Laffer Curve – exactly how people respond. Nice reference. http://www.heritage.org/research/reports  /2004/06/the-laffer-curve-past-present- and-future

Posted by tpatch750il | Report as abusive
 

Like everything in this world life isn’t fair. God didn’t make everybody smart, savvy, aggressive, talented and good at making money. The rich 84%-95% create the middle class and the illegal immigrants to work like “bees” in their hives of putrid chemical facilities, New York skyscraper prisons their $1000 bucks a week and two weeks off each year for a vacation. Individual Americans who make $500 hundred thousand a year and couples that make $1 million bucks a year should pay 39.6% taxes, their “lack of buying power will make Walmart go bankrupt.” Cut taxes for the “made up middle class deep in debt” and raise taxes for the stockbroker making $600 hundred thousand bucks a year for playing with other people’s money. God, why didn’t you make veryone equal?

Posted by jont | Report as abusive
 

A 91% tax rate is simply untenable.

First, the rich would simply fund candidates who would lower it.

If that failed, they’d simply move themselves and their businesses elsewhere. That option wasn’t as viable in the 50′s when most of the developing world was still recovering from WWII.

Posted by spet67 | Report as abusive
 

46% that’s what the rate should be. and dont say that’s not fair because every single American under that tax bracket would take 54% of a millionaires wealth any day! millionaires and billionaires are the only ones crying. during those years look what happen debt decreased consistently, and we got programs like the Federal High Way Act under REPUBLICAN Dwight Eisenhower. i agree 91% is just ridiculous lol but we all can agree the rich in this country can afford to pay more then 35% they survived for a few decades at rates alot higher and america still grew!

Posted by theps | Report as abusive
 

The reason the 91 percent rate was sustainable is because they could easily get half of that back if they proved they reinvested it in America. That’s why so many off-shoots and subsidiaries sprang up. This of course was long before the greedy got greedier and outsourcing became a factor. The bottom line is, is that we need to preserve the American lifestyle as it once was as much as possible or we will be joining the likes of Chinese and Indian societies sooner than we think. Of course, these guys are not passing us and our children as people may be trying to lead us to believe. People still prefer living in the U.S. than any other country. Additionally, many other countries only report their top third student’s test scores, while many states in America report them all; including learning disabled and those without a command of the English language.

Posted by BeReel41ns | Report as abusive
 

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