does anyone know the history of income tax rates in america?

That's crazy...

I question some of those #'s. You're telling me if I made $200,000 in the 40's I'd only take home $20,000? That's crazy.

 

No. If you made $200,000, and then had an opportunity to make $200,000 more, you'd only take home $20,000 of the that additional money.

 

That is bizarre. I imagine there were quite a few loopholes.

If not, that really blows up the work-incentive theory, because the 40's-60's were some of America's fastest growth periods.

Also interesting to see the difference between the Reagan tax cut - and why it would stimulate an economy - and the Bush one. The Reagan one took top tax rates from 70% to 50% down to 30%. The Bush one took rates from 39% to 35% - not exactly a behavior-changing phenomenon.

Interesting chart, though. It's amazing how quick the top tax rates have gone up and down during the last 100 years.

 

that's the marginal rate above 200k - anyway looking at the footnotes it appears that that's the maximum it could have been, I imagine there were all sorts of WWII related loopholes & credits and deductions and such (war bonds comes to mind)

 

European Gold.

 

I don't know about that. You might expect the economy to do well with the burden of war lifted. Moreover, that period saw a large expansion in global trade.

This is a very good point. At the margin, a tax cut when existing rates are high will create more of an incentive for people to work harder and cause less of a reduction in government revenue than a tax cut when rates are already fairly low.

 

You don't mean literally, do you?

 

if you vote for Obama it will be 103%

 

Sure - but the idea is that if you have a 90% tax rate, there's no incentive to work hard at all. Regardless if conditions would give opportunities for growth, the theory suggests that the business owners wouldn't actually take advantage of them because they wouldn't get the rewards.

That said, I agree with the theory - I suspect, instead, there were lots of loopholes and people didn't actually pay anywhere close to 90%.

 

And remember -- $200K was a mega-huge income back then. Especially if some sources of income were not taxed -- capital gains?

 

Yes. Europe fueled our economy through the 40s and into the 50s by buying war machinery with their gold, then paying our companies to rebuild their country, and the US stockpiled 1/3 of the world's gold. Then in the 60's and 70's, we spent all of it building our empire.

 

I will do research, but my guess is that war-related industries were exempt from this tax, and it was implemented to keep the producers from wasting capital on luxuries and other non-essentials.

 

Top marginal tax rates did in fact exceed 90% for many years.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

The Kennedy-Johnson tax cuts which brought the top rates into the 70s are attributed with spurring significant growth in the late 1960s. DeLong et. al. have an interesting take on this.

It wasn't until Reagan that we got the substantially lower rates that we observe today. We're paying very little, both historically and in cross section compared with similar OECD nations today. That's strictly a non-normative statement.

For all of the marginal tax rates (not just the top one), you can poke around on the tax policy center website.

 

Nifty.

 

However, the theory would seem to be confirmed by the economic growth that follows tax cuts.

 

That's true - to an extent. In the 1990's, you had huge economic growth after a tax hike. And in the 2000's, you had relatively little economic growth after a tax decrease.

You also have to consider how the tax cut is paid for. We don't have many tax cuts that were paid for with spending cuts. What we normally get are tax cuts financed by debt, sold to people abroad (for the most part). So yeah, if you cut taxes by $200 billion, borrow that money from foreigners, and still spend it in the economy, you'll get economic growth - you injected $200 billion into the economy. What happens, though, if you cut taxes by $200 billion but also cut spending by $200 billion? Then you inject money in one way but take it out another.

So the theory makes a lot of sense, but it's not really something we've tested in practice, because our tax cuts don't come with the equivalent spending cuts.

 

laffer curve.

there isn't a big economic disincentive if you raise the top bracket to 39%.

 

Quote:
Originally Posted by Major
If not, that really blows up the work-incentive theory, because the 40's-60's were some of America's fastest growth periods.


European Gold.

_____________

It does blow up the work-incentive theory and the central idea behind let's have tax reductions for the wealthy so they will work harder and it can trickle down. As we have seen they are just as likely to bid up the price of coastal real estate or fine wines, oil futures etc. as to invest in real industry.

The top rates only applied to the very wealthy. They tend to work more if they like what they are doing.

The fallacy is taking a person who currently makes $5 to $50 and hour and thinking would they work some more if they only took home 10-30% more.

The top marginal rate was 70% in the 1960's when the economy was great and it did not have to do with "European Gold" or the Rothchild's for that matter. It did have to do with the fact that we made a lot of stuff and exported it.

 

^^^Someone who has never worked anywhere that offered voluntary overtime.