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When Top Tax Rates Rise, So Does The Economy

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Looking at the chart below, you can see the top marginal income tax rates dropped from 73% in 1921 all the way down to 24% by 1929. After that, as we know from history, the stock market crashed and we plunged into the Great Depression.


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Image: Susan Missal Lenner, CPA

When the top marginal rate jumped as high as 94% in 1945 (and 92% during the Eisenhower era) and never below 70% until President Reagan was in office, the American economy hummed along very nicely.

{Note: The marginal tax rate is the rate on the last dollar of income earned, which is different and less than the average tax rate, which is the total tax paid as a percentage of total income earned.}

But from Reagan's presidency to now, the top rate dropped to its current level of 35%, and for all but the wealthy, the economy has been sluggish at best. It shouldn't take an Ivy League mathematician to figure out from the numbers in the charts that the economy does best for most Americans when the rich are paying their fair share, something they haven't done for a very long time.

Of course, the Republican Party is horrified at the thought of letting the Bush tax cuts of 2001 and 2003 expire (as they were scheduled to in 2010) and allowing the top marginal rate to move from the current 35% to its previous 2000 level of 39.6%.  Even with massive federal deficits, the thought of a 4.6% hike on the marginal rate of millionaires and billionaires is totally unacceptable to the GOP tax-cut idealogues.

The facts contained in the chart below should be convincing to any objective observer that the top tax rates need to rise, though not if he or she has a Republican or Tea Party bent, because to those people, facts and evidence are trumped by discredited ideology.


Chart above is fromthe Tax Policy Center (Urban Institute and Brookings Institution)

 

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Arlen is a writer/blogger living in Monterey, CA. His political blog is thebigpicturereport.com. He also writes a quotation quiz "What's Your QQ?" at quotationquotient.com.

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