The Atlantic, Feb 2019: This post has a simple purpose: to remind people of the historical realities of tax rates in the United States. It’s mainly setup for the chart you’ll see a few paragraphs below.
At the World Economic Forum in Davos this week, Michael Dell, founder of Dell Computers, was asked about the idea of raising the top marginal tax rate to 70 percent. (It’s now 37 percent.) He said—to laughs—that from his personal perspective it would be a bad idea. But he also thought it would be bad for the country’s growth. When the moderator, Heather Long of the Washington Post, asked him to explain why, Dell said, “Name a country where that’s worked. Ever.” You can see the exchange in a CNN video here.
Sitting on the same panel was the economist Erik Brynjolfsson, of MIT, who spoke up immediately to say: actually there is such a country. It is the United States, through most of its post-World War II expansion.
As you’ll see in the chart below, through the entire administrations of presidents Franklin Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter, the top-tax-bracket rate was at least 70 percent, and for long periods was much more. (John Kennedy’s tax-cut plan of the early 1960s took the top rate from 90 percent down to 70 percent.)
Via the Tax Policy Center, here is the list of top-bracket marginal tax rates from the introduction of the income tax, in 1913, to a few years ago.
That top-tier marginal rates were so high, for so many decades, which included such notable periods of America growth, obviously doesn’t prove that the tax rate should be 70 percent again. As, as Erik Brynjolfsson indicated briefly, the tax-rates themselves leave out a lot of details: about what income levels the tax brackets applied to, what loopholes and exemptions prevailed in each period, how much tax people actually paid, etc.
But as a matter of history, it’s worth knowing. So if you wanted to “name one” country where top-bracket marginal rates above 70 percent had been in effect and the economy still grew, that would be the United States.
In case this is simpler to read, here is a chart from CCH / Wolters Kluwer that shows the same information but just highlights the years in which top tax rates changed: