.

Want to "Fix" America? Return to 1950s Era Tax Rates

A thriving and brilliant 21st Century American Dream requires a move back towards 1950s era tax rates. That's not class warfare. It's common sense.

When you speak to baby-boomers, most of them remember the 1950s as the Golden Age of America.  Besides the racism and Jim Crow laws, it was 'Leave it to Beaver' for a thriving and white middle class.  There is a reason for this, and it was America's tax system that propped up the infrastructure of our once great country.

First, a short history.  In 1913 the highest marginal tax rate was almost 80% for the wealthiest.  Again, this was progressive, so you were taxed a smaller percentage on the lower portion of your annual income than you were at your highest.  By 1926, the highest marginal tax rate dropped to around 25%.  What happened next?  The Great Depression.

By 1955, the highest marginal tax rate was up to 91%.  From 1935 to 1963 or so, the highest marginal rate never dropped below 75%.  The middle class thrived and there were still plenty of wealthy people with big boats, vacation homes, private jets, and mansions.

In 1980, when Reagan became President, the highest marginal tax rate was around 75% as well.  Our government was able to outspend, out produce, and bankrupt Russia, making us the world's only superpower.  By the end of Reagan's term, the highest marginal tax rate dropped to almost the same level as the pre-depression era, or 25%.  Remember the Black Monday Market crash of 1987?

Soon, the highest marginal rate made it back up to almost 40% through the 90s during an economic boom and technological growth, including 19 million new jobs added to the private sector.  

Then came the election of George W. Bush.  Soon after he was elected, he cut the highest marginal tax rate again and took us into two wars.  One a war of necessity, the other a war of choice.  What came next?  The Great Recession of 2007 that hit its trough in February of 2010.

It doesn't take a genius to figure out what's going on here.  Do you want a thriving and brilliant 21st Century American Dream?  If people were as rational and self-interested as the 18th century economic philosopher Adam Smith thought we were, we would work toward returning this country to 1950s era tax rates.  

That's not class warfare, it's common sense for a common dream...opportunity for all.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Karl Frank Jr. August 16, 2012 at 10:17 PM
A comment from a friend of mine on Facebook that links to this story. "Jim Hightower likes to quote his father (who was a Republican small businessman in Texas) who liked to say, "Everyone does better when everyone does better." A funny line, but very profound. The simple point is that the huge concentration of wealth and income we currently have in this country is economically dangerous. It was dangerous in the 1920's. That type of concentration has always been dangerous. While higher tax rates on high levels of income are "fair" and "moral" in my view — that's really not the point. The point is that it has been, and still is, sound economic policy. Electricity, the internet, international competition, and all the other smokescreen issues raised above doesn't change this fact."
Karl Frank Jr. August 17, 2012 at 01:25 PM
So far, all of the interesting conversation on this topic is on my Facebook link to the story. Here are two responses: "In the '50's, people making less than $10,000 (about $80,000 2012) paid no income tax, and the payroll tax was 2%." I haven't fact checked that, but interesting if so. Another friend of mine with a PhD in Political Science replied, "I can remember my grandmother telling me how much of a status symbol it was to pay federal income taxes. When people in her small town (the town in which I was raised) earned enough to pay, they felt they had "made it" and were honored to do their fair share to help others and fund essential governmental services. Today, if you are wealthy, the norm is just the opposite — people brag about avoiding their tax obligation."
Bryan Palumbo August 18, 2012 at 02:16 AM
Karl, I was directed here by a reader of my blog on our local patch. Located here... http://bristol-warren.patch.com//blog_posts/ask-a-conservative-bush-tax-cuts If you look at the last link in our blog and draw the chart out to 1950, you'll see that with those tax rates that our economy crashed on a regular basis. It wasn't until Reagan lowered our taxes and modernized the tax code that our economy stabilized. Now, for it to happen, it takes things like the dot com and housing bubble.
Karl Frank Jr. August 20, 2012 at 04:41 PM
Bryan, I will check out your post a little later today. Thanks for the link. Jim, first, congrats on your impressive use of Google as a tool. As you probably know, Google is a tool, not a source. Source data is important. Google show's millions of results. As you likely know, you have to know what you're looking for. Second, manageable recessions are the goal. Even after Kennedy's reductions, the highest marginal rates never dropped below 70% until Reagan. They went from 70% to 28% by the end of his term. Now instead of manageable recessions, we have serious crashes, with the last one almost collapsing the free market. As George W. Bush said in December of 2008, "I had to abandon free market principles to save the free market." That's an awfully big statement for an outgoing president. So, is 91% too high? Maybe, but it's funny how everyone's "memory" of the "good ol' days" always point to the 50s. Maybe the magic number is 70%. The bottom line is that it is when income inequality reaches untenable levels, like it does when the marginal rates are as low as they are, the economy for everyone is unstable and susceptible to crashes and bubble bursts. As my friend said above, "That type of concentration has always been dangerous. While higher tax rates on high levels of income are "fair" and "moral" in my view — that's really not the point. The point is that it has been, and still is, sound economic policy."
Karl Frank Jr. August 20, 2012 at 04:56 PM
And since we are talking about market crashes and Google, here is my source that Google led me too. Like I said above, it doesn't take a genius to figure out what's going on here when you match the crashes with the highest marginal tax rates. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
Karl Frank Jr. August 20, 2012 at 05:20 PM
Thank you very much for your opinion Jim.
Dan November 01, 2012 at 01:36 PM
Karl... This analysis is so shallow that the word 'superficial' doesn't even go far enough. You are ignoring all detail and context. The ultra-high tax rates you mention were applied to only the very highest of incomes (far above the income associated with our current highest rate). Nobody actually paid effective tax rates of anywhere remotely close to these numbers, given the larger number and size of deductions and loopholes. The government currently spends a far higher percentage of GDP than we did in those days (I believe it is double, but don't have the number handy). I'm not sure if you have ever taken a statistics class, but one of the few key things you learn is that 'correlation does not equal causation'. The way you cherry pick economic events and cite them without discussion, analysis, or context directly contradicts this golden rule of stats. Your analysis shows a severe lack of understanding of even basic economics and statistics. By the examples you cite and how you describe them (or don't), it is clear where your partisan intentions are, but I hope nobody is influenced by this garbage "analysis". I would urge people to go out and learn the actual facts (including details and context!) of what he is talking about.
Karl Frank Jr. November 01, 2012 at 02:07 PM
Dan, a friend of mine who has a doctorate in political science an is president of a small business in the field says my analysis is right in line with reality. As far as your spending claims, have you ever seen President Eisenhower's exit speech where he warns Americans of the perils of the military industrial complex? I could find the video for you, but just Google it. As far as context is concerned, how is this? Right now we have record corporate profits, near record stock market highs, record gap in wealth between the top 1% and everyone else, and record low tax rates. Where is the trickle down? That's context. Even Ben Stein went on Fox and Friends and said tax rates are too low. The greed, unappreciative delusion of the baby boomer conservatives and immature Rand addicts of all ages is a blockade on American growth and prosperity for everyone, including themselves.
Michael.O'Donnell December 08, 2012 at 02:25 AM
I'm going to side Dan on this one. To say that higher taxes leads to better national economic cycles is like saying that lower teacher salaries lead to the US being ranked near the top in math and science way back when. I love the naivete of raising tax rates. Raise away! Go with Karl's 92% proposition...go higher if you'd like. In our new global economy, if I know I'm only going to get 8 cents of the next dollar I'm going to make, I'll make that money in a country that's going to let me keep more of it. Instead of earning that dividend in a US company, I'll earn it in another country. Raise the top tax bracket back to 39.6%? Governor Romney's probably still going to pay about 14% because he has enough money to wind his way (legally) through the tax code and not pay anymore. If I made that kind of money, I would make it my mission to pay less in the face of higher tax rates. (This should get Karl's blood pressure up a few points...hehe) I would rather give the money to a church and let them do some good with it then to waste my sweat and toil only to watch the federal government waste it. Raise away, Karl!

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