February 27, 2009
The 90% tax bracket
Posted by: Andoni
There is consternation in some quarters this morning because President Obama's budget proposes to raise the top income tax bracket on people who make more than $250,000 per year to 39.6% from the current 35% . I'm not one of the worried ones.
I'm old enough to remember the 1950's when the top income tax bracket was 90%. Yes, 90%. It got reduced to 70% in the 1960's. During both these periods, between 1950 to 1970, the economic growth for the country and individuals, rich and middle class alike, was excellent.
Since WWII, the top bracket has gone from 92 to 77 to 70 to 50 to 33 to 28 to 31 to 39.6 (Bill Clinton) to 35 (George W. Bush). When graphed, this sort of looks like an oscillating curve trying to find its proper equilibrium. Clearly the trend has been downward, but in trying to achieve the right top tax rate for growth but also for government responsibility in being able to pay for things, maybe we have gone to far -- overshot.
Obama is simply proposing to go back to the Clinton tax rate, and the Clinton years were some of the best economic years this country has ever seen. In trying to find the sweet spot between what will stimulate growth, but not be irresponsible, maybe 39.6% or somewhere near there is a good place to be. Certainly 35% didn't turn out that well, did it?
Time, of course, will tell where the best spot is. But right now, count me as not worried about Obama's tax increase.
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