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    February 27, 2009

    The 90% tax bracket

    Posted by: Andoni

    Tax brackets

    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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    1. jb324 on Feb 28, 2009 10:24:18 AM:

      39.6 doesn't look so bad on the greph when you compare it to 70 and 90.

    1. SStock on Feb 28, 2009 12:58:05 PM:

      As usual the devil's in the details. For single people the increase clicks in a $200,000. If you're a gay coastal resident this is going to cut into your resources to meet the very high costs and local/state taxes where you live. Plus, it's not just a higher marginal rate that's being proposed, but a phasing out of deductions (which some say makes the marginal rate actually 42%); an increase in the capital gains tax; and several other little gimmicks to squeeze money from the higher earners who already pay most of the income taxes. Andoni buys the administrations gloss, but the reality is much more taxing so to speak. I retired early during the Clinton administration because I was tired of having to fork over half my earnings to the government at all levels every year. I was fortunate to be able to do that -- all the people who benefited from my earnings were not. High taxation creates disincentives and costs jobs -- not a wise thing to do in these difficult times.

    1. Georgiaguy on Feb 28, 2009 3:24:32 PM:

      Considering how much my investments lost in one year, continuing the Bush tax cuts is nonsense. I do want to see tax rates go up for the wealthiest, the lavish lifestyles of the rich of the last eight years created few jobs. The old geezer that retired early during the Clinton years and rails against high taxes. Trying taking away his social security and Medicare benefits and he would howl. It's time people like this paid more for the benefit of all. Even Warren Buffet agrees with Obama. Let's also confiscate the millions made by the Bushes from their Saudi friends and Cheney's Haliburton millions made off the blood of American soldiers.

    1. Andoni on Feb 28, 2009 3:54:34 PM:

      To CStock: if you are indeed retired, then you should not be in the 42% bracket you describe. Capital gains and qualified dividends are currently taxed at 15%. Under Obama's plan, they will go up to 20%.

      When Bush lowered all the tax rates, my accountant told me it was a GIFT to be enjoyed while it lasted because that low a rate could not be sustained. We would not be able to pay our bills at that rate and that one day the bill collector would come calling.

      Oh, and the new capital gains tax rate is also a bargain historically speaking because those rates in the past have been anywhere from 28% to 50%.

      So all in all, we are not getting screwed compared to our own history. And compared to the rest of the world, the US still will have one of the lowest tax structures on earth.

    1. Sebbe on Feb 28, 2009 6:50:38 PM:

      As someone whom this likely will affect, I am all for it. Personally after the last 8 years I believe it should be even higher to play catch up. Do I like paying more? No. Did I vote for the policies that led to this? No. But, like the poster said above, the bill has come due.

      Furthermore, I find it appalling that my whole income is not taxes for social security and that of lower income workers is.

      Change is coming, finally!! Equality for all in America is what will let us lead in the new century.

    1. SStock on Mar 1, 2009 11:23:15 AM:

      I would gladly give up my social security and medicare (some of medicare is involuntary) if I could expect a return of just a significant fraction of the enormous taxes that I've paid over my working years and continue to pay even on my social security income. Social security barely covers my property taxes and for $500 a month medicare (government premium + drug premium + supplemental coverage) is certainly no bargain and costs about the same as private insurance did before I retired and for stingier benefits. The government already controls about 50% of the health market and they've done such a good job with it that Obama strives to take over the other half.

      While I probably won't be in the new Obama 42% bracket, I was in the top bracket when I sold my homestead and got socked with the AMT and deductible caps as well. Plus, let's also consider that under Obama's plan we will experience a new hidden tax on energy and products that require energy to be manufactured, through the cap and trade program. This the left's new honeypot to pay for their social experiments and that of Congress to pay for costly earmarks and other wasteful spending. Argentina must be their model.

      Given the slavish support the gay community has given to this government wouldn't this have been a great opportunity to begin to include unmarried, committed couples in all the federal tax breaks now given solely to hetero married couples? That would at least increase the tax hikes to those over $250,000 as advertised among other fairness measures. Don't hold your breath waiting for this or any meaningful pro gay moves out of this new majority. I mean talk about being screwed..........

    1. Sebbe on Mar 1, 2009 6:53:49 PM:

      Energy taxes are a great idea. I have attempted to reduce my energy consumption as much as I can. Until it is taxes, the majority of the people will not. I recently gave up driving and owning a car even though I can more than afford one. The more energy one uses and the more harm one does to the environment the more they should have to pay. Those who choose to live in lower density areas which are energy inefficient should be paying more.

      The purpose of social security is not to support you in your old age, it is intended to be a bridge that lifts those that need it out of extreme poverty and be able to afford life's basic necessities to live. Sorry, but owning property and having to pay taxes are not considered bare necessities to the poster above. That said, being in my 20s (not much longer), I do not plan on ever seeing a dime of SS and am planning appropriately. I am still happy to pay the tax (not that their is a choice) to help keep those that need it out of poverty. Of course the system isn't perfect, but for now it is all we have.

      The problem with the health care industry is that the 50% (I'm not sure of the figure just using yours) that the government "controls" is the expensive half. If the government was able to insure the healthy 50 percent that savings would be enormous.

    1. yngmike on Mar 26, 2009 10:55:01 PM:

      I love when rich people whine. It makes them look like the little kids they are. Just be glad you can make your mortgage this month. I would gladly pay %50 flat tax with no deductions if I was making $150K+.

      The sad truth is that no one is ever truly happy with what they make, but the folks who can afford to buy a new car every 3 years and pay for private school seem to think that those things are needs, requirements or just the basics of life. If your bringing home 75k+ (after taxes) on a single income your doing more than well. Take a minute to think that the rest of us might have to make the choice of fixing the furnace or fixing our only car.

      Quit whining and act like a grown up.

      Also SStock, Just be happy you can afford any health insurance :) Smile you have health insurance!!!


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