Raising the top marginal tax rate

When I sat down here tonight, in my tattered blogging leotard, my intention was to write something on the apparent effectiveness of Obama’s stimulus spending, and the possibility that his recently proposed budget would “shift $112 billion away from the nation’s top earners in 2012.” But, while trying to find a way to connect those two threads, I got sidetracked. I’ve been spending the last hour and a half reading about marginal tax rates, and it’s really fascinating stuff.

Before we jump into things, did you know that the marginal tax rate on America’s top earners, which is now 35%, was 92% during the boom years of the early 1950’s? (You can see a year-by-year breakdown here.)

But, as Nate Silver points out, it’s not just the rate itself that’s important. You also have to consider when it kicks in. Here’s a clip from his article on the subject at FiveThityEight.com:

…What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent — but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today’s dollars.

But today, the threshold where the top tax bracket kicks in isn’t $75 million, or $5 million, or even $1 million … it’s a mere $357,700. The progressivity of the tax code stops there…

The median top income tax threshold since 1913 — adjusted for today’s dollars — is a little over $1.3 million, almost four times higher than it is now. This is one thing that advocates of more progressive taxation (of which I am one) need to keep in mind: although the top tax rates have been much higher throughout much of the country’s history, they also kicked in at much higher thresholds of income than the ones we see today…

So, now I’m wondering what the logic could be behind making our top marginal tax rate kick in at $357,700. I can’t imagine that a large majority of American people wouldn’t enthusiastically support a higher than 35% tax on those making $1 million or more a year. One wonders how much revenue we’d bring in by implementing a 40% tax on those making over $1 million a year, and a 50% tax on those making more than $5 million. If we could do just that, I’m guessing it would be enough to, at the very least, get our high-speed rail infrastructure started, pay down some of the national debt, and put several thousand more teachers to work in our public schools (decreasing class size, and improving outcomes).

I understand that the top 1% of wage earners are, by definition, powerful people, and generally get what they want, but surely, facing the budget crisis we’ve now got in front of us, sooner or later someone in government is going to have to step up and propose it. Hopefully, Obama has the balls to be that person.

Here, for those of you who care about such things, are my high-level thoughts on taxes… I think:

• We should work to make the taxes on working class Americans as affordable as possible
• We should reinstate the inheritance tax
• We should institute a federal gas tax
• We should allow the Bush tax cuts to expire

If you have other thoughts on U.S. tax policy, please feel free to leave a comment.

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  1. Posted February 18, 2010 at 3:30 am | Permalink

    In America, everyone except the extremely rich or extremely poor considers themselves middle class, and everyone except the extremely poor believes they will be extremely rich some day. See, for example Joe “The Plumber”: “Sure, I make $30,000/year as a plumber now, but I might start my own business and then I could make $400,000/year. But if you raise taxes on rich people, it won’t make financial sense for me.”

  2. Yellow Dog
    Posted February 18, 2010 at 6:47 am | Permalink

    No matter what the subject, it always seems to come back to the fact that Americans are some stupid mother f’ers.

  3. Viva Revolution
    Posted February 18, 2010 at 9:18 am | Permalink

    The top 1% may not like a new higher tax rates, but I’m sure they’d find it preferable to the guillotine.

  4. Posted February 18, 2010 at 11:17 am | Permalink

    cmadler beat me to it…everyone thinks they are going to be rich. I harbor this secret dream of the day that we pay teachers like we do NFL players and even have a draft. I dream of sitting with my family, waiting for my name to be called as a first or second round pick (hey, I think I’m a decent teacher, dammit!). I imagine hearing, “Patti Smith! 5 year $38 million dollar contract!” and my mom and dad jumping up and down (Dad realizing I can pay him back for all of the years of school he paid for), my husband weeping, and me doing a little cheer. I will gladly pay my share of taxes…hell, once I pay off the house I don’t need much. Yes, it will be a beautiful thing. I hope you’ll come along, Mark, and maybe blog about it.
    Until then, tax the fuck out of those rich assholes.

  5. Kim
    Posted February 18, 2010 at 12:02 pm | Permalink

    If they can have a Tea Party, there’s no reason we can’t start a Tax the Fuck Out of Those Rich Assholes Party.

  6. Joe
    Posted February 18, 2010 at 12:23 pm | Permalink

    Boo on the estate tax but the rest makes sense, and certainly increasing the tax rate on the ultra-ultra-rich makes sense.

    People are not necessarily assholes just because they are rich, by the way. A modicum of decorum here, people.

  7. Curt Waugh
    Posted February 18, 2010 at 12:30 pm | Permalink

    (Yellow Dog, stick a sock in it. Americans are some of the smartest people on the planet. Canadians are some of the smartest people on the planet. Chinese, Indians, Russians, Malaysians, Nigerians…etc. are some of the smartest people on the planet. You sound like a douche when you say things like that. Do you really want to sit at your American-designed PC with its American-authored software and send messages through the American-designed switches and routers and fiber optic backbone and claim that Americans are stupid? Or did you miss out on your American-developed vaccines and have some weird disease?)

    And I’m sure $357,700 was arrived at by some high-falutin marketing company as the perfect threshhold of perception for future income. The magic “I might make that much money some day. That seems reasonable.” amount.

    Bill Hicks had it right: If you’re in marketing, please kill yourself.

  8. Curt Waugh
    Posted February 18, 2010 at 12:35 pm | Permalink

    Joe, the inheritance tax (if the proposed $5,000,000 threshold is passed)only affects something like fewer than 1% of the people in the U.S. Why “boo”?

  9. EOS
    Posted February 18, 2010 at 12:42 pm | Permalink

    Except those rich assholes are already paying excessively. The top 5% pay 57% of the total Federal Taxes. And they are in positions where they can move their assets to locations where none of it will be taxed, making the rest of us shoulder even more of the burden.

    The amount the U.S. government owes its lenders has grown to more than half the country’s entire economic output, or gross domestic product. Experts say that those figures will climb to an unprecedented 200 percent of GDP by 2038 without a dramatic shift in course.

    “Within 12 years…the largest item in the federal budget will be interest payments on the national debt,” said former U.S. Comptroller General David Walker.

    The United States currently owes over $12 trillion to its debtors – that’s more than fifteen $787-billion economic stimulus packages worth of cash. Even if we tax the wealthy at 100% of their earnings, our standard of living will, in the very near future, be significantly lower.

    If the United States still exists as a nation, we’ll all be lucky to work in sweat shops making goods for the Chinese. Anyone still holding a job will be taxed at the top marginal rate. You should be leery of what you wish for.

  10. EOS
    Posted February 18, 2010 at 12:49 pm | Permalink

    Ummm, wary of what you wish for?

  11. Meta
    Posted February 18, 2010 at 1:38 pm | Permalink

    From a short piece in Salon today entitled “The rich got richer, and paid less taxes: What George W. Bush didn’t want you to know about the wealthiest 400 Americans”:

    I can’t say that I was surprised to learn, from a new report by former New York Times tax reporter David Cay Johnston, that “the incomes of the top 400 American households soared to a new record high… in 2007, while the income tax rates they paid fell to a record low…”

    Nor was I shocked to learn that those 400 taxpayers, who boasted an average income of $344.8 million, paid an effective tax rate of 16.2 percent, which is “lower than the typical effective income tax rate paid by Americans with incomes in the low six figures.”

    This is America, right? We’ve come to expect shocking statistics on income inequality. They’re practically our birth right.

    But then came the kicker:

    The annual top 400 report was first made public by the Clinton administration, but the George W. Bush administration shut down access to the report. Its release was resumed a year ago when President Obama took office.

    Because you know, if you are going to reward the richest Americans with tax cuts, it’s best if you keep the rest of us in the dark as to just how much money they’re making, and how little they are paying Uncle Sam.


  12. Yellow Dog
    Posted February 18, 2010 at 1:41 pm | Permalink

    I didn’t mean to imply that all Americans are stupid. That clearly isn’t the case. What I was referring to was the fact that middle class conservatives continue to vote against their own self interest, in spite of overwhelming evidence. That, in my opinion, is stupid. I have nothing against the rich, either, except for the ones that inherited their wealth.

  13. Phelps
    Posted February 18, 2010 at 2:08 pm | Permalink

    Don’t tax the rich too much. They may just crash their planes into buildings.


    [the guy who crashed his plane into a building in Austin this morning is thought to have done it out of anger over taxes]

  14. Meta
    Posted February 18, 2010 at 2:28 pm | Permalink

    Think Progress has something today about Obama’s Stimulus Package:

    Yesterday marked the one-year anniversary of the day that President Obama signed the American Recovery and Reinvestment Act (ARRA, i.e. the stimulus) into law. “One year later, it is largely thanks to the Recovery Act that a second depression is no longer a possibility,” said Obama. “So far, the Recovery Act is responsible for the jobs of about 2 million Americans who would otherwise be unemployed. These aren’t just our numbers; these are the estimates of independent, nonpartisan economists across the spectrum.” Indeed, as the New York Times’ David Leonhardt detailed, “perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs.” The nonpartisan Congressional Budget Office, meanwhile, estimates that the stimulus saved or created between 800,000 and 2.4 million jobs. The gross domestic product also grew at an inflation-adjusted annual rate of 5.7 percent last quarter, much of which can be attributed to the stimulus package. “The economy has shed some three million jobs over the past year, but it would have lost closer to five million without stimulus,” said Mark Zandi, chief economist at Moody’s Economy.com and former adviser to Sen. John McCain’s (R-AZ) presidential campaign. “The economy is still struggling, but it would have been much worse without stimulus.” However, Republicans are using the Recovery Act’s anniversary as an opportunity to continue making false claims and clouding public perception regarding its effectiveness.

    GOP HYPOCRISY: “One year later, one thing is clear: the stimulus bill has failed,” said Rep. Mike Pence (R-IN), while Senate Majority Leader Mitch McConnell (R-KY) added, “This was not the plan Americans asked for or the results they were promised.” However, Republicans are not so down on the stimulus when it comes to trumpeting money in their home states and districts. A new report by The Progress Report released yesterday documents 110 Republicans — more than half of the GOP caucus — who are “guilty of stimulus hypocrisy,” as they voted against the act but have since claimed credit for its benefits or asked for more funding. For instance, McConnell has returned to Kentucky to brag about money for the Blue Grass Army Depot; Rep. Steve King (R-IA) “issued an upbeat statement” about stimulus dollars dedicated to widening U.S. Highway 20 in Iowa; and Rep. Eric Cantor (R-VA) has hosted multiple job fairs populated by stimulus recipients looking to hire. Plus, the Wall Street Journal reported that ” ;more than a dozen Republican lawmakers supported stimulus-funding requests submitted to the Department of Labor, the Environmental Protection Agency and the Forest Service.” As MSNBC’s Rachel Maddow put it, “[O]n policy terms, [Republicans] have been caught bragging on the stimulus as good policy.” However, Republicans are steadfastly refusing to concede that their actions are hypocritical, with Sen. John Cornyn (R-TX) writing that there is nothing wrong with trying to claim stimulus money if Democrats are “hellbent to spend the money anyway.”

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