Higher taxes on the wealthy should mean bringing back the FDR era's progressive tax rates

[AZ Progressive]

These tax rates were part of the reason that America boomed so much after WWII, these tax rates kept our economy relatively equal and, along with the WWII economy, free higher education, plenty of unionized jobs, and housing subsidies, created America's middle class. More importantly, it kept the rich from getting drunk and addicted from excessive profits, and instead pour the profits back into their businesses, including raising wages.

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[daleanime]

1. K&R.....

[okaawhatever]

2. You have to take into account the rates on cap gains which were much lower.

From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 7 percent.[2] In 1921 the Revenue Act of 1921 was introduced, allowing a tax rate of 12.5 percent gain for assets held at least two years.[2] From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.[2] Beginning in 1942, taxpayers could exclude 50 percent of capital gains on assets held at least six months or elect a 25 percent alternative tax rate if their ordinary tax rate exceeded 50 percent.[2] From 1954 to 1967 the maximum capital gains tax rate was 25 percent.[3]

Source Wiki


The rates aren't what's bad. It's all the deductions. I don't know what revenue would look like if the wealthy came anywhere near paying the current max rate. I do know revenue would be a whole lot more.

[AZ Progressive]

3. Regardless, the tax system gives the government the ability to encourage certain behaviors...

and discourage certain other behaviors. This power can thus be used to encourage positive behavior from the rich and punish negative behaviors from the rich / behaviors that hurt jobs and the economy.

[okaawhatever]

4. True, which is why duplicating the past 90% on earnings and 7% on capital gains is a bad idea. It is

the super wealthy who earn the majority of their income from cap gains/dividends. Those who are still earning an income (even if it's high) are the upper middle class. We have to be careful what we wish for.

I don't want to see my Doctor paying 90% tax rate and Warren Buffet paying 7%.

[AZ Progressive]

7. Those top tax rates were for people making on average over a million dollars a year

Professionals had much lower tax rates. Your doctor's top tax rate would probably be 53% at 1965's tax rates.

The 94% top tax rate in 1944 were for people making the equivalent of $2.6 million.

See the tax rate data for yourself (inflation adjusted dollars): https://www.scribd.com/fullscreen/190500966?access_key=key-1of1wqsn5w6byiqq76q0&allow_share=true&escape=false&view_mode=scroll

[1939]

12. One of the biggest mistakes

One of the biggest mistakes made by Democratic congresses in the 1960s and 1970s was the failure to adjust progressive tax brackets for inflation. While it gave them a hidden tax increase every year without voting for it, it pushed ordinary workers up into rates which had originally been conceived for the well-to-do. Coupled with the advent of the two income family, it killed the previous consensus for a progressive tax system as more and more people became angry about income taxes. President Carter had the top rate drop to 50% for earned income while keeping the top rate of 70% for unearned income. Reagan's first tax cut was simply to change the top rate to 50% for all income. This led to the 1986 tax reform (supposedly revenue neutral trading off deductions for lower tax rates). It was a bi-partisan affair.

[AgingAmerican]

8. It's a brilliant idea

From the 1950s - 1980, instead of taking their money out as income, the rich invested it back into their businesses which grew them at incredible rates and gave full employment. They would take their income out later as equity taxed at relatively low rates. That is how the 90% income tax worked.

Capital gains were taxed at 24% - 40% between the 50s and 1980, not 7%. Nice try.

[okaawhatever]

9. She referred to FDR years. When FDR was in office the rate was 12.5% but you didn't have to pay

on the entire amount. Taxpayers could exclude percentages of gains that varied by the holding period.

1 yr 20%
2 yrs 40%
5 yrs 60%
10 yrs 70%



From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 7 percent.[2] In 1921 the Revenue Act of 1921 was introduced, allowing a tax rate of 12.5 percent gain for assets held at least two years.[2] From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.[2] Beginning in 1942, taxpayers could exclude 50 percent of capital gains on assets held at least six months or elect a 25 percent alternative tax rate if their ordinary tax rate exceeded 50 percent.[2] From 1954 to 1967 the maximum capital gains tax rate was 25 percent.[3] Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts.[2] In 1978, Congress reduced capital gains tax rates by eliminating the minimum tax on excluded gains and increasing the exclusion to 60 percent, thereby reducing the maximum rate to 28 percent.[2] The 1981 tax rate reductions further reduced capital gains rates to a maximum of 20 percent.

[kentuck]

5. How?

???

[Wounded Bear]

6. I disagree on the details...

The post WWII tax rates were primarily in place to pay down the debt built up in the war.

Kennedy first lowered rates when much of the war debt was paid down, and things weren't that bad until Reagan, whose fiscal ideas were basically bullshit drawn out on a napkin, the RW beloved Laffer curve. When Clinton raised the rates only slightly, the deficit curve gradually bent downward to where there were actually positive downward movement in the debt. And, of course, when Bush II was elected, that was used as an excuse to reinfuse crap Reaganomics on us.

Raising rates too rapidly probably would be hard for the economy to absorb, but I would like to see the reinstatement of some of the rates that Reagan eliminated, so that people making 200/250k paid less than those making millions. If we left current rates in place and create two more tiers, at least, it would work, I think. Say 50% at $1-10 mill, and say 60-70% at twice that rate.

I would certainly entertain higher capital gains taxes, because low rates stimulate churn on the markets which lead to more boom/bust cycles, and harder ones.

There are two problems with the system, though. One is that the wealthy now control too much political power, and the other, which is somewhat insidious. That is that most people in Congress are now in that higher tax bracket and are unlikely to vote for something that affects their own personal bottom line.

[1939]

15. I would

I would tax very short term capital gains (less than six months) at a higher rate than ordinary income to eliminate day trading and churning. I would treat any gains held less than two years as ordinary income. After two years, I would adjust downward the percentage of gains subject to tax with a total phase out at fifteen years. This would encourage long term investing as opposed to trading.

[Wounded Bear]

16. I could live with that...

One other thing that has caused some trouble, but tends to be underreported is the amount of executive pay and perks being made in stock options and other equities and securities. IMHO, this should also be taxed as regular income.

[1939]

17. Agree

We need better safeguards to avoid schemes which convert ordinary income into capital gains. One of the problems with our tax system (partially fixed in 1986) is things that may not be economically sensible become after tax sensible.

[Spider Jerusalem]

10. Those tax rates have next to nothing to do with the postwar boom.

The USA had the only major industrial economy left standing after the war, the USA was, at the time, the world's number one producer of oil (producing 50% of the total, at the time; more than all the OPEC countries combined, today).

And income tax revenues, in 1945, with a top rate of 94%, represented 8.1% of GDP. Income tax revenues in 2014, with a top rate of 35%, represented...8.1% of GDP. (Source: OMB.)

[AZ Progressive]

11. You can have a booming economy but without things like the high top tax rate...

The money will flow to the top rather than be redistributed to the workers. This is not about a booming economy, this is about making and supporting a middle class.

[pampango]

13. Even the 70% top rate in effect when Reagan started would be a vast improvement.

The bump up in the top rate under Clinton, after a drop from 70% to 30% under Reagan and Bush I, was a step in the right direction but not enough and reversed under Bush II.

These tax rates were part of the reason that America boomed so much after WWII, these tax rates kept our economy relatively equal and, along with the WWII economy, free higher education, plenty of unionized jobs, and housing subsidies, created America's middle class. More importantly, it kept the rich from getting drunk and addicted from excessive profits, and instead pour the profits back into their businesses, including raising wages.

Well said. Not only did it work for the US back in the day, high/progressive taxes work in Europe and in progressive countries to accomplish the same things you listed as FDR accomplishments.

[JHB]

14. It's not simply the rate. Real progressivity has to be re-established too

Those rates used to be spread over many more tax brackets, and they kicked in at levels far above those today, if you adjust for inflation. In 1955 there were 24 income tax brackets. 16 of them -- two thirds! -- took effect at levels above the equivalent of $250K. 11 of those took effect at levels above $500K. Today there are 7 brackets. Zero affect only income above a half-million, and only 2 affect income over $250K -- and one of those was the one added only a few years ago, to much wailing about "socialism!"

All tax progressivity on very high incomes was eliminated under Reagan and has never been restored.