Wednesday, April 1, 2009

A (very) brief history of taxes

I know a lot of people that rag on Obama for wanting to raise taxes on the top income people in America. They claim that the tax rates are being raised and that won't help the nation recover at all and it'll just make things worse.

History disagrees.


I think that kind of speaks for itself. I just found it humorous that taxes are still over 10% lower under the proposed raise than they were under Reagan, who is often shown as a great champion for lower tax rates.

Look particularly at the tax rates in the New Deal: 63-79%. That is the closest economic situation to what we're at now. And people are declaring that Obama is "punishing the successful" with his plans and tax increases. Yet no one thinks the New Deal was a bad idea or hurt America or punished the successful.

I'd say more, but I really don't think I need to.


Brady said...

I'm agreeing with numbers, but neither agreeing nor disagreeing with interpretation. Be careful not to oversimplify the tax question. This graph is accurate for tax rates, but remember that there are two components to taxes paid-the tax rate and the tax base. You can greatly alter a tax system without touching the rate if you change the deductions, exemptions, and inclusions that make up the tax base. Also, know that there are multiple layers to the tax system (see AMT) that don't show up in depictions of marginal rates. In recent history, most politicians have focused on the latter, rather than the former. This makes time-series observations a little more tricky, so careful with your interpretation. Interesting question though... (I've got to make my degrees useful somehow.) :)

Tim said...

Brady, there are so many reasons I'm proud you're my brother-in-law.

Responses like this are one of them.

Mark A. said...

First, I already know that anything I write now is going to look like child giberish after what Brady has written, but I want to play Devil's Advocate all the same.

While Reagan was in office ('81-'89) the tax rate,as far as I could tell from the graph, started at 70% and declined sharply till he left office in '89, ending on what looks like the mid 20% range. Almost a third of what it was when he entered office. So I could see why anyone who was a fan of lower taxes would appreciate that part of his presidency.

You mentioned that Obama's proposal would be about 10%less than what Reagan had. I see where you get that from because the graph says "Reagan 50%" and "Obama's 39.6%." My question, (and this really is an honest question so if anyone knows the reason I'd like to know the answer) is why did decide to label Reagan at 50% rather then the ending percentage that's in the low twenty's? which is obviously where Reagan was trying to get them during his presidency. It almost seems like they just pick a place along the slope down to label him. why not 63.45%, or 33.141592653%? Those points were on the graph too. So I think to say that Obama's proposal would be 10% less than Reagan's would be a very subjective observation. I agree with Brady that there are way to many variables to make a very objective comparison, especially since Obama has only been in office for just over two months. I really feel that everyone (Liberals and Conservatives) are judging him way to soon.

I'm just playing Devil's Advocate because I feel that the graph may have the numbers right, but I don't feel it gives a clear picture of the situation. Depending on a persons bias (and we all have them) I think everyone could see what they want by these numbers.

(Tim, I love how your BRIEF history of taxes has prompted such long responses.) :)

Tim said...

Mark, that is a good point. Although I should say the graph isn't from - a friend just posted the image on a forum. I don't know where it originated. I just linked as a credible source to check the numbers against.

It was only in 1988 that taxes finally went down to 28%; before that they were 38.5% and that was on anything above $90k. Reagan had the highest tier ($90k) at 38% for most of his presidency, which is higher than it is today. Today's tax rates have the $78k to $170k range at 28%, which is what Reagan had it at at the end of his presidency.

I think the reason they chose 50% was because from 1982 through 1986, the highest tier (going from $80k to 175k) was at 50%. Before that it was at 70% for anything over $215k.

You're right in what the final rates were, but an average of the top tier tax rates during his years is about 50%.