Top Marginal Tax Rates: 1958 vs. 2009

Top marginal income taxation rates used to last much higher dorsum inwards the 1950s too 1960s. How much revenue did those higher taxation rates genuinely collect? Daniel Baneman too Jim Nunns address that inquiry inwards a brusk report,"Income Tax Paid at Each Tax Rate, 1958-2009," published past times the Tax Policy Center final October.

 For starters, accept a expect at the statutory taxation brackets for 1958 too 2009. The The taxation brackets are adjusted for inflation, too therefore the horizontal axis is constant 2009 dollars. The transcend statutory taxation charge per unit of measurement inwards 2009 was 35%; dorsum inwards 1958, it was close 90%.  Marginal income taxation rates are lower across the income distribution inwards 2009. In addition, the transcend marginal taxation charge per unit of measurement occurs much lower inwards the income distribution inwards 2009 than it did inwards 1958.

How many households genuinely paid these rates? Here's a figure showing the portion of taxpayers facing unlike marginal taxation rates. At the bottom, across this fourth dimension period, approximately 20% of all taxation returns owed no tax, too and therefore faced a marginal taxation charge per unit of measurement of zip percent. Back inwards 1958, the most mutual marginal taxation brackets faced past times taxpayers were inwards the 16-28% category; since the mid-1980s, the most mutual marginal taxation charge per unit of measurement faced past times taxpayers has been the 1-16% category. Clearly, a real modest proportion of taxpayers genuinely faced the real highest marginal taxation rates dorsum 1958. It's interesting to notation how the portion of taxpayers facing higher marginal rates expanded substantially inwards the 1970s, in all likelihood due inwards large business office to "bracket creep"--that is, taxation brackets at that fourth dimension didn't increment alongside the charge per unit of measurement of inflation, too therefore equally reward were driven upwards past times inflation, yous were pushed into higher taxation brackets fifty-fifty though existent income had non increased.    

How much revenue was raised past times these high marginal taxation rates? Although the highest marginal taxation rates applied to a tiny portion of taxpayers, marginal taxation rates to a higher house 39.7% collected to a greater extent than than 10% of income taxation revenue dorsum inwards the belatedly 1950s. It's interesting to notation that the portion of income taxation revenue collected past times those inwards the transcend brackets for 2009--that is, the 29-35% category, is larger than the charge per unit of measurement collected past times all marginal taxation brackets to a higher house 29% dorsum inwards the 1960s.

Influenza A virus subtype H5N1 few quick thoughts:

1) Perhaps it goes without saying, but there's no argue to intend that 1958 was the high request of social wisdom when it comes to taxation policy. In addition, the economic scheme has evolved considerably since 1958: talent too tasks are in all likelihood to a greater extent than mobile, too methods of categorizing income inwards ways that touching on taxation burdens possess got larn to a greater extent than sophisticated. Also, the distribution of income has larn much to a greater extent than unequal inwards recent decades, too and therefore arguments over the appropriate portion of taxes to last paid past times those inwards the transcend income groups possess got evolved equally well.


2) Raising taxation rates on those alongside the highest incomes would heighten pregnant funds, but nowhere close plenty to solve America's financial woes. Baneman too Nunns offering this crude oil illustrative estimate: "If taxable income inwards the transcend bracket inwards 2007 had been taxed at an average charge per unit of measurement of 49 percent, income taxation liabilities (before credits) would possess got been $78 billion (6.7 per centum of full pre-credit liabilities) higher, taking into concern human relationship probable taxpayer behavioral responses to the charge per unit of measurement increase." The behavioral reply they assume is that every 10% ascent inwards taxation rates causes taxable income to autumn past times 2.5%.
 

3) If 1 wants to locomote the 1958 instance equally a precedent, it would last fair to request out that the lowest-bracket income taxation rates are a fairly novel development, equally of the mid-1980s. One could too locomote the instance of 1959 to debate that many to a greater extent than taxpayers inwards the wide hit of lower- too middle-incomes should seem upwards marginal federal taxation rates inwards the hit of 16-28%.

4) If the finish is to heighten to a greater extent than taxation revenue from those alongside high incomes, higher taxation rates are non the exclusively method of doing so. For example, 1 could restrain diverse taxation deductions that apply alongside greatest strength to those high upwards inwards the income brackets. One could too expect at ways inwards which the taxation code lets those alongside high incomes pay lower rates, similar the lower taxation rates for uppercase gains too on tax-free investments similar field too local bonds.