The State of the Union’s Tax Rates

In American politics, taxes and the economy are always central issues. No one wants to pay more taxes, and economic prosperity is often tied to tax cuts. Putting things in perspective, where is the federal government today in terms of tax rates compared to historical rates?

Marginal tax rates have been cut nearly 60 percent in the past 5 decades.

According to Henry Blodget at the Business Insider, and the National Taxpayers Union, the marginal tax rate plunged from 91 percent in 1964 all the way down to 28 percent in 1988 under the Reagan/Bush era; up to 40% during the Clinton presidency; and back down to 35 percent during the last decade under Bush II and Obama.

Blodget notes that while tax rates were between 70-90 percent in the 1950s and 60s, incomes, the economy and the stock market were booming. In contrast, during recent times with historically low tax rates, income growth has come to a screeching halt and unemployment has been historically high.

According to a study by UC Berkeley economist Emmaunuel Saez, from 1993 to 2012 average real income for the bottom 99% of the population increased 6.6%. Average real income for the top 1% went up 86%. In other words, over the last two decades, the top 1 percent received two thirds of the overall economic growth in real income per family.

While the conversation over our nation’s debt crisis consistently centers around the idea that we need to cut national spending, historical fact suggests this isn’t the only means of balancing budgets. There are programs that are economically stimulating such as SNAP where “every $5 in new SNAP benefits generates as much as $9 of economic activity.