Marginal Taxes and Economic Equality

The 1950s were a golden era for American life and prosperity. As industries boomed, the market was healthy and wealth was accumulating. Long-term unemployment was at a low of .2% averaging about .4% percent within the decade, and many Americans saw an improvement of lifestyle. This was mainly attributed to a 90 percent marginal tax rate. No, that is not a misprint. There really was a 90 percent tax rate for the top earning Americans.

Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania, representing The Nation Bureau of Economic Research, have recently made claims that we would all be better off if the marginal tax rates returned to where they used to be.

To clarify on marginal tax rates, as some of you may be flabbergasted at the government taking 90 percent of earnings, it is not a flat tax of 90 percent on earnings but a tax after you reach a certain accumulation of income. Let me put it into perspective. Today, you are in the highest income bracket for every dollar you make after $405,000. Let’s assume you make $500,000, you are not paying a marginal tax on $500,000 but everything after $405,000, which would be 90 percent tax on the difference between the two.

However, more conservative-minded economists claim that higher taxes stunt job growth and limit innovation and drive. If this was true, then why did this not play out in the 1950s? Back then, Americans were living the life.

Today, the top one percent has more wealth than ever before. America currently has the highest income inequality since the Great Depression. Of course, tax loopholes allow corporations and Wall Street investors to dodge taxes, even though the marginal tax rate is now only 39.6% after $425,001 earned.

The wealth accumulated by the one percent is massive.  Since money is not circulating, it is actually hurting our economy and the wealthy can only spend so much. The belief that the economy will trickle down is pretty hard to argue. Taxing income allows for the government to spend for the general welfare of its citizens, including education, health care, infrastructure and so on.

So the question here is, should the marginal tax rate be as high as 90 percent? It’s debatable. What’s not debatable is the fact that the wealthy do need to pay their fair share. Too many Americans are hurting, while the top 1% are now wealthier than ever. This level of inequality is not healthy or sustainable; the wealth at the top should not be dramatically higher than the wealth, or lack thereof, in the middle class.