Here are some interesting FACTS about the US and tax rates.
Thanks to the Tax Foundation and other sources, we've analyzed tax rates over the past century, along with government revenue and spending over the same period.
This analysis revealed a lot of surprising conclusions, including the following:
- Today's government spending levels are indeed too high, at least relative to the average level of tax revenue the government has generated over the past 60 years. Unless Americans are willing to radically increase the amount of taxes they pay relative to GDP, government spending must be cut.
- Today's income tax rates are strikingly low relative to the rates of the past century, especially for rich people. For most of the century, including some boom times, top-bracket income tax rates were much higher than they are today.
- Contrary to what Republicans would have you believe, super-high tax rates on rich people do not appear to hurt the economy or make people lazy: During the 1950s and early 1960s, the top bracket income tax rate was over 90%--and the economy, middle-class, and stock market boomed.
- Super-low tax rates on rich people also appear to be correlated with unsustainable sugar highs in the economy--brief, enjoyable booms followed by protracted busts. They also appear to be correlated with very high inequality. (For example, see the 1920s and now).
- Periods of very low tax rates have been followed by periods with very high tax rates, and vice versa. So history suggests that tax rates will soon start going up.
More information here: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets
And before you protest that INCOME taxes may be low, but the government is now gouging us a thousand new ways, note that total government tax revenue (federal, state, and local) is actually now lower than pretty much any time in the last 40 years. (Not as low as it was in the first half of the last century, though!
And here's another look at federal spending as a percent of GDP for the past century. It's not way out of whack these days, at least relative to the last 60 years. But, thanks to the stimulus, it's higher than it has been since World War 2. (And the Republicans are probably right--it's too high).
-1925--the tax cuts continued. The top rate was slashed to 25%, down from 73% just two years earlier. The highest wage earners--those who made $100,000 and up--got to keep a vastly larger share of their income than they had only a few years previously. And what happened to the economy? For a few years, from 1925-1929, the economy and stock market boomed. The decade became known as the "roaring 20s." Inequality--the difference in wealth between the top earners and everyone else--also soared to unprecedented levels. Then the bottom fell out.
By 1932, with the country's economy in a shambles, the tax code changed again. The high rates on top earners were reintroduced. Now, anyone who made over $100,000 was in a 56% bracket (versus 25% in the late 20s). And those earning over $1 million paid 63%.
And taxes stayed pretty much just that way for the next 15 years, until the early 1960s. Importantly, this was one of the most successful eras in US economic history. The middle class boomed, the economy boomed, and the stock market boomed. And all with the top marginal income tax rate over 90%. This suggests that the Republican mantra about high marginal tax rates killing the economy is, well, a bunch of crap.
The moral of the story here is this, if you want to get out of the recession you are going to have to raise taxes. You can look at our tax history and plainly see this.