Nancy Cordes, CBS Congressional correspondent, and a moderator at this weekend’s Democratic Presidential debate, was shocked and amused at Bernie Sander’s response to her question about the top rate in his tax plan. Sanders’ remarked that it would not be as high as President Eisenhower’s ninety percent (90%) top rate – adding a humorous note that he was not as big of a socialist as was Ike. Cordes’ amusement revealed that she either knew little about the history of tax policy in this country, or she is personally opposed to raising tax rates – neither being a good quality for a moderator.
The history of tax policy in this country is critical to understanding many of the issues that are highlighted in presidential debates. Income inequality, the cost of higher education, and the lack of funding for veteran’s programs are all tied to dramatic, and relatively recent reductions in tax rates applied to the wealthiest Americans.
The History of Income Tax Rates in America
Federal Income tax was reinstated in this country in 1913 after a nineteen-year hiatus, and by 1917 the top marginal tax rate jumped to 67% on income above $2.0 million per year (the equivalent of $35 million in 2013). The top rate dropped significantly leading up to the Great Depression, before rising again to fund F.D.R.’s New Deal.
Figure 1 below provides the tax rate applied to the highest income bracket (in blue)and the tax rate applied to households with annual incomes of $500,000 (adjusted each year to 2013 dollars and illustrated in red). Note that the differential in tax rates on the wealthiest Americans (making over $500,000) were reduced starting in the Kennedy administration and eliminated completely by the end of Reagan’s first term.
The chart illustrates several important points:
- Bernie Sanders and others speaking to a higher tax rate for the 1% have history on their side (sorry Nancy, but you should have done your homework on this).
- Brokaw’s “Greatest Generation” was served by federal programs funded through tax rates that placed a greater burden on the wealthiest Americans.
- Medicare, aimed at serving the aging members of the Greatest Generation, was adopted at a time when tax rates focused on the wealthiest Americans.
- Recent decreases in tax rates and elimination of free tuition (1) followed the adoption of the Civil Rights Act, denying minorities the educational opportunities afforded to the Greatest Generation and Baby Boomers.
- Practically every presidential candidate, and debate moderator, lived during a time when tuition was free at public universities (or just a fraction of what it is today).
Figure 2 below compares the top tax rate and the top income bracket since 1913. The top income brackets are adjusted to 2013 dollars and displayed on a logarithmic scale.
Going forward, perhaps the questions for presidential candidates should be:
- “Why shouldn’t Millennials benefit from educational opportunities afforded to the Greatest Generation and Baby Boomers?
- Why should free college tuition, withheld from minorities prior to the Civil Rights Act, be denied to minorities after passage of the Act?
- Why aren’t the tax rates and tax brackets that served the Greatest Generation and the Baby Boomers not being used for the benefit of Millennials?
(1) The University of California system is used to illustrate the end of free tuition in public universities.
Note: Historical tax rates can be found at the Tax Foundation.