Every year there’s a World Economic Forum in Davos, Switzerland where world leaders gather to discuss their global, regional and industry agendas. During a panel discussion at Davos this January, Washington Post economics correspondent Heather Long chuckled along with billionaire Michael Dell, founder of Dell Technologies, about the idea of a 70% top marginal income tax rate on those earning $10 million or more.
Dell dismissed the idea with what he imagined was a rhetorical question, “Name a country where that’s worked. Ever.”
MIT Professor and fellow panelist Erik Brynjolfsson quietly suggested, “In the U.S..” Heather Long responded, “Briefly. In the 1980s.” To which Professor Brynjolfsson replied, “No, no, no. From the 1930s through about the 1960s, the tax rate averaged about 70%. At times it was as high as 95%, and those were actually pretty good years for growth.”
This exchange is one of the reasons I keep saying that a basic knowledge of history is important. One would think that an economic correspondent like Heather Long would know these facts. But billionaires and their mouthpieces are purposely and knowingly inserting misunderstandings about what a top marginal tax rate might look like, and about the history of our nation.
The U.S. once had more tax brackets. At one time, the top tax rate was for the wealthiest Americans. However, today a single person earning $550,000 a year, for example, pays the same marginal rate as someone earning 10 or even 50 times that much.
To put it plainly, a 70% top marginal tax rate would target those making more than $10 million a year, not working class and middle class folks.
Far from being a radical or stupid idea, a 70% top marginal tax rate was nothing new until Reagan:
The top marginal tax rate in the U.S. from 1945 through 2018:
1945: 94% (Roosevelt)
1957: 91% (Eisenhower)
1964: 77% (Johnson)
1973: 70% (Nixon)
1986: 50% (Reagan)
2018: 37% (Trump)
In many ways, what is happening now reminds me of some of the things that preceeded the Great Depression, which lasted from 1929-1939. Among the contributing factors, consider that before the Great Depression, in 1921, the top tax rate was 73%. Then the top tax rate was cut to 46% in 1924 and to just 25% by 1931, which helped plunge the country into a long night. By 1935, the top tax rate began to go up (63%) and by 1939 it reached 79% and the U.S. emerged from the Great Depression. This is not to say the top tax rate was the entire cause, but it certainly played a key role.
94 percent: Top tax rate in 1945.
79 percent: Top tax rate in 1939.
63 percent: Top tax rate in 1935.
25 percent: Top tax rate in 1931.
46 percent: Top tax rate in 1924.
73 percent: Top tax rate in 1921
An argument among billionaires like Michael Dell is that the philanthropy of the richest among us, and the possibility that they’ll create jobs of some sort (whether those provide any sort of living wage or not), should excuse them from paying such a tax rate. But another panelist at Davos this year, Dutch historian Rutger Bregman, insisted that tax avoidance (in all its forms) is something that must be addressed. He insisted, “It’s not rocket science. What we need are way higher taxes on the weatlhy, so that we can actually fund a green transition to a better planet.” He went on to say, “what gives me great hope right now is there’s a new generation waking up that doesn’t believe the myth anymore that the vast inequality we see today is just an inevitable consequence of globalization or technology. There’s a new generation that just doesn’t believe it anymore, that sees that most of the wealth that’s being possessed (by many of the participants right here at Davos), has not been earned through hard work. It’s been extracted by workers who are doing real work, but not being paid a living wage. That’s what all these movements are about – people waking up and realizing they’ve been sold a lie.”
