Where 90 Percent Tax Rate Really Came From
Newly elected member of the House of Representatives Alexandria Ocasio-Cortez has precipitated a mostly useful debate about marginal income tax rates by recommending a return to 70 percent as the highest rate, which it was before the Economic Recovery Tax Act of 1981.
Lots of people, in discussing this idea, like to point out that the top marginal income tax rate in the United States during the 1950s was 91 percent, and that was mostly a decade of prosperity.
The problem is that people think of the 1950s as the decade of President Eisenhower, which it mostly was — he served from 1953 to 1961.
But the implicit inference — that Republican President Dwight Eisenhower raised income tax rates to 91 percent at the top — is wrong.
As this table shows, the top rate was above 70 percent from 1918 to 1921, another year when a Republican President took over. Nineteen thirty two saw a big jump, the year Franklin Roosevelt won election at the beginning of the Great Depression. It went above 70 percent again in 1936, then climbed steadily during World War II, hitting 94 percent in 1945. It then fell below 90 percent until 1950, when it went up to 91 percent, where it mostly stayed until 1963, just before Lyndon Johnson got the 1964 tax cut passed, setting the top rate still above 70 percent, where it stayed until 1981, the year of Reagan’s tax cut, which reduced it to 50 percent.
Top marginal income tax rates of 90 percent were originally a function of the national emergency that was World War II. For whatever reason, perhaps because he was more a foreign than domestic policy guy and wanted to build the interstate highway system, and was not particularly rich himself, Eisenhower chose not to push for a reduction in marginal income tax rates, which he likely could have got Congress to pass had he wanted to.
But it is plainly an error to suggest that Eisenhower raised rates to 91 percent. He did not. Franklin Roosevelt and Harry Truman did that.
It is usually the case that history is messier in the details than most people realize.
It is certainly not the case that any Republican in historical memory has advocated higher income tax rates.
We can and should evaluate the value of raising the top marginal income tax rate to 70 percent on its own merits.
