The 91% Wars

by Andrew Stuttaford

Over at the Daily Caller Mickey Kaus reacts to Paul Krugman’s “91 percent” article, and in particular this comment from Krugman:

[I]n the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.


Hmm.  Something seems off here. Did this super-rich hundredth-of-the-1% in the ’50s reallya) pay anything near those super-high 91% marginal rates, or did they b) employ accountants and loopholes to avoid them (as the conventional tax-reformer wisdom would have it)? If you read Krugman’s paragraph you’d probably conclude (a)–high income tax rates really sock it to the rich! But the truth is closer to (b).

According to this CRS study, that 91% marginal rate produced an effective income tax rate on the top 0.01 percent of only about 45%. Krugman himself appears to be relying on Piketty and Saez–but they come in with an even lower figure, 31%. They only get to 70% by including corporate taxes, which Krugman mentions, and estate taxes–which he doesn’t mention at all.

…Here are Picketty and Saez ,concluding that the effective income tax rate [“]in 1960 reached an average rate of 31 percent at the very top, only slightly above the 25 percent average rate at the very top in 2004. Within the 1960 version of the individual income tax, lower rates on realized capital gains, as well as deductions for interest payments and charitable contributions, reduced dramatically what otherwise looked like an extremely progressive tax schedule, with a top marginal tax rate on individual income of 91 percent. ["]

Read the whole thing.

Doubtless this debate will run and run…

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