The top income-tax rate is back to where it was during the Clinton years, thanks to the Obamacrats letting the high-end Bush II cuts expire. But don’t think for a second that the left wouldn’t love to take tax rates much, much higher. Last summer, a CNBC reporter asked President Obama if there was a limit to how high taxes should go. “You know, I don’t have a particular number in mind,” is how Obama responded. Indeed, left-wing economists continue to generate papers showing top rates of 70 percent, 80 percent, or even higher would reduce income inequality without damaging the US economy. Over at the Center for American Progress think tank — a favorite of Hillary Clinton’s — blogger Bryce Covert embraces a new paper that suggests a 90 percent tax rate on the top 1 percent of American earners would reduce inequality, boost government revenue, and “make everyone better off.”
Except the history of the US economy under extreme tax rates suggests everyone wouldn’t be better off. Not at all.
The last time tax rates were at 90 percent or higher was the 1950s and early 1960s. While GDP grew at a brisk 3.6 percent over the decade from 1951 through 1960, it was also a period that saw three recessions. Recall that John F. Kennedy’s 1960 presidential campaign promised he would “get this country moving again.” That suggests a decade of stagnation, not growth.
More importantly, the U.S. economy benefited from a set of one-factors that offset the high tax rates. A National Bureau of Economic Research study described the situation this way: “At the end of World War II, the United States was the dominant industrial producer in the world. With industrial capacity destroyed in Europe—except for Scandinavia—and in Japan and crippled in the United Kingdom, the United States produced approximately 60 percent of the world output of manufactures in 1950, and its GNP was 61 percent of the total of the present (1979) OECD countries. This was obviously a transitory situation.”
What’s more, as American Enterprise Institute scholar Ed Conard has explained about the 1950s, “The United States was prosperous for a unique set of reasons that are impossible to duplicate today, including a decade-long depression, the destruction of the rest of the world’s infrastructure, a failure of potential foreign competitors to educate their people, and a highly restricted supply of labor.”
It should also be noted that effective tax rates were much lower than 90 percent because of myriad tax breaks. But many economists suggesting high taxes would also get rid of all manner of loopholes, pushing effective rates to levels unseen in American history. Finally, the decade was a period of stagnation when it came to innovation. As historian Alexander Field has noted, the postwar economy lived off the technological innovations produced in the 1930s. The postwar decades’ failure to generate big, new breakthroughs led to declining productivity not reversed until the 1990s tech boom.
In short, Big Government taxed away America’s tiger-economy years. And now with new breakthroughs in energy and the internet offering hope America’s New Normal isn’t permanent, the left would do it again.