politics

Are you argiuing that corpate tax rates should double to its peak rates? Would that also mean personal rates should double back to its peak? Graphs paint a very incomplete and poor picture that are easily misunderstood.

In the 1950’s, the top marginal tax rate was 90%, but people were allowed to avoid income tax by funneling income through corporate tax shelters, leaving a top effective tax rate that wasn’t much higher than it is today. Not only that, but the tax burden has also shifted dramatically since the 1950’s. In Eisenhower’s day, those earning more than $100,000 per year shouldered around 20% of the tax burden. Today, the equivalent economic class shoulders over 80% of the tax burden. Lowering the tax rates and eliminating loopholes in the 1960’s and 1980’s actually resulted in the rich paying a much higher share of total taxes.

The high rate created incentives for corporations to find ways to minimize their tax burden, such as increasing debt financing, retaining earnings, and pursuing tax loopholes. This led to distortions in corporate decision-making and the allocation of capital. Additionally, the high rate may have discouraged some new business formation and investment.

Whether a 90% corporate tax rate, BTW, which never existed, would work effectively today is debatable. The economy and global business environment have changed considerably since Eisenhower's era. A rate that high could potentially lead to more severe distortions, capital flight, and reduced competitiveness for U.S. companies in the modern globalized economy. Most tax policy experts believe a more moderate corporate rate, combined with a broader tax base and fewer loopholes, would be more effective at raising revenue while minimizing economic distortions.

The data shows that, between 1950 and 1959, the top 1 percent of taxpayers paid an average of 42.0 percent of their income in federal, state, and local taxes. Since then, the average effective tax rate of the top 1 percent has declined slightly overall. In 2014, the top 1 percent of taxpayers paid an average tax rate of 36.4 percent.

All things considered, this is not a very large change. To put it another way, the average effective tax rate on the 1 percent highest-income households is about 5.6 percentage points lower today than it was in the 1950s. That’s a noticeable change, but not a radical shift.