Photo: Joint Economic Comittee
There is only one other period in US history in which inequality was as high as it is now.That was around 1930, when the super-low tax rates of the late 1920s allowed the richest Americans to coin (and keep) money, and the US economy experienced a brief, euphoric sugar high that ended in the Crash and Great Depression.
In 1932, when the public anger about the Depression and this colossal inequality reached a fever pitch–and US budget deficits soared–tax rates for America’s highest earners began to go up.
In 1936, they went up again.
In 1941, with the US saddled with massive Depression and War debts, they went up again.
In 1945, they went up again.
In 1946, the nation’s highest earners were paying a mind-boggling 91% of marginal income over $200,000 ($2.4 million in today’s dollars) to the government. This was up from only 25% in the late 1920s.
And tax rates stayed that high until the mid-1960s, when they began to come down.
Photo: National Taxpayers Union
This massive tax increase on rich people in the 1940s,1950s, and early 1960s, by the way, didn’t clobber the economy (contrary to the prevailing current ideology).Over those two decades, the economy and stock-market and middle-class boomed. The massive inequality that had exacerbated class tensions in the late 1920s and 1930s eased. America went through a multi-decade prosperous expansion that would later be looked back upon as “The Good Times.”
But those times are now nearly a half-century ago. And now we’ve just repeated the 1920s all over again.
In the first decade of the 2000s, super-low tax rates, super-cheap money, massive borrowing, and many other factors fuelled an unsustainable sugar-high boom that has since turned to bust. And now the country finds itself saddled with colossal debts (in aggregate, including consumer debts, much higher than those after World War 2), huge budget deficits, and enormous inequality. And tax rates on the richest Americans are still near their all-time lows.
If history repeats itself, our financial problems will eventually be solved, but not without a lot of time and pain. And part of the solution will likely be much higher tax rates, especially on the richest Americans.
So enjoy today’s low rates while they last.
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