Photograph Source: badlyricpolice – CC BY 2.0
Eight decades ago, at a pivotal turning point in American history, our nation’s richest faced a 94 percent federal tax rate on their income over $200,000, the equivalent of about $3.5 million today. At that point, near the end of World War II, only one other nation — the UK — taxed its rich at a steeper rate. The wealthiest Brits ended the war facing a 97.5 percent tax on their top-bracket income.
These stiff top tax rates — all nearly unimaginable today — would help usher in a generation of unparalleled economic progress for average Americans and Brits. And those rates ebbed only slightly in the postwar years. In the 1950s, America’s richest faced a 91 percent top tax rate. The GOP president then sitting in the White House, Dwight Eisenhower, made no move whatsoever to hack that top rate down.
Overall, notes the economist Thomas Piketty, America’s wealthiest faced an average 81 percent top tax rate between the years 1932 and 1980, one key reason why our richest 0.1 percenters — over the course of the 20th century’s middle decades — sawtheir share of the nation’s wealth sink from 25 to just 7 percent.
The rich — on both sides of the Atlantic — would spend plenty of time stewing about that shocking sink throughout those middle decades. But these deep pockets would eventually regain their political mojo, first in the UK with Margaret Thatcher’s 1979 political ascent and then a year later with Ronald Reagan’s election. By 1988, the UK’s top rate had sunk by over half, and America’s richest faced just a 28 percent top-bracket bite.
But none of this tax cutting — back then and ever since — has brought us the nirvana that the Thatcherites and Reaganites promised. We’ve experienced no uplifting trickle-down. We have, instead, witnessed an incredibly intense concentration of wealth that has recreated the same sort of top-heavy economic imbalances that ushered in the Great Depression almost a century ago.