Paul Krugman waxed nostalgic in today’s New York Times about the income tax rates of the 1950s and early 1960s, when the highest marginal tax rate on individual income was 91%, and the highest corporate tax rate was 52%. Here are some quotes from Krugman’s article:
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth.
Yet in 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.
America in the 1950s made the rich pay their fair share…..yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.
Krugman conveniently stops his analysis of the supposed “golden years” of sky-high 91% marginal income tax rates right before they were permanently lowered. And the tax reform that lowered the 91% tax rate didn’t come from a Republican obsessed with right-wing propaganda about lower top tax rates being essential to economic growth. The supply-side tax cuts came from a left-wing, Democratic President.
In the video above from August 13, 1962, watch President Kennedy as he announces his bold plan to introduce permanent, across-the-board, top-to-bottom tax cuts for both individuals and corporations to help the economy grow and prevent a recession. Kennedy argued that tax reform was “long-needed” because both “logic and equity” demanded tax relief for Americans. Further, Kennedy predicted that the dollars released from taxation would create new jobs, new salaries, and spur economic growth and an expanding American economy, thereby creating more jobs and higher tax revenues. He was exactly right.
Kennedy’s supply-side tax cuts were enacted in 1964 after he was assassinated, and by 1965 the top personal income tax rate was cut to 70% and corporate income tax rates were also reduced. The Kennedy tax cuts did help expand the economy, resulting in a 106-month economic expansion during the 1960s, which was the longest expansion in U.S. history at that time. Individual income tax revenues grew by 85% from 1965 to 1970 and corporate tax revenues grew 29%, as Kennedy predicted.
In a recent WSJ editorial, Steve Moore explained what happened to the taxes paid by high income groups following the Kennedy tax cuts:
Americans earning over $50,000 per year (the equivalent of about $250,000 today) increased their tax payments by nearly 40% after the rate cut, according to a report from the Joint Economic Committee of Congress. Their share of overall taxes paid rose to almost 15% in 1966 from 12% in 1963. Americans with an income of more than $1 million nearly doubled their tax payments to $603 million in 1965 from $311 million in 1962.
Bottom Line: The U.S. economy might have prospered in the 1950s with a 91% top marginal tax rate on personal income and a 52% top tax rate on corporate income, but the economy of the 1960s prospered even more following the Kennedy tax cuts. Tax revenues increased, the rich ended up paying a higher share of income taxes collected, and the economy expanded like never before. Those are outcomes even Krugman should like. Kennedy’s supply-side tax cuts in the mid-1960s that ended the 91% tax rate served the U.S. economy very well, and help complete Krugman’s nostalgic embrace of the “golden era” of sky-high 91% marginal tax rates.