Eisenhower Tax Rates of 90%

On more than one occasion, Bernie Sanders has mentioned that the top marginal tax rates under President Dwight D Eisenhower were 90%.  This has led to some confusion, and some have erroneously claimed that Sanders himself intended to increase these tax rates to 90%.  Furthermore, many incorrectly believe that this is flat 90% tax rate on everyone.

There has been much debate over the Eisenhower tax rates.  The reason for this is simple: many Americans (especially on the right) consider the 1950’s to be a golden age of capitalism and small government.  On the other hand, people on the right also clamor for lower taxes.  The fact that the top marginal income tax rates on the wealthy were at 90% (compared to today’s 39%) comes as a surprise to these people.

In order to come to terms with this slight contradiction, right wing media and pundits have scrambled to create a number of arguments to avoid having to come to terms with the fact that the top earners once paid 90% and yet the economy still grew faster than it has in recent decades.  Admitting this would completely undermine their argument that higher taxes on the 1% will slow the economy, or that current tax rates are somehow stifling job creation  As a result, these pundits have argued that the 90% tax rate is a liberal myth.

No one actually paid that much

The most common response to the fact that Eisenhower’s tax rates were at an astonishing 90% is to claim that no one actually paid this 90% thanks to tax deductions.  While there is truth to this, it ignores that fact that today the top earners still have access to tax deductions, and at a lower overall rate.  A simple look at the top marginal effective tax rates makes it clear that the actual taxes paid at the top were indeed higher than they are today, even when accounting for deductions.

In attempt to distract readers from looking into this apples to apples comparison, right wing pundits compare the top marginal tax rates to overall effective tax rates.  Furthermore, the fact that overall effective tax rates have remained fairly stable (even as the top marginal tax rates have dropped) proves that middle and lower income earners have taken a larger percentage of the tax burden as tax rates at the top have dropped.

Effects of the 90% Tax Rates

It’s clear that these tax rates coincide with faster GDP growth and better job creation than under current tax rates.  That makes it difficult for detractors to argue that these top tax rates hurt the economy.  Nevertheless, the economy is never perfect and detractors can point to any number of negative indicators during the 1950’s to make their point.  That’s far, but it should be done in comparison to negative indicators under low tax rates periods as well.  For example, the two greatest recessions in the last 100 years (the Great Depression and 2008 recession) both came during a period of relatively low taxes on the wealthy.  These recessions are far worse than cherry-picked anomalies detractors pluck from the 50’s.

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