Top marginal income tax rate in developed countries

From the new book Taxing the Rich: A History of Fiscal Fairness in the United States and Europe by Kenneth Scheve and David Stasavage. Switzerland always at the bottom. More interesting is that Norway and Sweden are not at the top of the list.

Why Tax the Rich?

A question that has been central in this electoral season is whether taxation of the wealthy matters. Republicans suggest that it reduces growth, since it creates negative incentives to 'job-creators', while Democrats argue that it is a question of fairness. The figure shows some data which sheds light on the second issue.

The graph shows the top marginal rate from 1913 to 2010 in the left-hand axis, with a low of 7% in 1913 and an all time high in 1953 at 92% of the marginal dollar being taxed, and the income of the top 1% (the non-99%) on the right-hand side. The lowest level of total income of the top 1% was 7.7% in 1973 and the highest levels were 19.6% in 1928 (right before the 1929 crash) and 18.3% in 2007 (before the 2008 Lehman collapse). There is a clear negative correlation. And, by the way, it is no coincidence that after the increase in inequality we had a financial crash both times.

Taxes and class warfare

Doing my taxes (yep another procrastinator) and getting the little Tea-bagger (talk about darker side!) inside me a bit angry.  Just read this week David Cay Johnston's great piece for the Willamette Week debunking the myths about taxes (e.g. the rich pay most of the taxes, but not really, just most of the income tax, and so on).  He shows that the worker making the median wage pays around 23% of his/her income as compared to almost 19% for the 400 wealthiest Americans (See Table below).

If that does not lend support to Obama's proposal to allow the top rate to increase again to 39.6%, I don't know what does.  The graph below (via thruth&politics) shows the top marginal tax rate over time.

We do not need to go back to the good old times of that Socialist, Eisenhower, when marginal tax rates where 91%, but it would certainly help to raise taxes on the rich, if you are really concerned about public debt.  It seems that class warfare wasn't that bad!