Saturday, July 18, 2009

Marginal tax rates

Sometimes you will see people who dismiss tax hikes on the wealthy by noting that high marginal rates of taxation are nothing new and have been implemented in the past without major repercussions for the economy. That's true. You can look back over history and find several instances in which the top rates were in excess of 70 percent. The problem with this line of thinking, however, is that those high rates tended to kick in at much higher income levels and only affected a relatively small number of people.

As the Economix blog points out the highest marginal tax rate in 1960, adjusted for inflation, kicked in at around $3 million. Today? $360,000.

1 comment:

Paradigm Shifter said...

And if people believe couples don't factor in the marginal tax rate when deciding whether it's worth the trouble of working, they are in denial. Having children at such a young age (24 for the first, 26 for my second and likely final child) exposed me to the regular debate couples who have children have when it comes to both of them working. I have seen the decision go both ways, but it often is a close call on whether the child care, increased commute costs, more eating out, and finally marginal taxes are worth the hassle of both parents working. Any disincentive to work by changing the marginal rates will make it far more likely that a parent stays at home rather than work.