The Case for a 91% Top Tax Rate and Progressive Income Distribution

Despite the debate raging among political parties, taxing the super wealthy at a higher rate has long been a topic of discussion. With many arguing that the current system benefits the wealthy at the expense of the hardworking middle class, it is worth exploring the historical and practical implications of reinstating a higher top tax rate. One policy proposal, championed by some progressives, is taxing incomes over several million dollars at a 91% rate. This article will delve into the merits of such a policy and its historical context.

Historical Context of High Top Tax Rates

Historically, the United States has seen significant variation in its top marginal tax rates. A notable example is the period following World War II, during which the top marginal rate on earned income reached 91%. This was particularly relevant as it applied to income over $400,000 (approximately $3 million adjusted for 2023 dollars) for a married couple, a figure reasonable for a single income household where the other partner was a homemaker. A homemaker, often overlooked, played a crucial role in households, contributing significantly to the household’s overall stability and reducing living expenses.

The Economic Impact of High Tax Rates

From a real-life perspective, the economy thrived during this period with a top marginal rate of 91% on earned income and 25% on capital gains. These high rates date back to 1960, a time before the modern era of automation and changes in household dynamics. An analyzed mid-level worker in 1960 earned approximately $7,000 per year, equivalent to around $45,000 in today's dollars, providing a significant financial base to support a modest home, a nice car, and even send their children to school. This was made possible by a combination of a lower top tax rate and a substantial hourly wage of about $5 per hour, with the CEO of a large corporation earning around $300,000, or $2,000,000 in today's dollars.

Current Economic Shifts and Wage Stagnation

The contemporary economic landscape, however, presents a stark contrast. A mid-level worker today earns about $22 per hour, despite a significant increase in worker productivity. Factoring in the value of productivity, a mid-level worker in modern times should earn around $60 per hour, leaving the actual wage at about $45 to $50 per hour. This translates to the mid-level worker earning about $100,000 annually, compared to the $46,000 they earned previously. Meanwhile, the median pay for Fortune 500 CEOs stands at around $13 million, nearly 280 times the pay of a mid-level worker. This dramatic disparity raises questions about the fairness and sustainability of the current economic structure.

Policy Implications and Economic Growth

Those advocating for a 91% top tax rate on income over $3 million argue that such a measure could act as an incentive to realign CEO compensation more reasonably. If the extra $10 million earned by a CEO is subject to a 91% tax, the economic incentive for such high salaries would diminish. The historical evidence from the Eisenhower era and the experience in Nordic countries suggest that when income is distributed more equitably, with top CEOs earning 25 to 30 times what a mid-level worker receives, the result is a robust economy driven by a workforce with more disposable income.

Conclusion

The debate on tax policy is not just about fairness but also about achieving strong, sustainable economic growth. Reinstating a top tax rate of 91% on incomes over $3 million aligns with a vision of a more equitable and prosperous society, where the benefits of growth are shared more widely. By addressing the underlying economic imbalances, we can work towards a more balanced and just system.