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Sunday, March 08, 2009

Reagan, you commie...!

A lot of people are calling Obama a socialist for returning the top marginal tax rate to 39%. How our definitions of "socialism" have changed!

Throughout most of Reagan's presidency, the top tax rate was 50% -- even as he was running up massive debts and indulging in massive government spending. Under Eisenhower (the last good Republican), the highest tax rate was a whopping 91%. The highly conservative Warren G. Harding ran on the promise "Less government in business and more business in government" (how's that for honesty in sloganeering?), yet during the years of his administration -- 1921-23 -- the top tax rate was 56%.

Some may be surprised to learn that the highest tax rate shot up to 63% in 1932, the last year of the Hoover administration. Of course, by then the Depression had settled in for a long stay, and no-one but the very rich had any money.
Er, not true.

Reagan's first year saw him push through a tax cut of about 33% on all the marginal rates, phased in over a couple of years, but dropping that top rate on earned income down from 50% as of the very next year.

As I recall it, anyway.

Top tax rates 1981-1988:

1981 69.125
1982 50.0
1983 50.0
1984 50.0
1985 50.0
1986 50.0
1987 38.5
1988 28.0

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Sergei Rostov
Odd (and telling) historical note:

In Reagan's diaries, he says that he stopped being a liberal because he was tired of having to defend himself against the charge that he was a Communist.

Sergei Rostov
Er, quite so!

EARNED INCOME had been taxed at 50% since 1971, with unearned income alone subject to the higher quoted top marginal rate in the intervening years.

As the 70% top marginal rate on unearned income (slightly less in 1981 at that oddly uneven 69.125%!) had been reduced to 50% by the Reagan tax cut, I presumed the top rate on earned income had likewise been proportionately reduced.

But that didn't take place until the '86 'tax reform' took effect the next year.

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Here are the numbers:

In 1982-86, the top marginal tax rate on earned and unearned income was 50%.
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