“(Trickle-Down Economics) doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.” -President Obama, December 6, 2011
Let’s look at the historical data.
The income tax was created by passage of the 16th Amendment in 1913 after the Supreme Court previously declared it unconstitutional. The initial top rate was 7%.
By 1918, the top rate had risen to 77%.
Tax cuts reduced the top income tax rate from over 70% to under 25%. Personal income tax revenues increased (despite the reduction in rates) from $719 million in 1921 to almost $1.2 billion in 1928.
By the 1950s, the top rate had risen to 92%.
Across the board tax cuts reduced the top rate from 90% to 70%. Tax revenues increased from $94 billion in 1961 to $153 billion in 1968.
The 1970s saw the top income tax rate hover around 70%.
A series of cuts brought the top rate from 70% down to 28%. Total tax revenues increased by 99% and income tax revenues increased by 54% by 1989.
Across the board tax cuts in 2001 and 2003 reduced the top rate from 39.6% to 35%. Total tax revenues increased from $794 billion in 2003 to $1.16 trillion in 2007.
Historically, dramatic cuts to the top income tax rate (“tax cuts for the rich!”) with across the board cuts have in fact stimulated the economy and increased tax revenues.
Remember this as President Trump tackles tax reform in the coming days.
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Income Tax Rate History
Historical Rate Cuts
Bush Tax Cuts