Should Our Top Tax Rate Be About 85%-90% ?

If you are rich, or a right-wing worshipper of the rich (like most Republicans), you may have spewed your coffee all over your keyboard after reading my headline -- but it is a serious question. And there is a serious new economic paper, written by Dirk Krueger of the University of Pennsylvania and Fabian Kindermann of the University of Bonn, that says all citizens (including the rich) would be better off if the top tax rate was between 85% and 90%.

Now this doesn't mean the rich would pay that percentage on all of their income -- only on the portion of their income that exceeds a certain level. The current top tax rate is 39.6%, but that rate only applies to income earned above the level of $406,750 ($457,600 for a couple). The money under that level is taxed at the same rate as those who make less than that amount. In other words, the top tax rate, whether 90% or 39.6%, would only apply to less than 1% of the population.

Those on the right will say such a high tax rate would be disastrous for the economy, and discourage high earners from making money. Not true. Note on the chart above that there have been extended periods in our recent history when our top tax rate was much higher. From the mid-1930's until the early 1980's our top tax rate was between 90% and 70% -- and those were some of the most robust periods of growth this country has experienced.

It was not until the Reagan administration that the top tax rate was lowered, as a part of the GOP's "trickle-down" economic policies. It was supposed to spur economic growth and benefit all Americans, but it didn't. It It only helped the rich, and created the biggest wealth gap since before the Great Depression. And that wealth and income gap, in combination with other "trickle-down" policies, was the primary reason for the Bush recession (which most ordinary Americans are still struggling to recover from).

I know raising the top tax rate to 85% or 90% is politically impossible at this time. The "trickle-down" lies about taxation are still believed by too many economically-ignorant people. But I do think a couple of things could be done with taxation that would help this country a great deal. The first would be to raise the top tax rate to somewhere between 45% and 50%. The second would be to eliminate the lower capital gains tax rate, and have everyone pay the earned income tax rate (regardless of how they earned their money).

This would provide much-needed revenue for the federal government, and it would slow the growth of the wealth and income gap (and combined with a substantial raise in the minimum wage, could even stop the growth in that gap).

We need to stop pandering to the rich in this country, and institute some economic policies that would be beneficial to all Americans. And while we're at it, it certainly wouldn't hurt to eliminate the subsidies and tax breaks that keep corporations from paying any taxes (even though they make huge profits).