How to verify Reagan's high income tax rates on the rich?

January 19, 2011 10:41 AM

How can I verify that Reagan's income tax on the rich was 50%, whereas nowadays the income tax on the rich is only 35%?

I am especially interested, since many of the people who are opposed to increasing income tax rates on the rich cite Reagan as the model of how to be a financially responsible president.

posted by Eiwalker to law & government (13 answers total)

This?

http://www.truthandpolitics.org/top-rates.php

It cites the relevant IRS docs if you're interested in following it up.
posted by pantarei70 at 10:45 AM on January 19, 2011

The Tax Foundation has all of the Federal Income Tax Brackets from 1913-2011.
posted by Mister Fabulous at 10:47 AM on January 19, 2011 [2 favorites]

Googling "marginal tax rates historical" led me pretty quickly to this. Note that there is a certain amount of apples and oranges here as deductions and exemptions change the effective rate and it doesn't cover the rate for capital gains (which is where the very wealthy will likely pay most of their taxes).
posted by It's Never Lurgi at 10:48 AM on January 19, 2011

U.S. Federal Individual Income Tax Rates History, 1913-2011. Look at 1986.
posted by Cat Pie Hurts at 10:49 AM on January 19, 2011 [2 favorites]

The tricky part will be substantiating the notion that Reagan wanted it to be that way.
posted by The World Famous at 11:01 AM on January 19, 2011

Want a pretty chart? Here's a pretty chart.
posted by General Malaise at 11:06 AM on January 19, 2011 [2 favorites]

Also, I should note that 50% was the top marginal rate, which means it only affected the top margin of income. Any earnings below that margin was taxed at that bracket's lower rate.

So, rich people were not paying 50% of their earnings in taxes in the 80s. Just clarifying.
posted by General Malaise at 11:09 AM on January 19, 2011 [1 favorite]

They probably were, they just weren't paying 50% of their earnings in federal income tax. Of course the higher their income, the closer to 50% of it they did pay federally.
posted by Justinian at 11:12 AM on January 19, 2011

What do you mean "Reagan's income tax rates"? One of the signature accomplishments of the Reagan presidency was the Tax Reform Act of 1986, which lowered the marginal tax rate on the top bracket from 50% to either 28% or 33%, depending on how you interpret things (the 33% rate was the result of a "bubble rate" that applied to the lower portion of the income for higher-income earners).

There was also the Economic Recovery Tax Act of 1981, also called the Kemp-Roth tax cut, which lowered the top marginal rate from 70% to 50%.

Over Reagan's presidency, he signed bills into law the cumulative effect of which was to lower the highest marginal tax rate from 70% to 28%.
posted by mr_roboto at 11:15 AM on January 19, 2011

To counter the argument that Reagan was a fantasy era, use a chart like this, which shows tax revenue and outlays.

This is showing all the money coming in and all the money going out. Reagan was not some paragon with both low revenue (meaning, taxes) and low spending.

Note that for all of his term, though, Reagan dealt with a Democratic congress. But note the period from 94-00, where Clinton had a Republican House -- revenues up, spending down.

Note also the most recent three years on the chart. Trendline showing revenue up, spending down.
posted by Cool Papa Bell at 11:17 AM on January 19, 2011 [2 favorites]

Also, I should note that 50% was the top marginal rate, which means it only affected the top margin of income. Any earnings below that margin was taxed at that bracket's lower rate.

Also should note that with this top rate was also the proviso that all interest paid was tax deductable - primary mortgage, mortgage on the house in the Hamptons, credit card interest. Not like today.

Yup, those high rates were a killer. I had a buddy when Reagan was president who managed to pay no income tax... he had three or four rental houses all fully mortgaged and wrote all of the interest off. The government paid his interest on his loans, he took the appreciation of capital. (Sort of like what the Fed is doing with Goldman Sachs today except for the average joe.)
posted by three blind mice at 11:47 AM on January 19, 2011 [1 favorite]

Yeah, the Reagan tax revisions actually eliminated a lot of deductions; they made the tax system a lot more simple. The end result was that the change in effective tax rates (actual tax paid) was not as large as it would appear from the 70%-to-28% comparison in marginal rates on net income. And the 1986 Tax Reform Act tried to maintain revenue neutrality by raising corporate tax rates.
posted by mr_roboto at 11:54 AM on January 19, 2011 [1 favorite]

Thanks for all the great responses. I can always count on AskMeFi.
posted by Eiwalker at 3:37 PM on January 19, 2011