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The Truth About Taxes: Here’s How High Today’s Tax Rates Really Are

Fin - Daily Ticker - US

From The Business Insider

As the US struggles with a massive budget deficit, the conversation has obviously turned to taxes.

Specifically, what should be done with them. (In the accompanying video, Rep. Thaddeus McCotter (R-MI) tells The Daily Ticker's Aaron Task why there's no room to negotiate on what he calls "job killing tax hikes" and that "the Republicans have rightly held out against raising taxes in a recessed and stagnant economy.")

Obviously, no one likes paying higher taxes, and everyone likes paying lower taxes. But we live in the real world, not fantasy-land. And in the real world, sometimes people have to do things they would prefer not to do--like pay taxes.

But the disagreement on this issue, as well as the facts surrounding it, is intense.

Democrats, to the extent they care about the budget deficit, want to raise taxes, which they say are too low--especially on rich people.

Republicans, meanwhile, generally say that taxes are far too high and that the budget deficit should be addressed with spending cuts. To get the economy back on track, Republicans argue, you need to give Americans an incentive to work hard--by letting them keep more of what they earn. Republicans also argue that raising taxes would clobber an already fragile economy.

So who's right?

Are taxes too high? Or are they too low?

Do high tax rates on "rich people" create a lazy population in which no one has an incentive to work hard?

And what about the Republican mantra that cutting taxes is always good for the economy, while raising taxes is always bad?

Thanks to the Tax Foundation and other sources, we've analyzed tax rates over the past century, along with government revenue and spending over the same period.

This analysis revealed a lot of surprising conclusions, including the following:

  • Today's government spending levels are indeed too high, at least relative to the average level of tax revenue the government has generated over the past 60 years. Unless Americans are willing to radically increase the amount of taxes they pay relative to GDP, government spending must be cut.
  • Today's income tax rates are strikingly low relative to the rates of the past century, especially for rich people. For most of the century, including some boom times, top-bracket income tax rates were much higher than they are today.
  • Contrary to what Republicans would have you believe, super-high tax rates on rich people do not appear to hurt the economy or make people lazy: During the 1950s and early 1960s, the top bracket income tax rate was over 90%--and the economy, middle-class, and stock market boomed.
  • Super-low tax rates on rich people also appear to be correlated with unsustainable sugar highs in the economy--brief, enjoyable booms followed by protracted busts. They also appear to be correlated with very high inequality. (For example, see the 1920s and now).
  • Periods of very low tax rates have been followed by periods with very high tax rates, and vice versa. So history suggests that tax rates will soon start going up.

Don't take our word for it, though. Check out the chart here.

And for more Daily Ticker coverage of the debt ceiling debate see:

U.S. Hits the Debt Ceiling: What Does It All Mean?

Rep. McCotter: There's No Room to Compromise on "Job Killing Tax Hikes"

GOP Being "Very Unreasonable": Could Lose House Over Debt Ceiling Debate, Walker Says

What If? "Huge Interest Rate Risk" If No Deal on Debt Ceiling, David Walker Says

Debt Ceiling Deadline Pushed Back: Will the GOP Budge?

Rep. Levin: GOP "Playing With Fire" On Debt Ceiling Vote

Debt Ceiling Vote a "Political Sideshow", Mish Says: Real Issue Is "Govt. Spending Run Amok"

"No Downside" to Not Raising the Debt Ceiling, Says Chris Whalen

Debt Ceiling Debate: The GOP Is "Blackmailing the American People," Sen. Bernie Sanders Says

Debt Ceiling Uncertainty: Big Banks Take Evasive Action, The FT Says

Deep Recession & Financial Chaos: "Very Dark Scenario" If Debt Ceiling Isn't Raised, Zandi Says

Finally, Someone Is Talking Sense On Our Huge Debt And Deficit Problem — President Obama