Thursday, February 26, 2009

Comment: Obama's best move so far

President Barack Obama said he is still committed to rolling back the Bush tax cuts for the rich. This will be by far the best thing that he has done for the economy so far.

Let's look at the history of the progressive tax rate courtesy of Wikipedia:

Partial History of
U.S. Federal Income Tax Rates
Since 1913
Applicable
Year
Income
brackets
First
bracket
Top
bracket
Source
1913-1915 - 1% 7% IRS
1916 - 2% 15% IRS
1917 - 2% 67% IRS
1918 - 6% 73% IRS
1919-1920 - 4% 73% IRS
1921 - 4% 73% IRS
1922 - 4% 56% IRS
1923 - 3% 56% IRS
1924 - 1.5% 46% IRS
1925-1928 - 1.5% 25% IRS
1929 - 0.375% 24% IRS
1930-1931 - 1.125% 25% IRS
1932-1933 - 4% 63% IRS
1934-1935 - 4% 63% IRS
1936-1939 - 4% 79% IRS
1940 - 4.4% 81.1% IRS
1941 - 10% 81% IRS
1942-1943 - 19% 88% IRS
1944-1945 - 23% 94% IRS
1946-1947 - 19% 86.45% IRS
1948-1949 - 16.6% 82.13% IRS
1950 - 17.4% 84.36% IRS
1951 - 20.4% 91% IRS
1952-1953 - 22.2% 92% IRS
1954-1963 - 20% 91% IRS
1964 - 16% 77% IRS
1965-1967 - 14% 70% IRS
1968 - 14% 75.25% IRS
1969 - 14% 77% IRS
1970 - 14% 71.75% IRS
1971-1981 15 brackets 14% 70% IRS
1982-1986 12 brackets 12% 50% IRS
1987 5 brackets 11% 33% IRS
1988-1990 3 brackets 15% 28% IRS
1991-1992 3 brackets 15% 31% IRS
1993-2000 5 brackets 15% 39.6% IRS
2001 5 brackets 15% 39.1% IRS
2002 6 brackets 10% 38.6% IRS
2003-2009 6 brackets 10% 35% Tax Foundation



If one puts aside the early years of easing in income taxes, we can see that initially there was a sharp difference between taxes paid by the lowest earners (first bracket) and the highest earners (top bracket).

However, leading up to the Great Depression tax rates on the rich were cut drastically reaching down to 25 percent.

Then during the Great Depression they rose again.

Obama will allow the Bush tax cuts for the rich to "sunset" or expire next year. This however will mean only a modest rise for the top tier from 35 percent to about 39 percent.

Ronald Reagan started the modern trend of lowering taxes on the rich. In 1987, the top bracket rate went from 50 percent down to the current 35 percent. However, in that same period the top 1% of earners went from paying 19.05% of federal income taxes to 39.89%!

How is that possible? Well the tax rate and other laws meant to favor the wealthy have allowed this top 1% of earners to "progressively" reap a larger and larger share of the national income. Yes, the rich have been getting richer and the poor poorer.

The grandest scheme to protect the wealth of the super rich has been the hedge fund, a fixed unregulated type of investment meant for the rich that insures them against loss. In comparision, the ordinary person must risk their money on a tightly regulated stock exchange. So, there has been a steep government-assisted redistribution of wealth from the non-rich to the rich over the last two decades.

Money hoarded by the super rich is largely dysfuntional, but so far the government has pacified the people and the economy by encouraging massive borrowing to forestall the inevitable meltdown that hoarding must cause.

However, the system is still designed to redistribute money from the non-rich to the rich, and this will continue to wreck havoc since there is not enough money circulating among the lower bracket earners. In other words, there is not enough money to support the livelihoods of the average person in America. Unless the system is restructured, the amount of stimulus money needed to forestall a complete meltdown simply does not exist.

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