The fundamental debate that has Washington in turmoil is whether the top marginal rate of the highest-income Americans should rise from 35 to 39.6 percent.
No one can doubt the pressure on some in Congress to oppose the increase. Many elected representatives would personally be affected, and even more are receiving contributions from donors who would lose money if the rate goes up.
Political contributions increasingly are an investment, and a common purpose of the investment is to avoid taxes.
It is not politically wise for a congressman to say the reason for opposing a tax increase — that has no impact on 97 percent of his constituents — is to protect contributors who are among the 3 percent who would pay a little more.
Such an explanation would be especially unwise for Alabama politicians. With a median per-capita income of $22,711, an increase in the top marginal tax rate is an annoyance that will never have any relevance to the vast majority of Alabamians.
One way for politicians to oppose the increase is to proclaim it as socialism. The label seems to resonate in Alabama, but it makes no historical sense. From 1932-87, the top marginal rate never fell less than 50 percent. During most of those years, it was at least 70 percent, and for many it was more than 90 percent.
Moreover, some of America’s greatest boom times have been when top tax rates were far higher than 35 percent. The United States had a surplus — and economic growth — from 1998 through 2001, when the top marginal rate was 39.6 percent. It had a surplus in 1969, when the top rate was 70 percent. It had surpluses in 1956 and 1957, when the top rate was 91 percent.
Since 1940, the United States has had a surplus in 12 years. In seven of those years, the top marginal rate was 91 percent; in one it was 70 percent; and in four it was 39.6 percent.
The point is not that the high rates created the economic growth, but obviously they did not prevent it. And partly because of the high rates, economic activity created a surplus and curbed debt.
A slight tax increase on Americans who have benefited most from the U.S. economy should not be a partisan issue. Excessive taxes can inhibit growth, but a top marginal rate of 39.6 percent is well within the zone of safety.
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