NCPA - National Center for Policy Analysis

To Increase Taxes On The Rich, Cut Their Tax Rates

October 24, 2000

The three times personal income tax rates were slashed in the 20th century, it was predicted that the federal government would lose revenues and the affluent would benefit. But instead, each time, federal revenues increased after tax rates were cut, especially taxes paid by the top 1 percent of taxpayers.

First, the Harding-Coolidge tax rate reductions brought the top income tax rate down in stages, from the war-time high of 73 percent in 1921 to 25 percent in 1925.

  • Between 1923 and 1928, real tax collections nearly doubled as the economy surged.
  • The share of taxes paid by those earning over $50,000 (the rich back then) rose from 44 percent in 1921 to 78 percent in 1925.

Second, John F. Kennedy's tax cuts cut the top tax rate from 91 percent to 70 percent.

  • Income tax collections rose by more than 50 percent from 1963 to 1968.
  • And the share of taxes paid by Americans earning over $50,000 per year (equivalent to almost $200,000 today) increased from 12 percent in 1963 to almost 15 percent in 1966.

Third, in 1981, Ronald Reagan's 30 percent across-the-board tax rate reduction reduced the top rate from 70 percent to 28 percent.

  • From 1980 through 1990, federal tax receipts doubled -- growing an average of 7 percent per year.
  • The top 1 percent paid 17.6 percent of all taxes in 1981, but paid 27.5 percent in 1988 when the rate hit its low.

And by the way, the Reagan tax cuts "soaked" the super-rich, the top 0.1 percent of income earners, whose share of income taxes paid doubled from 7 percent to 14 percent.

Source: Arthur B. Laffer and Stephen Moore, "To Soak the Rich, Cut Their Tax Rates," Wall Street Journal, October 24, 2000.

 

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