February 27 at 6:00 AM
Many economists say decades of cuts to income tax rates on the highest earners are one of the drivers of the runaway inequality that’s come to characterize the modern U.S. economy. Lawmakers in Washington are debating the merits of a number of proposals, such as a plan from Rep. Alexandria Ocasio-Cortez (D-N.Y.) to hike the top tax rate back to 70 percent for people earning more than $10 million a year, a move that would redistribute a portion of the nation’s riches from the wealthiest to everyone else.
At a time like the present, it’s worth asking: Who decided to lower tax rates at the top to begin with?
As the chart at the top of this article shows, following World War II, the top marginal tax rate was set at 70 percent or higher all the way up to the 1980s. That decade is often seen as the dawn of conservative economic policymaking ushered in by President Ronald Reagan: Taxes went down, regulations were rolled back, unions were busted.
But it wasn’t just Republicans driving these policies. An analysis of the roll-call votes on the bills cutting the top income tax rate shows, for instance, that many Democratic lawmakers supported these changes.
House and Senate Democrats provided 40 percent of the votes in favor of Reagan’s 1981 tax cut, which lowered the top rate from 70 percent to 50 percent. They then made up a majority of the votes behind Reagan’s second wave of tax cuts in 1986, which further lowered the top rate down to its nadir of 28 percent by 1988.
Those deep cuts were partly reversed by tax increases signed by George H.W. Bush in 1990 and Bill Clinton in 1993, which brought the rate up to 39.6 percent. Democrats, again, provided a majority of the votes on both of those bills.
The 1993 vote was the last time Congress affirmatively acted to raise taxes on top earners. Two rounds of Bush tax cuts passed with overwhelming majority Republican support. Obama’s 2010 tax cut bill, which delayed the sunsetting of the Bush tax provisions by two years, passed with bipartisan support. When top rates crept back up to 39.6 percent in 2013, it required no action on Congress’s part — lawmakers simply allowed the Bush tax cuts for the top earners to expire.
Finally, we arrive at the present day, where the Trump-Ryan tax cuts rolled back the rate for top incomes to 37 percent, passing without a single vote of Democratic support.
In the interest of simplicity, this analysis ignores a lot of legislative context. Reagan’s tax cuts were partly a response to the slow growth and sky-high inflation of the 1970s. Obama’s 2010 tax cuts were part of an effort to stimulate the economy in the aftermath of the Great Recession. Many of these bills had effects on taxes at other levels of income, and on different types of taxes altogether, like the estate tax and the capital gains tax.
It also bears pointing out that the top marginal tax rate is very different from the effective tax rate that most wealthy people actually pay. The effective rate for the top 1 percent of earners, for instance, has hovered around 30 percent for most of the period under consideration in the analysis above because of various write-offs, exceptions and loopholes top earners are able to take advantage of.
But still, focusing on the top marginal tax rate in isolation is useful because of its relationship to inequality. While wealthy people have many ways to arrange their finances to avoid paying the top rate, the rate nevertheless sets the baseline for how taxes of the wealthy are calculated in any given year.
While Republicans are typically seen as the party of tax cuts for the rich, the analysis above shows that Democrats have played a significant role in reductions in the top marginal tax rate, too: They provided 30 percent of the total House and Senate votes in support of the five bills that have lowered the top rate since the 1980s.
That history is part of what the new crop of progressive Democratic legislators such as Ocasio-Cortez are defining themselves against.