The 91% Tax Fantasy: Peter Schiff
The fiscal cliff deadline is looming and President Obama refuses to sign any legislation that doesn't raise tax rates on the top 2%. There is an understandable amount of debate on either side of the aisle over the president's decision.
In the past month, Warren Buffett and Paul Krugman have each released opinion pieces that tout the 1950s as an exemplary era for the country. The top tax rate was as high as 91% but individual wealth and GDP still managed to grow like wildfire.
In Krugman's Twinkie Manifesto, he claims that in the 1950s "incomes in the top bracket faced a marginal tax rate of 91% while taxes on corporate profits were twice as large, relative to national income, as in recent years."
Sure, executives didn't have mansions with a team of staff members he says but, "the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973."
Buffett's A Minimum Tax for the Wealthy article touts similar ideas.
"Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well," Buffett writes.
In an op ed published in Friday's Wall Street Journal, Peter Schiff challenges the increasingly popular pro-tax rate hike argument:
"The confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today," he writes.
Schiff joined The Daily Ticker to further explain his argument. According to Schiff, the supposed 91% tax rate would only kick in if someone was making over $3 million in 1950 dollars (that would be more like $30 million today). In the 1950s there was no distinction between different types of income, he adds, so "a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership."
Schiff also argues that middle and lower income households paid more tax in the 1950s than they do today.
"In 1958, even the lowest-tier filers, which included everyone making up to $5,000 annually, were subjected to an effective 20% rate. Today, almost half of all tax filers have no income-tax liability whatsoever, and many "taxpayers" actually get a net refund from the government," he writes.
The bottom line?
"The best thing we can do for economic growth is to lower taxes on the rich...they're already too high...but we also have to acknowledge that government is too big," he tells The Daily Ticker. "We have to dramatically reduce the size of government spending and if we don't do that then we need to be talking about tax increases on the middle class and working poor."
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