Obama's Proposed Tax Rates in Historical Context

The only way to a sustainable budget requires extensive tax reform, reduction of "entitlements" and spending decreases in general, but I do not see Obama's tax proposals as unreasonable. They would produce overall lower marginal rates than under the Clinton years and slightly higher marginal rates than under the Bush years. I'd like to see a compromise in which Obama's tax proposals were accepted by Republicans and significant budget reductions accepted by the Democrats. Win/Win. We are so far in the hole that a $1 revenue increase tied to a $1 spending cut is necessary, and probably not a sufficient spending reduction.  But see Brian M. Riedl who would just leave the cuts in place, "Ten Myths About the Bush Tax Cuts," Heritage

Riedl's conclusion: "The 110th Congress will be serving when the first of 77 million baby boomers receive their first Social Security checks in 2008. The subsequent avalanche of Social Security, Medicare, and Medicaid costs for these baby boomers will be the greatest economic challenge of this era.

"This should be the budgetary focus of the 110th Congress rather than repealing Bush tax cuts or allowing them to expire. Repealing the tax cuts would not significantly increase revenues. It would, however, decrease investment, reduce work incentives, stifle entrepreneurialism, and reduce economic growth. Lawmakers should remember that America cannot tax itself to prosperity."

History of Federal Income Bottom and Top Bracket Rates

You can find out marginal federal income tax rates back to the year 2000 (Clinton, pre-Bush rates)
by going to Moneychimp: Federal Tax Brackets

In 2000, for a married couple filing jointly, these were the rates;


15%    0 and $26,250:
28%    $26,250 and $63,550:
31%   $63,550 and $132,600:
36%  $132,600 and $288,350:
39.6% $288,350+

Current marginal rates with the Bush tax cut in place are as follows, for a married couple filing jointly:

• 10% on taxable income from $0 to $17,400, plus
• 15% on taxable income over $17,400 to $70,700, plus
• 25% on taxable income over $70,700 to $142,700, plus
• 28% on taxable income over $142,700 to $217,450, plus
• 33% on taxable income over $217,450 to $388,350, plus
• 35% on taxable income over $388,350.

Under the Obama proposal for married filing jointly (see below):

10% $0 to $17,900
15%  $17,900 to $72,500 
25%  $72,500 to $146,350
28%  $146,350 to $223,050
33%  $223,050 to $247,000
36%  $247,000 to $398,350 
39.6%   $398,350+:

The following is from the Tax Foundation. See the whole article at The $250,000 Threshold: How does it work?

Under current policy, there are six taxable income brackets – 10%, 15%, 25%, 28%, 33%, and 35%. Obama’s proposal would let part of the 33% tax bracket and all of the 35% tax bracket rise to Clinton-era tax rates: 36% and 39.6%[1][2]. The split in the 33% tax bracket (where the upper part goes up to 36%) is set to be the number calculated above: $247,000. (The same calculation for single filers comes out to $203,600). So the marginal tax rates on taxable income under each scenario are as follows:

Filing Status	Tax Cuts Expire (2013 projected parameters)	Current Policy (2013 projected parameters)	Obama Proposal (2013 projected parameters)
Single	$0 to $36,250:15% $36,250 to $87,850: 28% $87,850 to $183,200: 31% $183,200 to $398,350: 36% $398,350+: 39.6%	$0 to $8,950: 10% $8,950 to $36,250: 15% $36,250 to $87,850: 25% $87,850 to $183,200: 28% $183,200 to $398,350: 33% $398,350+: 35%	$0 to $8,950: 10% $8,950 to $36,250: 15% $36,250 to $87,850: 25% $87,850 to $183,200: 28% $183,200 to $203,600: 33% $203,600 to $398,350: 36% $398,350+: 39.6%
MFJ	$0 to $60,550: 15% $60,550 to $146,350: 28% $146,350 to $223,050: 31% $223,050 to $398,350: 36% $398,350+: 39.6%	$0 to $17,900: 10% $17,900 to $72,500: 15% $72,500 to $146,350: 25% $146,350 to $223,050: 28% $223,050 to $398,350: 33% $398,350+: 35%	$0 to $17,900: 10% $17,900 to $72,500: 15% $72,500 to $146,350: 25% $146,350 to $223,050: 28% $223,050 to $247,000: 33% $247,000 to $398,350: 36% $398,350+: 39.6%

As Luke Bernthal notes, in the comment below, we now have the lowest "highest marginal rate" since the Depression years:

Graph in PDF of highest marginal rates

The graph is interesting, but those super high marginal rates after World War II were also connected to a very different scheme of deductions, including an interest deduction for all interest (not just mortgage) and no alternative minimum tax. What would be very interesting would be a graph showing effective federal income tax rates back to the thirties. I cannot find that data, and I'm not sure it exists. For effective rates back to 1979, see the previous blog.