The History Behind The Highs And Lows Of The Marginal Tax Rate

SCOTT SIMON, HOST:

We're going to talk about the marginal tax rate now. Please don't turn us off. It's been in the news recently. Representative Alexandria Ocasio-Cortez proposed a top marginal tax rate of 70 percent during a "60 Minutes" interview.

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ALEXANDRIA OCASIO-CORTEZ: Once you get to, like, the tippy tops on your 10 millionth dollar, sometimes you see tax rates as high as 60 or 70 percent.

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SIMON: Michael Dell, the tech billionaire, dismissed the idea at the World Economic Forum in Davos.

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MICHAEL DELL: So no, I'm not supportive of that. And I don't think it would help the growth of the U.S. economy.

HEATHER LONG: And can you say a little bit more about why?

DELL: Well, name a country where that's worked, ever.

SIMON: Answer came quickly.

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ERIK BRYNJOLFSSON: United States.

SIMON: It was a different time. But for that history, we turn to Dorothy Brown.

DOROTHY BROWN: I'm Dorothy Brown. I'm a law professor at Emory University, and I teach tax.

SIMON: First, what is the marginal tax rate?

BROWN: The marginal tax rate is the tax rate that applies to a taxpayer's last dollars of income.

SIMON: Now back to the history.

(SOUNDBITE OF MEDESKI MARTIN & WOOD SONG, "I WANNA RIDE YOU")

BROWN: What most people don't understand is until World War II, most Americans didn't pay federal income taxes. Our entire tax system, including the marginal tax rates, only applied to the richest Americans. In fact, there was a surtax on incomes greater than $5 million. And for three years, in the mid-1930s, it only applied to one man, and his name was John D. Rockefeller.

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BROWN: The mood was tax the rich, tax the rich, tax the rich, to the point that, between like 1918 and 1932, less than 6 percent of the population on average paid federal income taxes; from 1933 to 1939, less than 4 percent.

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UNIDENTIFIED PERSON: America prepares. All America alters its pattern of life and work to meet the demand for protection.

BROWN: Once World War II came into existence, we needed additional tax revenues. So there was a mood shift. Suddenly - and there literally were cartoons. I've played them in class. Donald Duck helped sell paying taxes to most Americans during World War II.

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FRED SHIELDS: (As narrator) This year, thanks to Hitler and Hirohito, taxes are higher than ever before. Will you have enough money on hand to meet your payments when they fall due?

BROWN: It was taxes to beat the Axis of evil.

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SHIELDS: (As narrator) That's right. And every dollar you sock away for taxes is another dollar to sock the Axis.

BROWN: Now, marginal tax rates went as high as 94 percent in the mid-'40s. It was also 91 percent as late as 1963. We had a 70 percent marginal tax rate as late as 1980. And currently, our marginal tax rate is 37 percent. So we've had very high marginal tax rates for many, many years, and we've had lower marginal tax rates.

(SOUNDBITE OF MEDESKI MARTIN & WOOD SONG, "I WANNA RIDE YOU")

BROWN: I've been watching the news, and it's been, for me, hilarious to show how people don't know the history but are completely confident in their position that they're right. So AOC is right, right? Seventy percent - that isn't the highest marginal tax rate we've had. But I was thinking about the Davos clip. When Michael Dell makes a statement similar to, there's no country that's ever had a tax rate that's high, that's had financial and economic success and the economist on the panel said, uh, America, I just find the notion that people - well, really the billionaires - are freaking out about the possibility of their taxes going up when historically at the very beginning of our, quote, "progressive income tax system" the only people who paid were the millionaires and the billionaires.

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SHIELDS: (As narrator) This is our fight, the fight for freedom.

SIMON: That was Dorothy Brown, a law professor at Emory University. You're listening to "The Spirit Of '43" and WEEKEND EDITION from NPR News.

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SHIELDS: (As narrator) Taxes will keep democracy on the march.

UNIDENTIFIED SINGERS: (Singing) Let freedom ring (unintelligible) let freedom ring. Transcript provided by NPR, Copyright NPR.