Taxes are often the subject of heated discussions. Nobody enjoys paying taxes, even if we understand that they’re needed to pay for some state services that otherwise we would not have.
People especially hate when taxes are raised. In Spain income taxes, VAT taxes and some other minor taxes or the cost of public services have been raised recently. In France there is a heated debate on whether the maximum personal income tax rate could be raised up to 75%. A similar heated discussion takes place in the USA about the effective taxes rate paid by the superrich, the top 1%, the top 0.01%… you name it.
You will hear people either claiming that taxing more the rich is what is to be done or that increasing taxes will not forever increase tax revenue collection (the famous Laffer curve); that investors, job creators, etc., will be deterred by the high taxes and take their wealth elsewhere.
Firstly, I am no expert on taxes.
However, seeing today’s tax rates levels (be it Spain, France or the USA), the heated discussions we witness and having had some conversations either with friends or colleagues on taxes, I thought it could be interesting to post in the blog some historical evolution of the different tax rates, just to put in perspective what is high taxes.
I have taken all the graphics from the Wikipedia and all refer to the case of the USA (the one for which there is always more data available). You can see below the evolution of personal income tax rate for the highest and lowest earners, of taxes on capital gains and corporate taxes.
Personal Income Taxes (what in Spain would be IRPF).
You can see in the picture below how the maximum tax rate was for some time above 90% (now is 35%). You can check yearly data on the different tax brackets in the Tax Foundation. In those years with brackets above 90%, maximum effective tax rates were around 70-88%.
“Historical Marginal Tax Rate for Highest and Lowest Income Earners” in USA, from 1912 to 2008 (by Guest2625)
Capital Gains Taxes.
You can see in the picture below how the maximum tax rate was for some time 35% (now is 15%). This is the tax that applies to most of the income of those superrich as they earn it via their investments.
Maximum Federal Tax Rate on Long Term Capital Gains (1972 – 2012) (by Guest2625)
Corporate Taxes.
These are the taxes on corporate profits. You can see in the picture below how the effective tax rate has been continuously decreasing from above 40% in the ’50s (now is under 20%).
US Effective Corporate Tax Rate 1947-2011 (by Guest2625)
Those were the rates.
Then there is a whole lot of studies proving either point or the other. That higher taxes provoke lower investment or the contrary. That higher taxes reduce tax collection or the contrary. That higher taxes reduce growth or the contrary. Pick your study and support your argument. You may have to look for one variable and hide another, pick a country and forget another, pick a decade and not the one before or after. It doesn’t matter, I guess any point can be proven.
Let me finish by sharing two more graphics, obviously handpicked, and a quote:
Top Capital Gains Tax Rates and Economic Growth 1950-2011 (by Leonard Burman).
Capital Gains Taxes and Real Investment (by Jared Bernstein).
From Warren Buffett’s op-ed “Stop Coddling the Super-Rich” in the NYTimes (Aug. 11, 2011):
“I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.“
The Blog by Javier 