Obama is expected today to reiterate his long-standing proposal to extend the Bush tax cutsfor families making less than $250,000 a year, this time proposing to extend them for a single year rather than permanently. If this happens and cuts for families making more than $250,000 are allowed to lapse, then the top rate will rise from 35 percent to 39.6 percent.
How big of a change would that be? The Tax Foundation has compiled a database of tax brackets throughout the years that lets us see what the top marginal rate for a family making $250,000 in 2011 dollars would be from 1913 to the present:
You see that teeny tiny little dashed uptick at the end there? That’s what would happen if Obama’s proposal went through. Which is just to say that by post-World War II standards, marginal tax rates for people making $250,000 a year are pretty darn low, and will remain low even if Obama’s plan passes.
And this doesn’t even take into account the fact that more and more of the richest Americans’ income comes from capital gains and dividends, which aren’t subject to the personal income tax. Indeed, when you take into account the tax preferences given to investment income, the effective total tax burden on the rich has been falling considerably since the Reagan years, with a short-lived spike during the Clinton administration (datafrom Thomas Piketty and Emmanuel Saez):
It’s also worth noting that there is far less difference in the taxes paid by the rich and the ultra-rich. In 1940, there were 25 different tax rates for income above $250,000, with the highest only applying to income above $80 million (in 2011 dollars). Today there are two rates for income over $250,000, with families making $80 million paying the same marginal tax rate as families making $400,000.
The Bush tax cuts for the rich, in two charts