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Taxing the rich is not a new idea by any means. But the call to take more money from them has become louder. People with some power to act have begun to unabashedly call for higher taxes on the rich. \u00a0Much to the chagrin of many wealthy Americans and those in attendance at Davos for the Economic Forum (and likely many readers of this blog), the idea is gaining momentum. Those in Davos were caught between taking it seriously and dismissing it as fantasy. My former boss, Scott Minerd, Global CIO of Guggeneheim Partners said \u201cIt\u2019s scary\u2026I think the likelihood that a 70 percent tax rate, or something like that, becomes policy is actually very real.”<\/span><\/p>\n While there is bipartisan appeal of taxing the rich, the most vocal proponents are on the left with newly minted congresswoman Alexandria Ocasio-Cortez and Massachusetts senator Elizabeth Warren leading the charge. \u00a0Ocasio-Cortez has called for 70% marginal tax rates for filers with incomes above $10M, while Warren has proposed taxing acquired wealth. The proposal from Ocasio-Cortez actually has some momentum behind It. A recent poll from The Hill and HarrisX<\/a><\/span> shows that 59% of those surveyed support imposing a 70% marginal tax rate on high earners (including 45% approval from Republican respondents).\u00a0<\/span><\/p>\n Since our clients are people whose clients may actually earn enough to be impacted by this tax rate, I thought I would look the issue in a bit more detail. And since proposals are notably lacking at this time, I will simply focus on a 70% marginal tax rate at incomes greater than $10M with no other changes to the tax code.<\/span><\/p>\n First, as almost any article you read on the subject will mention, a 70% top marginal tax rate is not without precedent in the US, in fact, from 1934 to the 1980\u2019s it was the norm. The exhibit below shows the history of the top and bottom tax rates in the US. It is likely that you have seen it before.<\/span><\/p>\n Source: RiXtrema, IRS data: <\/strong>https:\/\/www.irs.gov\/statistics\/soi-tax-stats-historical-table-23<\/strong><\/a><\/em><\/span><\/p>\n Also notable, when converted to 2018 dollars, the tax rate on incomes as high as $10M isn\u2019t unprecedented. The income data in Exhibit 1 is not inflation adjusted. In 1951, for example, top earners paid a 91% marginal tax on incomes above $400K, which is the equivalent of $3.8M in 2018 while the marginal rate above $5M in 1936 would equate to about $90M today, far higher than the proposed $10M. But that only lasted for a few years (then they raised the marginal tax rate while lowering the income threshold required to pay it. \u00a0From Exhibit 2 we can also see that historically the top marginal tax rate was applied to incomes that, in real terms, are far higher than those in place today.<\/span><\/p>\n Note: The income axis (right) is intentionally set to $10M. The inflation adjusted incomes of the early 1900\u2019s have a break to indicate that they far exceed the $10M threshold.<\/em><\/span><\/p>\n Source: RiXtrema, IRS data: <\/strong>https:\/\/www.irs.gov\/statistics\/soi-tax-stats-historical-table-23<\/strong><\/a><\/span><\/p>\nExhibit 1: Tax Rates for Highest and Lowest Tax Brackets with Income Required to Trigger Highest Rate<\/span><\/h5>\n
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<\/span><\/p>\nExhibit 2: Inflation Adjusted Income Threshold with Tax Brackets From Exhibit 1<\/span><\/h5>\n
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