Why Biden’s proposed marginal tax rate increase isn’t enough

The Biden administration has announced a proposal to raise the top marginal income tax rate from 37 percent to 39.6 percent as part of the American Families Plan. This tax hike, which would affect only those earning over $400,000 a year, is a sign that the current administration is ready to take income inequality seriously, but it’s not enough. We should be raising the top marginal tax rate not just 2.6 percent, but 26 percent, or even more.

For all the claims that the newly proposed top rate is “eye-popping”-ly high, it’s merely a return to the rate as it was in 2017 before President Trump’s Tax Cuts and Jobs Act. High-income earners will be fine paying slightly more, just as they were fine paying slightly more less than five years ago. The rich would be fine paying much, much more, as they did throughout most of the 20th century.

Memories may be short, but from 1932 to 1986, the top marginal income tax rate never dipped below 50 percent. In fact, for 44 years straight, during the greatest era of economic expansion in American history, it never went below 70 percent.

In the midst of the Second World War, the highest marginal tax rate rose to its peak at 94 percent. Even after the war, the highest rate continued to hover around 90 percent for our highest earners until the mid 1960s. It was during this period that incomes for wealthy families and average working families rose at nearly the same pace. That came to an abrupt end with Reagan-era tax cuts and trickle-down economics, which led to the massive income inequality that we see today.

It’s not coincidence that the United States had explosive, widely-shared economic growth and top income tax rates of up to 90 percent at the same time — they’re directly linked. Part of the reason FDR’s New Deal, JFK’s New Frontier, and Lyndon Johnson’s Great Society were even possible was due to the high marginal tax rate on the nation’s top earners. Baby Boomers experienced a collection of government programs that helped them receive a world-class education and provided them with a well-funded safety net, all made possible from the richest Americans paying their fair share.

If we want to create that same kind of economic growth and opportunity for another American century, we need to raise taxes on the rich, and we need to tax them a lot. The Biden administration needs to think bigger than 39.6 percent and create new tax brackets that raise taxes only on those making millions or tens of millions of dollars a year.

It’s important to remember how tax brackets, with increasing marginal rates, actually work. Individuals get charged a higher rate based on how much money they earn, but rather than taxing the entire sum of their income at the highest rate, each chunk of income is taxed at a progressively higher rate based on its corresponding bracket. This means that the first $10,000 dollars of income is taxed at around 10 percent, while the next $30,000 is taxed at around 12 percent, and so on until you reach the top rate. And if you were to earn $10 dollars above the cutoff for bracket taxes at the 37 percent rate, you would only have to pay that rate on the $10 dollars you earned in that bracket. If we were to set a 90 percent tax rate on anyone making $10 million dollars of income, someone would only pay that 90 percent on his ten millionth dollar and up each year. Anyone who says they can’t afford to pay higher taxes on their ten millionth dollar of income is lying.

Whether the marginal rates are raised to President Biden’s suggested 39.6 percent, Rep. Ocasio-Cortez’s suggested 70 percent rate, or even 90 percent, high income earners can afford it. As a wealthy individual myself, I can say that with confidence.

If we want to return to a time of shared prosperity, then we must bring back a significantly higher marginal income tax rate. It’s past time that we make our tax code work for all Americans, not just millionaires like me.

Dale Walker is a retired financial services executive. He currently serves on the Boards of Beneficial State Bank, the Graduate Theological Union, and Pacific Vision Foundation. He is an active member of Patriotic Millionaires.