With so much effort right now by the current administration to lower taxes, an historical look at previous efforts seems appropriate. For nearly a hundred years, tax cuts have been a centerpiece of political strife among politicians, with both parties at times lobbying for lower tax rates.
An accepted belief has been that lower taxes widen the Federal deficit and provide no economic expansion. Contrary to this belief, prior tax cuts enacted by various presidential administrations actually yielded economic growth and higher revenues for the Federal Government.
During the 1920’s, tax rates were lowered from over 70% to less than 25%, resulting in an increase in tax revenue from $719 million in 1921 to over $1.1 billion in 1928.
Following the dramatic tax increases during the 1930’s imposed by President Hoover and President Roosevelt, Democratic President John F. Kennedy enacted across the board tax reductions. Tax reductions of the early 1960’s brought top rates down from 90% to 70% while simultaneously increasing tax revenue from $94 billion in 1961 to $153 billion in 1968.
The historic tax reform act of 1986, signed by President Reagan, reduced rates across all income levels and nearly doubled tax revenue by 99.4 % during the 1980’s.
The top marginal Federal tax rate has fluctuated from a low of 7% in the early 1900’s to 91% during the 1950’s. Over the past 104 years, the average top marginal tax rate has been approximately 57.9%.
Max W. Smith, CFP®, CIMA® | Kent G. Forsey, CFP®