How has the United States functioned in the past with a 94% income tax rate?

Question

I am just curious, since the current administration has cut taxes to attempt to stimulate the economy. How can the economy function at such high tax rates. How can two economic theories be so different in principle.

Answer 1

During WWII, the population grudgingly accepted the high tax rates in order to pay for the war effort.  While the 94% tax rate may have only applied to a few people, the other brackets were also much higher than they are now.

Here is the tax table from 1944 and 1945.

$0 - $2,000 23%

$2,000 - $4,000 25%

$4,000 - $6,000 29%

$6,000 - $8,000 33%

$8,000 - $10,000 37%



$10,000 - $12,000 41%

$12,000 - $14,000 46%

$14,000 - $16,000 50%

$16,000 - $18,000 53%

$18,000 - $20,000 56%



$20,000 - $22,000 59%

$22,000 - $26,000 62%

$26,000 - $32,000 65%

$32,000 - $38,000 68%

$38,000 - $44,000 72%



$44,000 - $50,000 75%

$50,000 - $60,000 78%

$60,000 - $70,000 81%

$70,000 - $80,000 84%

$80,000 - $90,000 87%



$90,000 - $100,000 90%

$100,000 - $150,000 92%

$150,000 - $200,000 93%

$200,000 - and over 94%

http://www.taxpolicycenter.org/taxfacts/...

In 1939, only 7.7 million tax returns were filed.  In 1945, almost 50 million were filed.  While only a few were subject to the 94% tax, a large portion of the population paid at least a 25% tax or more.

Answer 2

There is a concept called the Laffer Curve, dude in the Reagan administration drew it up on a bar napkin, where the graph of supply and demand looks like the curved part of the letter D.  It states that as tax rates go up, tax revenues go up until a certain point that less people begin to work because rates are too high.  As the tax rate (represented by the Y axis) reaches 100%, the tax revenues (represented by the X axis) returns to zero because nobody is willing to work.

Answer 3

If I remember correctly, that was a marginal tax rate, and the income level was set so high that it only applied to one person: John D. Rockefeller.  So everybody else continued to pay taxes at the normal rates, except for him, and he only paid 94% on his income above a certain level.  That's how the economy survived.

Answer 4

The 94% rate only  applied to     income over   a very high amount, so only effected a few people. Income from capital gains and corporations paid much lower tax, so high earners like movie stars turned themseleves into businesses when they could. Mostly  middle income people  have paid the same tax rate they do now and all the raising and lowering of taxes only stronly effect high income people , and  even for them the largest effect is how they choose to recieve their income.

Answer 5

I have never heard of a 94% tax rate.  Check your numbers,