When the states ratified the 16th Amendment in 1913, the top marginal personal income tax rate was 7% and federal spending was less than 10% of GDP; today the top rate is close to 40% and spending is 21% of GDP.
The tax code has become more and more complex, tax preferences (loopholes) have politicized the system, and high rates are penalizing success. Meanwhile, the mammoth IRS continues to oppress people’s liberties.
President Trump’s tax reform would simplify the individual income tax by closing loopholes and reducing the number of brackets from seven to three — with marginal rates of 10%, 25% and 35%.
Those changes would take us closer to the flat-tax system first proposed by Robert E. Hall and Alvin Rabushka in 1981, which motivated President Ronald Reagan and Congress to cut the top marginal personal income tax rate from 70% to 28% while closing loopholes to make the reforms “revenue neutral.”
☕ David Smick and John Mueller have an editorial you must read this weekend.
Elbows are flying, and the situation seems ‘ominous.’ It’s beginning to look a lot like 1986.