Tax Rates Might Start Low, But Rarely Stay That Way

The highest marginal income tax rate in 1913 was only 7% (IRS data here), but it only took Congress five years to raise the highest rate to 77% in 1918, and eventually to rates above 90% in the 1940s and 1950s (see chart).

As I wrote today on the Enterprise Blog:

As we now consider imposing a European-style value-added tax (VAT) on Americans, we should remember the lesson of U.S. income tax rates—they started low but then rose quickly as income taxes became an attractive source of new revenue for spending-hungry politicians. As today’s Wall Street Journal editorial points out, the lesson from Europe’s record of VATs is very clear: the rates might start low initially, but “they rarely stay that way.”

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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