Returning to the 90 percent top tax rates of the 1950s would probably be terrible for the US economy

From James Pethokoukis of AEI.

"Yes, the US economy did quite nicely in the 1950s when the top tax rate was either 92 or 91 percent during those years. For the decade, annual real GDP growth averaged either 3.6 percent (1951-1960) or 4.2 percent (1950-1959), depending on how you define “decade.”  Pretty good either way despite three recessions (July 1953-May 1954, August 1957-April 1958, April 1960-February 1961).

So obviously superhigh tax rates would be no barrier to fast economic growth today, right? That’s obviously the conclusion Sanders wishes people to draw. But it’s not so simple. Very few taxpayers qualified for those top marginal rates back then. And the effective rates for those who did were considerably lower due to various tax breaks and loopholes. In fact, average tax rates for the richest Americans were not much different in the 1950s than in the 2000s. As inequality researchers Thomas Piketty and Emmanuel Saez wrote in “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective” back in 2007:

The average individual income tax rate in 1960 reached an average rate of 31 percent at the very top, only slightly above the 25 percent average rate at the very top in 2004. Within the 1960 version of the individual income tax, lower rates on realized capital gains, as well as deductions for interest payments and charitable contributions, reduced dramatically what otherwise looked like an extremely progressive tax schedule, with a top marginal tax rate on individual income of 91 percent.

Keep in mind that many on the left would like to combine very high tax rates with an elimination of many tax breaks and loopholes, raising effective tax rates to levels never before seen in the United States or anywhere else. (Not even France.) And I am pretty Sanders has no idea about the long-term impact of high tax rates on entrepreneurship.

What’s more, the 1950s saw economic growth and worker wages propelled by a number of one-off factors that helped offset those high tax rates. As AEI’s Ed Conard has explained:

The United States was prosperous for a unique set of reasons that are impossible to duplicate today, including a decade-long depression, the destruction of the rest of the world’s infrastructure, a failure of potential foreign competitors to educate their people, and a highly restricted supply of labor.

A National Bureau of Economic Research study described the situation this way:

At the end of World War II, the United States was the dominant industrial producer in the world. With industrial capacity destroyed in Europe—except for Scandinavia—and in Japan and crippled in the United Kingdom, the United States produced approximately 60 percent of the world output of manufactures in 1950, and its GNP was 61 percent of the total of the present (1979) OECD countries. This was obviously a transitory situation.

In other words, economic nostalgia for the 1950s is a poor guide for pro-growth policy today."