During the second Democratic presidential debate on Saturday evening, Sen. Bernie Sanders (I-VT) said he would not try to raise the top tax rate to 90 percent if elected.
Moderator John Dickerson asked him exactly how high he would raise the rate, given that Sanders has previously said he would increase it from its current level of 39.6 percent to above 50 percent. “We haven’t come up with an exact number yet,” he responded. “But it will not be as high as the number under Dwight D. Eisenhower, which was 90 percent.”
“I’m not as socialist compared to Eisenhower,” he added.
The remarks clarified a question raised by statements he made earlier in the campaign. In an interview with CNBC’s John Harwood, he said that he didn’t think a top rate of 90 percent would be too high, also citing the fact that it was around that level under Eisenhower. Indeed, it was 92 percent in the 1950s, but since the 80s it has fallen far below that.
While Republicans are often fond of saying that lower tax rates spur economic growth, the evidence doesn’t point in that direction. Historically, post-war growth has been higher when the top marginal tax rates were higher and lower when they were substantially lower. Under Eisenhower and with a more than 90 percent rate, economic growth averaged more than 4 percent a year. With a rate closer to 35 percent in recent history, it’s averaged less than 2 percent a year.
Economists have also found that the point at which the top tax rate is high enough to maximize government revenues but not so high that it discourages the rich from earning more is actually about 95 percent on the richest 1 percent. A 90 percent rate on that group was also found to significantly reduce income and wealth inequality and improve everyone’s wellbeing.
Yet Republican candidates have still proposed lower tax rates to boost economic growth. Jeb Bush says he’s targeting 4 percent annual growth, in part with a plan that gives the biggest break to the wealthiest. Ted Cruz says that his plan that would give the wealthy an even bigger break would “spur robust economic growth.” John Kasich says the same of his plan that would not just include a big tax break for the rich, but also slash programs that serve the poor. Donald Trump and Bobby Jindal’s plans similarly reduce the tax burden on the richest.
While Sanders didn’t specify a number on Saturday night, he did say that he would change the tax code by ending the fact that “billionaires pay an effective tax rate lower than nurses or truck drivers.” The richest paid an effective rate of 23.5 percent in 2011, the most recent data, lower than the 25 percent on-paper rate for a lot of middle class income. They also often take advantage of the fact that capital gains, or money made through investments, are taxed at a lower rate than regular income made through work.