The Nation Was Better Off When the Top Tax Rate For The Wealthy Was Much Higher
The top marginal tax rate—the rate paid by the wealthy on the highest part of their incomes—is much lower now than in the recent past. For over half the 20th century, coinciding with one of the nation’s longest and most broad-based economic expansions, the top income tax rate was at least 70%, even topping 90% for more than a decade. In the 1980s, the top tax rate was slashed to a historic low of 28%, and while the top tax bracket ticked up slightly in the ‘90s, it never fully recovered its revenue-raising capacity. This decline in the top tax rate corresponds with a rise in income inequality. 

The Trump Tax Law’s Cut To the Top Tax Rate Was A Big Handout To The Rich
Most recently, the 2017 Trump-GOP tax law cut the top individual income tax rate from 39.6% to 37%. This means that a wealthy couple with $2.5 million of income—the average earnings for the top 1%—could be getting a tax break of up to $55,000 annually just from Trump’s reduction to the top rate. The top 400 taxpayers alone—who collectively have a reported annual income of $107 billion—get an estimated $800 million tax cut each year just from the reduction in the top rate. 

Though only 0.7% of taxpayers fall into the top marginal tax bracket, those few individuals are so wealthy their earnings make up nearly one-quarter of all taxable income. The year after the passage of the Trump tax law, revenue generated from the top income tax bracket fell by $35 billion, roughly equivalent to the annual cost of providing every American with paid family and medical leave. The top rate is scheduled to return to 39.6% at the end of 2025—but even this change would still not make America’s highest-income households pay their fair share. 

A Critical Difference: “Marginal” vs “Effective” Tax Rates
The tax code applies progressively higher “marginal” tax rates to different levels of income: in 2024, 10% on joint income under $23,200; 12% on income between $23,200 and $94,300; all the way up to 37% on income over $731,200. A taxpayer’s “effective” tax rate is a combination of all the marginal rates they pay. That effective rate will always be lower than her highest marginal rate because of the tax she pays at lower rates. For instance, a married couple with $770,000 of income taking the standard deduction would pay a small portion of their income at the top 37% marginal tax rate, but an overall effective tax rate of just 26%.

We Need Higher Tax Rates for the Highest-Income Taxpayers
Extending the Trump tax law’s 37% top tax rate for income over $400,000 would cost roughly $600 billion over the next decade and go exclusively to the top 5% of highest-income households. The 39.6% rate on the highest incomes should be restored on income over $400,000, and we should add higher rates on the biggest incomes, such as the Millionaire’s Surcharge on income over $10 million.