Obama's Tax Plan: No Need to Cry for the Wealthy

Before everyone cries for all of the rich people who will be getting tax increases or contends that Obama is a socialist for even daring to increase taxes on the rich, I would like to point out two things.

First, let us define "marginal tax rate". According to Webster's New World Finance and Investment Dictionary, the definition is:

The tax rate that is paid on an additional dollar of taxable income.

So, when you hear percentages being tossed around, please remember that increasing the marginal tax rate on those making over $250,000 will only apply that rate to the amount made over $250,000. That is how a progressive tax system works. As you make more, the additional amount made is taxed at a higher rate. So, for 2008, a married couple filing jointly pays 10% on any income up to $16,050. For the amount made between $16,050 and $65,100, 15% is paid. The current top marginal tax rate (35%) is only paid on income over $357,700!

Second, please take a look at the history of the highest marginal tax rates. Between 1917 and 1980 (except from 1925-1931 hmmm, interesting, what happened to the economy during that time?), the year Reagan won the Presidential election, the top tax rate ranged from 46% to a whopping 92%! When Ronald Reagan took office, the top tax rate was 70%. Reagan brought it down to 50% in 1982 and then down to a low of 28% near the end of his time in office. (Hmmm, what happened to the economy in the early 90s? I'm thinking I should compare the history of top tax rates to economic cycles). When Clinton took office in the 90s, it went back up to 39.6%. George W. Bush brought it down to the current 35%.

President Obama is talking about bringing rates back to the level of the 1990s, so back to a maximum of 39.6%. This is still at the very low end of the range of historical tax rates and is again, only a marginal tax rate. So please, let's not act like President Obama is some radical that is turning the United States into some socialist, communist version of France.

And please don't cry for the wealthy. Relatively speaking, they have it pretty good.