Job Creation and the Tax Rate

A lot of people in the United States right now are whining that if the income tax rate for the rich goes up, it will lead to even fewer jobs being created in the country.

I don’t believe that would happen, and here’s why:

Right now, the maximum federal income tax rate for individuals earning $379,150 per year or more is 35%. Most of the 400 wealthiest Americans actually pay far less that that, but see my last post for more on that. The maximum federal income tax rate for corporations earning $18,333,333 per year or more is also 35%.

In about 1984, the maximum federal income tax rate for individuals earning $159,000 per year or more was 50%. Looking at job creation and destruction from 1980 to 2009, 1984 is the jackpot. At the same time, job creation leaped and job destruction fell, to its highest and lowest respectively. The corporate tax rate in 1984 ranged from 15% to 51%.

Since then, job creation slid and job destruction rose, even as the top bracket for individual tax rates was slashed. From 1988 to 1990, the top income tax rate was 28% and job creation took a nosedive. To be fair, job destruction fell a little bit, too, then circa 1991, job elimination shot up. The corporate tax rate from 1988 to 1991 was 15% to 39%.

The same sort of chart is not available for earlier periods, but I did find a U.S. Census report that compared employment levels in 1967 and 1977. During that entire period, individuals earning $200,000 or more paid 70% federal income tax.  The number of companies and employees went up a little. U.S. sales more than doubled. To be fair, unemployment rose from a low of 3.8% in 1967 to a high of 7.6% in 1977.

The corporate tax rate in 1967 was 22% (first $25,000) or 48% (anything over $25,000). The corporate tax rate in 1977 was 20% (first $25,000),  22% ($25,000 to $50,000), or 48% (anything over $50,000).

From January 1950 to December 1951, the unemployment rate fell from 6.5% to 3.1%. During those two years, people earning $400,000 or more per year paid 91% federal income tax.  The corporate tax rate in 1950 was 23% (first $25,000) or 42% (anything over $25,000).  The corporate tax rate in 1951 was 28.75% (first $25,000) or 50.75% (anything over $25,000).

Don’t tell me that increasing the federal income tax rate paid by the wealthiest Americans would automatically result in more job cuts and higher unemployment. Ditto for increasing corporate income taxes.

Sure, other factors played an important part in job growth and employment rates during the past hundred years. It’s the same today. Income tax rates are just one part of the equation. Another part, perhaps the most important, is how much each and every one of us, rich or poor, care about the future of the United States of America; how much we care about our fellow Americans; how hard we are willing to work to support this great nation; and how many jobs we want to create for developing countries, including China, Mexico, and India.


About Taminar

When I grow up, I want to make movies and write books. Now in my 50s, I wonder if I'll ever really accomplish the dreams of my youth. I have made two short films, one for a college film-making class, the other for an MTV-sponsored contest. I have written short plays that have been produced, and a few short stories and reviews that have been published. I also perform and direct for community theatre. My working life has included stints in local TV news, public relations, retail management and cashier, and for a couple of years, I made the rides go at Walt Disney World. I have two cats and a husband.
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