Leave it to France to put socialist economic policy on full display. The reports are out that French president Francois Holland is seeking a new budget plan that would establish a top marginal income tax rate of 75 percent, meaning after your income hits a certain level—in this case about $1.2 million in American dollars—you can count on paying three out of every four dollars earned to the government.
I suppose if nothing else, Holland’s proposal should remind us of how trivial the debates of tax policy are in the United States where the current battle is between the present top rate of 35 percent and the 39 percent rate that would exist if the Bush tax cuts were repealed. In the United States, political strategists define the differences between these figures as the difference between trickle-down economics or socialism (pick your preferred epithet).
But Holland’s proposal should serve as a reminder that it wasn’t that long ago that debates in the United States weren’t so trivial. When Ronald Reagan came to office in 1981, the top tax rate was 70 percent. Turn the clock back twenty years further and John F. Kennedy came to office when the top rate was a stunning 91 percent. JFK proposed a tax rate reduction, which would be ultimately signed into law after his death, and it triggered a brief economic boom.
By the time Reagan was in office the country was in a deep economic crisis, worse than today’s, because inflation was also rampant. He moved boldly, in winning passage of deep tax cuts his first year in office. Then in 1986, he pushed for and won a revolutionary tax reform victory, where the top rate came all the way down to 28 percent and came in conjunction with eliminating tax deductions heavily used by the wealthy.
The combination of our recent tax history, the current debates over tax fairness and the obvious admiration President Obama and most American leftists have for European social policy beg this question—how high do you want to go? It’s easy to give campaign speeches fulminating about the need of the wealthy to pay their fair share. So what, then, is an appropriate top rate? Do they think the new proposal coming out of France should be the wave of the future for the United States?
I don’t mean these questions as an accusation. They strike me as a perfectly reasonable ones for the president to address. If he believes what’s going on in France goes too far, let him go on the record.
It doesn’t take a believer in trickle-down economics to figure out that when a tax rate reaches a certain level, anyone’s willingness to work more, invest more or risk more is diminished. Reagan himself recalled in his memoirs, how during his acting days he made the conscious decision to stop making movies once his income had reached the top rate. He wasn’t going to work for nine cents on the dollar. Who would?
We should note that Reagan was a politically active Democrat when he was having his first encounter with tax policy. Regular readers here at the CV blog know I’m a believer in the authentic Democratic Party of the pre-1968 period, of which Reagan was a part, as obviously was JFK. But any political philosophy has an area where it misses the mark or goes too far. The traditionalist Democrats I admire lost sight of the fact that there hits a point when taxes get too high, and it took a little bit of help from JFK and a lot of help from Ronald Reagan to restore tax policy to a sane trajectory.
If we want to debate over a few percentage points here and there on the marginal rates like we are right now, fine. But let the president and his allies make clear they understand what’s happening in France should stay in France.
Dan Flaherty is the author of Fulcrum, an Irish Catholic novel set in postwar Boston with a traditional Democratic mayoral campaign at its heart, and he is the editor-in-chief of TheSportsNotebook.com