Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax rate in 1980?

Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax rate in 1980?

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January 9, 2021
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Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax rate in 1980? What is the top rate now? Are you in favor of or opposed to the lower marginal rates? Why?

Answer and ExplanationSolution by a verified expert

Explanation
The taxes are the major source of revenue for the government of many nations. Taxes are included in the working of economic systems from last several decades.
Though it is seen that the system of taxes is different in different nations, ranging from regressive to progressive system to same tax ate for all.
Though the tax rate which was charged around 50 years back was much higher than the tax rate imposed now.
In the progressive tax system, which is widely used around the world is based upon marginal tax rate. So as the income of people increase, they shift towards higher tax bracket and has to pay according to higher marginal tax rate.
This system is is better than other tax systems because it helps in reducing inequality.
In 1980, the highest marginal tax rate was around 70%, which was very high as compared to marginal tax rate these days.
Now, particularly in the year 2020, it is around 37%.
The marginal tax rates are lowered over the period of time.
This is rather good, and beneficial for the economies because it is important for households, and firms to have substantial amount of disposable income with them.
When major part of the income is paid in taxes, then the consumption, and investment expenditure falls.
Thereby resulting into lower aggregate demand.
It is important for nations to have progressive income tax system, so that income is redistributed properly, and the people earning higher level of income should definitely contribute more to the economy.
But the marginal rates should not be as high as 70%. This reduces the incentive of people to earn more.
So the marginal tax rates should be lower so as to increase consumption, production, and investment expenditures in the economy.
Larger disposable income in hand also helps in raising the standard of living of people, and helps in economic growth of the nation.
Answer
The marginal tax rates should not be very high, as it reduces the disposable income in the hands of people. So lower marginal tax rates are better as they induces individuals to earn, and spend more. Thereby increasing the standard of living of people.

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