Along with a reflection on the tax package passed in December 2010 it seems helpful to also review where tax rates have been in the past. While current rates may already seem high to many, in retrospect they’re favorable versus historical figures.
According to J.P. Morgan, as of 9/30/2010 the 40 year average for the top marginal ordinary income tax rate (federal) was 47.9%. The top marginal rate today is 35% due to the tax package mentioned above extending the “Bush-era” tax cuts. Also note the marginal federal income tax rate historical high is 94%, imposed during 1944 and 1945. Tax rates on qualified dividends are an even greater divergence- the 40 year average is 44.6% versus a current 15% top rate.
It helps to review these figures when attempting to understand not only where we stand today and what direction rates may go in the future, but also the potential magnitude of future changes in rates.
