Top US Federal Marginal Tax Rates 1952–2009

The graph below shows the top US federal marginal tax rates on (1) earned income (in red) and (2) (where it diverges from the latter) ordinary income (in blue), from the the data here.

This is a large part of the story of rising US income inequality.

The major changes to the rates were as follows:

(1) from 1933 to the early 1940s the top marginal tax rate was progressively increased from about 60% to about 90% to fund the war effort, and stayed at 90% until the Kennedy–Johnson tax cut of 1964.

(2) the Kennedy–Johnson tax cut of 1964 reduced it to 70%.

(3) then under Reagan’s presidency the top marginal tax rate on ordinary income was reduced to 50% in the Economic Recovery Tax Act of 1981 and to 30% in 1988.

(4) subsequent changes have been minor, and the rate has fluctuated in a range from 30 to 40%.

Two Summaries of Bewley’s Why Don’t Wages Fall During a Recession?

Truman Bewley’s Why Wages Don’t Fall During a Recession (1999) is an excellent empirical study of the causes of downwards nominal wage rigidity and how and why wages are set in modern capitalist economies.

Two concise summaries of that book are here:

Robert Nielsen, “Why Wages Don’t Fall During A Recession,” December 23, 2013.
http://robertnielsen21.wordpress.com/2013/12/23/why-wages-dont-fall-during-a-recession/

Bryan Caplan, “Why Don’t Wages Fall During a Recession?: Q&A with me channeling Truman Bewley,” http://econlog.econlib.org/archives/2013/09/why_dont_wages.html

BIBLIOGRAPHY
Bewley, T. F. 1999. Why Wages Don’t Fall During a Recession. Harvard University Press, Cambridge, MA.