Bernie Sanders got one of his big laughs of the night at the debate when he pointed out that he wasn't as much of a socialist as Dwight D Eisenhower. While he thought the top income tax rate should be higher than it is he wasn't suggesting anything as high as the 91% that pertained in the 1950s. Well, yes, ho ho ho and all that:

In order to pay for making college tuition-free for Americans, Sanders said that Wall Street owed the middle class for bailing it out during the recent financial crisis. He said he would demand "that the wealthiest people and the largest corporations, who have gotten away with murder for years, start paying their fair share." "Well, let’s get specific, how high would you go?" CBS News moderator Nancy Cordes asked. "You’ve said before you’d go above 50 percent. How high?" "We haven’t come up with an exact number yet, but it will not be as high as the number under Dwight D. Eisenhower, which was 90 percent," Sanders answered.

OK, nice piece of political rhetoric. But just about everyone has misunderstood how to translate this into modern money. That rate applied to income above $200,000 a year (for a single filer) and that's about $1.7 million a year now correcting for inflation. Thus people are thinking, well, if 91% over $200,000 didn't do much harm then 90% or something over $1.7 million won't. But that's to fundamentally misunderstand the difference between goods or consumption inflation and rises in real incomes. If we're talking about incomes that $200k is better thought of as $9 million now. And that does very much change the calculations about how much such a tax rate might raise.

The same WaPo piece makes this mistake:

What does it mean, though? For the duration of Eisenhower’s presidency, that rate affected individuals making $200,000 or more per year or couples making $400,000 and above per year. In 2015 dollars, that's roughly $1.7 million for an individual and $3.4 million for a couple.

No, no, it isn't, it's really not true. That is to upgrade that income by the general inflation rate over that time. And that's not how we should be looking at incomes over time (it's OK over a few years but not over decades and certainly not centuries). The lovely little tool, Measuring Worth, can be used to give us the correct calculation:

If you want to compare the value of a $200,000.00 Income or Wealth , in 1953 there are three choices. In 2014 the relative: historic standard of living value of that income or wealth is $1,770,000.00 economic status value of that income or wealth is $4,450,000.00 economic power value of that income or wealth is $8,900,000.00

That first gives us the same as the WaPo answer: that's that income upgraded by the general inflation rate. So, to live as large today as someone did in 1953 (the year I used) on $200k you need $1.7 million now. But general living standards have risen considerably over the past 60 years. Well more than doubled in fact more like four times. And that's what gives us that economic power. To be similarly high up the totem pole of relative incomes, assuming no change in inequality, you'd actually need that $8.9 million to live as large.

And this is about right: livings standards have risen some eight times since around 1900. That's for everyone, not just the super rich. So, four times in 60 years, eight times across a century or more, we're all about and around in agreement here.

And then there's the economic status idea: we all know that inequality (especially among these very top incomes) has risen over this time period. So, while $8.9 million might be equal to the general rise in incomes over the period, given the way that the very tippy top incomes have soared away, this only puts you in the relative income position of that $4.4 million to equate to the $200k. That is, $8.9 million isn't as close to the top as $200k was then.

The important underlying point here is that incomes do generally rise over time. That is, real incomes rise over time: it's the great achievement of this generally capitalist free market malarkey that this is true. It's the only economic system we've ever stumbled across that manages this in any substantial manner, for any substantial period of time., for any substantial portion of the economy. It's why it's such a freakin' awesome system in fact.

And what this means for public policy discussions is that we can't just adopt old tax policies upgraded for general inflation. Because those real incomes really do rise over time. The effects will be different today because we've an entirely different set of incomes to consider. We need to upgrade our thinking and calculations by how much incomes have changed, not the prices of goods and services.

There is another way of saying this very same thing. "Fiscal drag" in the jargon. If we only upgrade tax brackets or allowances for general inflation then we'll be ignoring the fact that incomes generally rise faster than it does. And after a few decades of this the results become somewhere between absurd and obscene. In my native UK it used to be that income tax started at around median wage. A few decades of Chancellors upgrading the tax free allowance only by price inflation (and not always even that) meant that a few years ago income tax started to bite for someone working part time on the minimum wage.

The result of that is that marginal tax rates might not change (or could even decline) while average tax rates would soar enormously. Something we need to consider in our discussions of the public policy of what tax rates should be.