Trump’s Tax Proposal: A 39.6% Top Rate in Context of U.S. History

The debate over tax policy has once again taken center stage as President Donald Trump has floated the idea of raising the top U.S. marginal income tax rate to 39.6%—a move that would reverse a key provision of the 2017 Tax Cuts and Jobs Act (TCJA). While the proposal has drawn both criticism and support, it’s critical for investors to contextualize this rate within the broader history of U.S. taxation. How does 39.6% stack up against historical levels, and what does this mean for portfolios?

Current vs. Proposed Rates
As of 2025, the top federal income tax rate stands at 37%, applying to taxable income exceeding $626,350 for single filers and $751,600 for married couples filing jointly. This rate, established by the TCJA, has remained unchanged since 2018. The proposed 39.6% rate—last in effect under President Barack Obama from 2013 to 2017—would restore a level last seen during the Clinton administration. However, this figure doesn’t account for the 3.8% Affordable Care Act (ACA) surtax on investment income, which would push the total top rate to 43.4%, matching its 2013-2017 peak.

A Century of Fluctuations
The U.S. top marginal rate has oscillated dramatically over the past century, reflecting economic crises, wars, and shifting political priorities. During World War II, the rate spiked to 94% in 1944–1945 to fund the war effort. Even in the 1950s and 1960s, the rate averaged around 70%, while the 1986 Tax Reform Act temporarily slashed it to 28%.

This historical perspective reveals that today’s proposed 39.6% rate is still far below the highs of the 20th century. Even the 1990s, when the rate was 39.6%, saw robust economic growth, with the S&P 500 rising nearly 200% from 1993 to 2000.

Investment Implications
For investors, the return to a 39.6% top rate could influence capital allocation decisions. High-income earners may seek tax-efficient investments such as municipal bonds (exempt from federal income tax) or real estate, which offers depreciation benefits and potential for long-term appreciation.

Historically, the market has shown resilience even under higher rates. For instance, the S&P 500 averaged 9.6% annual returns between 1993 and 2000 (under 39.6%) versus 6.2% from 2018 to 2023 (under 37%). While correlation doesn’t equal causation, this suggests that tax policy alone isn’t the primary driver of equity performance.

Conclusion: A Return to the Recent Past, Not a Tax Revolution
The proposed 39.6% top rate, while politically contentious, represents a return to a rate that already existed for nearly a decade in the 2010s. In the broader historical context, it’s a modest adjustment compared to the 94% wartime peak or the 70% rates of the mid-20th century.

For investors, the key takeaway is that tax policy changes are just one variable in a complex economic landscape. While high earners may need to adjust their portfolios for tax efficiency, the stock market’s historical resilience—even under higher rates—suggests that broader economic fundamentals, such as corporate earnings and interest rates, will remain the primary drivers of returns.

As policymakers debate the merits of this proposal, investors would be wise to focus on diversification and long-term growth strategies rather than overreacting to marginal rate changes. After all, the U.S. economy has weathered far steeper tax hikes before—and thrived.