Debunking high taxes of 50s

[McChronagle]

Ive seen and heard a lot of things about how nobody really payed the high taxes of the 50s as it was more like a 40% tax rather than 90% due to deductions. Does anybody kno where i can find some concrete info and numbers regarding this stuff? Its a myth that id like to settle for good.

[Sam I am]

Ive seen and heard a lot of things about how nobody really payed the high taxes of the 50s as it was more like a 40% tax rather than 90% due to deductions. Does anybody kno where i can find some concrete info and numbers regarding this stuff? Its a myth that id like to settle for good.

Kind the same as how today the highest bracket actually pays 15% instead of 35% because of deductions?

[Zippyjuan]

In 1950, the hightest tax bracket was indeed 90%. That is a marginal rate- the tax rate applied to the last dollar earned. Exempting any income via deductions lowers the average tax rate. The 90% tax rate applied in 1950 to incomes over $1.39 milliion a year.
Tax rates from here- scroll down to 1950:
http://www.taxfoundation.org/publications/show/151.html

According to Wiki, median income (half earners made more, half made less) was only $2,750 and the marginal rate for that level was 20% though with deductions and exemptions, these people probably owed no taxes.

According to this chart, the 95th percentile in 1950 made about $62,000 a year which is about half the amount needed to hit the 90% bracket. At the $62,000 income level the marginal tax rate was only 30%- and again, that is the rate before deductions so hardly anybody was even over 30%- let alone near 90%.

http://en.wikipedia.org/wiki/File:Un..._1947-2007.svg

[Knighted]

Liberals, love to point out that economic growth was excellent through the 50's to 70's and how that growth correlated with extremely high marginal tax rates. The most ignorant variety of liberals will even go so far as to claim that the high tax rates caused the prosperity. Of course, this is all nonsense, but as with most liberal arguments, it achieves its goal of providing a wonderful soundbite for MSNBC while misinterpreting the numbers and distorting reality. The true reality is that marginal tax rates mean nothing without adjusting for differences in the tax code at the time. The effective tax rate - or the actual percent of income people were truly paying to taxes - is what really counts for the sake of this discussion. Unfortunately, the oldest data available for this only goes back to the late 70's to my knowledge. But this is still enough to make a compelling case that the liberal argument is bupkis, and the two charts below illustrate this:

Historical effective tax rates:
http://cdn.theatlantic.com/static/mt...ax%20RATES.png

Historical top marginal tax rates:
http://www.taxpolicycenter.org/taxfa....cfm?Docid=213

As you can see from the bottom graph, top marginal tax rates were still 70% from 1979-1981. Yet, the first graph shows that in 1981, the top 1% were paying (just) 31.8% effective tax rates. Compare this to the effective tax rate of 31.2% in 2006 when the top marginal rate was only 35%. In other words, even though the top marginal rate was twice as high at 70% in 1981, the actual percent of income that the top 1% were paying hasn't changed since 1981. This demonstrates how fallacious the liberal argument is which claims that high marginal rates somehow create economic growth. The reality of the situation is that effective tax rates the rich paid were never anywhere near the extremely high marginal rates. And it's a good thing they weren't. If they had been, economic growth would indeed have gone down the toilet.

[ILUVRP]

In 1950, the hightest tax bracket was indeed 90%. That is a marginal rate- the tax rate applied to the last dollar earned. Exempting any income via deductions lowers the average tax rate. The 90% tax rate applied in 1950 to incomes over $1.39 milliion a year.
Tax rates from here- scroll down to 1950:
http://www.taxfoundation.org/publications/show/151.html

According to Wiki, median income (half earners made more, half made less) was only $2,750 and the marginal rate for that level was 20% though with deductions and exemptions, these people probably owed no taxes.

According to this chart, the 95th percentile in 1950 made about $62,000 a year which is about half the amount needed to hit the 90% bracket. At the $62,000 income level the marginal tax rate was only 30%- and again, that is the rate before deductions so hardly anybody was even over 30%- let alone near 90%.

http://en.wikipedia.org/wiki/File:Un..._1947-2007.svg

great answer zippy , many people don't know the 90% was only for the amount over about $1.4 million , which would be in todays $$$ about $12 million, (wag ).

[furface]

My pet theory is that government spending, and in more detail government payrolls, are the most accurate predictors of economic distress. The more government hires and pays employees, the more economic problems.

For instance on the chart here, you can kind of pick out the depression & recessionary periods. It would be in a relative sense, so when spending goes up, you get a recession. The reason for the relative issue is that it would be a sort of "shock" to society. There are tax, demographic, and specific spending issues that would go into the model of course.

http://www.usgovernmentspending.com/...ury_chart.html

My main point is that governments do things that inhibit economic activity. For instance it inhibits natural drug trades. It also inhibits natural financial transactions because people are afraid of buying/selling because of tax implications. It also makes people stressed and that inhibits financial activity.

One of my clients isn't paying me because his Greek client isn't paying him because of some stupid tax form. That's an economic inhibitor. The Greek government is getting nasty about tax forms and such. I would predict that this will lead to a drop in economic activity in Greece. In fact off the top of my head it already has. The GDP of Greece has dropped quite a bit recently.

We're finally starting to see a little economic growth in the US. My theory for the reason for this is that the stimulus money has finally run out and federal & state governments are finally starting to lay off employees.

Direct payments to individuals like social security, however, may be economic stimulators. So would government payments to private contractors for necessary infrastructure, but not military spending. In my model government employees would be the main economic depressant.

[McChronagle]

thank you all youve been a great help.

[McChronagle]

i hate to ask for more but i will anyways does anybody have links or data supporting the fact that there were more deductions in the 50s? ive found a few things but nothing 100% concrete.

[GeorgiaAvenger]

If there is anything to be found I am sure you can find it with FRED http://research.stlouisfed.org/

Not that I like the Federal Reserve, but they have the biggest research database I have ever seen when it comes to economic data.

[Zippyjuan]

My pet theory is that government spending, and in more detail government payrolls, are the most accurate predictors of economic distress. The more government hires and pays employees, the more economic problems.

For instance on the chart here, you can kind of pick out the depression & recessionary periods. It would be in a relative sense, so when spending goes up, you get a recession. The reason for the relative issue is that it would be a sort of "shock" to society. There are tax, demographic, and specific spending issues that would go into the model of course.

http://www.usgovernmentspending.com/...ury_chart.html

My main point is that governments do things that inhibit economic activity. For instance it inhibits natural drug trades. It also inhibits natural financial transactions because people are afraid of buying/selling because of tax implications. It also makes people stressed and that inhibits financial activity.

One of my clients isn't paying me because his Greek client isn't paying him because of some stupid tax form. That's an economic inhibitor. The Greek government is getting nasty about tax forms and such. I would predict that this will lead to a drop in economic activity in Greece. In fact off the top of my head it already has. The GDP of Greece has dropped quite a bit recently.

We're finally starting to see a little economic growth in the US. My theory for the reason for this is that the stimulus money has finally run out and federal & state governments are finally starting to lay off employees.

Direct payments to individuals like social security, however, may be economic stimulators. So would government payments to private contractors for necessary infrastructure, but not military spending. In my model government employees would be the main economic depressant.

Thanks for the chart. I would be interesting in seeing one with an overlay between when the various economic crisies started vs when the spending increased. A crisis can lead to more spending in responce to it so the cause and effect may be backwards from your theory but we would need more info to see for sure.

We can see a bit more detail in this graph: http://www.ritholtz.com/blog/wp-cont...utlays-GDP.png


Now let me throw out some dates. Since they have a nice, concise list, I will go to Wiki.

I think I will start with the Great Depression. Wiki lists it as starting in August, 1929 and have it ending in 1933 though followed by another sharp recession in 1937.
The chart indicates WWII and its associated sharp rise in government spending.

After that, Wiki lists recessions in 1953, 1958, 1960- 61, 1969- 70, 1973- 75, 1980, 1981-82, 1990- 91, 2001, and the most recent listed as starting December 2007. Compare these dates with when spending increased in the chart above.

Looks like our most recent recession was preceded by a decline in spending as a percent of GDP prior to it beginning.

One other very major caviat- that is that we are looking at the debt as a percent of GDP. When we have a recession or depression, GDP is falling so even if spending was actually kept fixed, it would rise as a percent of GDP during the crisis.

For this reason, I would like to also submit an inflation adjusted chart of federal government spending- not adjusted for GDP.The green line is the one we are looking at. Other than at the end of WWII and a bit in the 1950's, it has ALWAYS gone up.


http://www.marktaw.com/culture_and_m...ionalDebt.html

[enoch150]

Don't know about deductions, but here are some rates: