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Whenever the topic of tax rates comes up, a poster will inevitably chime in with the factoid that the top rate on the very rich was 91% under Ike in the 1950's. And always will be added the observation that it was a time of economic boom in the U.S. This is misleading and deceptive for several reasons.
My first source is liberal darling economists Piketty and Saez. They point out that the tax structure was much different in the 1950's than today. so that comparing the top marginal rate now to then is an apples-oranges comparison. A comparison of effective tax rates on the top 1% shows that they were in the same ballpark as today. The effective rate was 31% in 1960 (with the 91% top nominal rate) and 24% in 2004 (top nominal rate=36%).
Interestingly, the larger progressivity in 1960 is not mainly due to the individual
income tax. The average individual income tax rate in 1960 reached an average
rate of 31 percent at the very top, only slightly above the 25 percent average rate at
the very top in 2004. Within the 1960 version of the individual income tax, lower
rates on realized capital gains, as well as deductions for interest payments and
charitable contributions, reduced dramatically what otherwise looked like an extremely
progressive tax schedule, with a top marginal tax rate on individual income
of 91 percent
Secondly, the 1950's were a unique era for the U.S. economy, as detailed by Edward Conard in his recent book on the US economy. First of all, Europe and Japan had been devastated by WWII while the US went untouched other than Pearl Harbor. And according to Conard, the US education system was unique at the time: "In 1955, the United States enrolled 80 percent of its fifteen-to-nineteen year-olds in school full tiem compared to only 10 percent to 20 percent in Europe."
Conard concludes:
Quote:
The United States was prosperous for a unique set of reasons that are impossible to duplicate today, including a decade-long depression, the destruction of the rest of the developed world's infrastructure, a failure of potential foreign competitors to educate their people, and a highly restricted supply of workers. For the sake of mankind, let's hope those conditions aren't repeated!"
(p. 13 Unintended Consequences: why everything you've been told about the economy is wrong by Edward Conard.
Michael Medved has a good op-ed on the issue, where he points out that taxes are only half of the equation. According to Medved, federal spending as a percentage of GDP was 16.5% in 1956, and 24.3 in 2012. Probably many conservatives would be happy to go back to the tax system of 1956 if we could also go back to the spending structure of 1956.
Finally, while the US economy boomed in the 50's, there is the question of whether an even bigger boom might have occurred but for the 91% rate. Ronald Reagan was working as an actor during that time and recalled:
Quote:
...highly paid actors frequently found that after making one or two movies they were in the 91 percent tax bracket. Why make another picture that year if you kept only 9 cents on the dollar? So, Reagan would say, they quit working every year by June and sat around the Brown Derby restaurant talking about oil deals (almost certainly for their tax shelter potential)."
(from The Age of Reagan by Steven F. Hayward, p. 67).
Funny how you end your post concerning the "Liberal Myth" by quoting that famous Liberal Ronald Reagan who based on the quote was a believer of the 91% tax rate myth.
Actually the effective rate estimates are all over the place. The most common being about 41%.
The comments about how the 1950's were unique due to the devastation of overseas infrastructure also ignores the reality that after the war the overseas infrastructure was rapidly replaced. By the 1950's WW2's effects were minor.
If you are a fan of piketney's work, have you read his latest?
And the school enrollment numbers? Those started before WW2 to outpace Europe. But what you ignore is that Europe had a large scale vocational training for most folks in lieu of high school.
Basically you're comparing apples to oranges, and conflating cause and effect.
A comparison of effective tax rates on the top 1% shows that they were in the same ballpark as today. The effective rate was 31% in 1960 (with the 91% top nominal rate) and 24% in 2004 (top nominal rate=36%).
When talking about effective rates instead of nominal rates, 31% and 24% are not even the same league, much less the same ballpark. That's a 29% difference in actual taxes paid!
Funny how you end your post concerning the "Liberal Myth" by quoting that famous Liberal Ronald Reagan who based on the quote was a believer of the 91% tax rate myth.
Not really. Reagan in effect confirmed the notion that nobody paid that 91% rate. When faced with 91% taxation, people changed their behavior to avoid it. In reality, it was as if the 91% rate did not even exist.
Not really. Reagan in effect confirmed the notion that nobody paid that 91% rate. When faced with 91% taxation, people changed their behavior to avoid it. In reality, it was as if the 91% rate did not even exist.
And your response to marigolds point? BTW while the actors were a fascinating side note...what does a business owner do? Small clue-its not hide the money, its invest more money in the company generally.....
When talking about effective rates instead of nominal rates, 31% and 24% are not even the same league, much less the same ballpark. That's a 29% difference in actual taxes paid!
That's entirely subjective. To me 24% and 31% are in the same ballpark. If I'm told that a tax rate that I pay is going from 24 to 31, I won't be happy about it, but I probably won't revamp my entire life over it. OTOH if a rate goes from 36% to 91% I most certainly will revamp in order to avoid the 91% grab.
The number from 2010 was 29.4% according to the CBO I doubt that any would deny that 29% is in the same ballpark, probably even in the same infield, as 31%. The number for 2014 will probably be even higher due to the 'fiscal cliff' deal that put the top nominal rate back to 39% (from 36%).
That's entirely subjective. To me 24% and 31% are in the same ballpark. If I'm told that a tax rate that I pay is going from 24 to 31, I won't be happy about it, but I probably won't revamp my entire life over it. OTOH if a rate goes from 36% to 91% I most certainly will revamp in order to avoid the 91% grab.
The number from 2010 was 29.4% according to the CBO I doubt that any would deny that 29% is in the same ballpark, probably even in the same infield, as 31%. The number for 2014 will probably be even higher due to the 'fiscal cliff' deal that put the top nominal rate back to 39% (from 36%).
That "top 1% paying way too much in taxes" BS really irks me.
Yes, you make more, you pay more taxes. Why does this shock anyone?! The only thing shocking about that "revelation" is how much the 1% make in income compared to the rest of the country.
That's entirely subjective. To me 24% and 31% are in the same ballpark. If I'm told that a tax rate that I pay is going from 24 to 31, I won't be happy about it, but I probably won't revamp my entire life over it. OTOH if a rate goes from 36% to 91% I most certainly will revamp in order to avoid the 91% grab.
The number from 2010 was 29.4% according to the CBO I doubt that any would deny that 29% is in the same ballpark, probably even in the same infield, as 31%. The number for 2014 will probably be even higher due to the 'fiscal cliff' deal that put the top nominal rate back to 39% (from 36%).
LOL...sooo...how about "all income (earned and unearned)above 250K is subject to a 36% rate, no deductions allowed on that income, would be fine?
In the fifties the top marginal tax rate was 91% and the economy did fine. Those are just facts. People are entitled to their own opinions. People aren't entitled to their own facts.
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