A constant refrain that I hear from progressives is that the United States had 90% taxes during the 1950s and the country was still prosperous. Progressives seem to believe that it is a golden era that we need to emulate in all economic facets…
I wonder how many of these proud Party members have actually taken the time to think about what caused the United States to be the world’s pre-eminent economic power during the 1950s. Is it possible that 90% income tax rates on the wretched and vile “1%” led to economic prosperity (or at least didn’t hinder it) or is there something more to the story? Let’s start by taking a look at what taxes were paid to the Federal Government in the post WWII years (I bet WWII took a while to pay off also). A publication produced by UC Berkeley in 2007 entitled “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective”provides much insight into what the “1%” actually paid in taxes in the 1950s. Let’s take a look:
“The 1960 federal tax system was very progressive even within the top percentile, with an average tax rate of around 35 percent in the bottom half of the top percentile to over 70 percent in the top 0.01 percent. This finding illustrates the theme that it is important to decompose the top of the income distribution into very small groups to capture the progressivity of a tax system. Although very top groups contain few taxpayers, they account for a substantial share of income earned, and an even larger share of taxes paid.
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.”
So the actualized income tax rate for the rich was 31%, not really much different from where it stands today. That is a most interesting point to come to terms with. Such results also show that Sandroids don’t actually know what they’re talking about when they claim that the United States had a 91% income tax rate.
“The greater progressivity of federal taxes in 1960, in contrast to 2004, stems from the corporate income tax and the estate tax. The corporate tax collected about 6.5 percent of total personal income in 1960 and only around 2.5 percent of total income today. Because capital income is very concentrated, it generated a substantial burden on top income groups. The estate tax has also decreased from 0.8 percent of total personal income in 1960 to about 0.35 percent of total income today. As a result, the burden of the estate tax relative to income has declined very sharply since 1960 in the top income groups.”
The true source of where the “1%” paid out comes to light. If you look at the current U.S. corporate tax rate, you will see that it is extremely high at 39.1%. Many progressives will also claim that many major corporations don’t pay any taxes. I really would like someone to tell me which of those evil corporations pays zero taxes. As for estate taxes, is there really a need to tax a citizen after he is dead?
“Second, the composition of top incomes has changed substantially. Figure 2 shows the breakdown into wage income, business income, capital income (including imputed corporate taxes), and realized capital gains. In the 1960s, top incomes were primarily composed of capital income: mostly dividends and capital gains. The surge in top incomes since the 1970s has been driven in large part by a steep increase in the labor income component, due in large part to the explosion of executive compensation. As a result, labor income now represents a substantial fraction of income at the top. This change in composition is important to keep in mind, because the corporate and estate taxes that had such a strong effect on creating progressivity in the 1960s would have relatively little effect on labor income.”
The income of wealthy Americans has gone up which raises inequality. Progressives certainly can’t have inequality or a tax code that doesn’t redistribute the wealth. . Progressives will commonly harp on the shrinking middle class; they simply can’t shut up about it. The New York Times will even write a story on this very subject when the data that they use as a source shows that most of the reason the middle class has shrunk is due rising incomes overall. The New York Times’ blatant misrepresentation of the data is simply astounding. I suppose that progressives would seek to bring the wealth of the average American down though as we must all be equal. Just one more reason that “inequality” is a stupid issue. Just because someone else’s income is rising does not mean you are worse off. Anyone who is curious where such numbers originate from can look to the U.S. Census Bureau website.
Further reading, for anyone who is interested:
Mises Institute-The ‘New Economists’ and the Great Depression of the 1970s
American Enterprise Institute-Returning to the 90 percent top tax rates of the 1950s would probably be terrible for the US economy
Bloomberg View-1950s Tax Fantasy Is a Republican Nightmare
Manhattan Institute-Revisiting the High Tax Rates of the 1950s