I'm going to talk about taxes; don't turn away yet. Yes, a lot of things that are incredibly boring (or at least seemingly so) do in fact matter.
At some point in my education, I learned about the flat tax and the progressive tax. I was taught that in America (I know it is incredibly pretentious to refer to the United States as America, but it comes most naturally; replace with USA or The States if necessary) we have, and have always had, a progressive income tax system. In the simplest terms: higher incomes pay higher income tax rates. That’s the way it’s supposed to work, and most would assume that the application of this framework has been relatively consistent over time. That is to say, we all hate income taxes, but they’re not new, they haven’t changed, and likely never will.
Except that income taxes have changed, the progressive nature is not what it once was. Tax rates have changed a lot for some, and not so much for others.
All dollar values have been converted to 2014 dollars for comparative purposes.
In 1945 marginal tax brackets ranged from a low of 23% to a high of 94% on earned income in excess of about $2.5 million. Currently (2014 tax brackets) every dollar earned in excess of $406,751 is taxed at the same (39.6%) rate. Our progressive income tax system is capped at about $400,000. A flat tax exist over $400,000.
Throughout the 40s, 50s, 60s, and 70s about 25 marginal tax brackets delineated the progressive federal income system. Currently there are 7.
In 1945, 12 different brackets (of 24 total) applied to income earned in excess of $400,000*. There were 19 marginal tax rates higher than the current 39.6% max.
In 1955, 9 different brackets (of 24 total) applied to income earned in excess of $400,000*. There were 18 marginal tax rates higher than the current 39.6% max. The highest rate was 91% on income over about $1.7 million.
In 1964, the top marginal tax rate fell from 91% to 77% on income over about $1.5 million. Seven different brackets (of 26 total) applied to income earned in excess of $400,000*. There were 16 marginal tax rates higher than the current 39.6% max.
By 1975, just two brackets (of 25 total) applied to income earned in excess of $400,000*. Eleven of the 25 marginal tax rates were higher than the current 39.6% max. The top marginal tax rate was 70% on income above $426,755.
By 1982, the highest marginal tax bracket (at 50%) applied to all income in excess of $98,737. There were 14 total tax brackets, 3 of which were higher than the current 39.6% max.
In 1987 the top marginal tax rate fell from 50% to 38.5%. There were 5 tax brackets, the highest of which was 38.5% for income over $109,138.
From 1988 to 1990 there were 2 tax brackets: 15% on income up to about $34,000; 28% on income above about $34,000.
From 1993 to 2001 there were 5 tax brackets. The top bracket was 39.6% (decreased to 39.1% for 2001) for income over about $390,000.
From 2003 to 2012 there were 6 tax brackets. The top bracket was 35% for income over about $390,000.
*refers to the current $400,000 (adjusted) cap
Here’s another way to look at things.
The effective income tax rate on a single earner making $50,000 has changed very little since World War II. The highest effective tax rate a $50,000 single earner has paid since 1942 was 24% in 1944-1945. The lowest was 16.8% in 2009. In 2014, a $50,000 earner paid an effective tax rate of 17%.
Someone earning $100,000 in 2014 paid an effective tax rate of 21.4%. The highest effective tax rate a $100,000 single earner has paid was 31.5% in 1981, the lowest 21.3% in 2009.
The highest effective tax rate a $250,000 single earner has paid since 1942 was 49.9% in 1981. The lowest was 26.2% from 1988-1990. Someone earning $250,000 in 2014 paid an effective tax rate of 26.7%.
A $500,000 earner has paid a maximum effective tax rate of 60.5% in 1953, and a minimum of 27.1% from 1988-1990. Someone earning $500,000 in 2014 paid an effective tax rate of 31.3%.
A $1 million earner has paid a maximum effective tax rate of 73% in 1953, and a minimum of 27.6% from 1988-1990. Someone earning $1 million in 2014 paid an effective tax rate of 35.4%.
A $25 million earner has paid a maximum effective tax rate of 92.7% in 1944-1945, and a minimum of 28% from 1988-1990. Someone earning $25 million in 2014 paid an effective tax rate of 39.4%.
In its simplest terms, tax rates on high-income Americans have dropped precipitously over the past 50+ years. Proposing a tax hike in today’s America is labeled as socialist. Was the United States a socialist country in the 1940s and 50s? How about the 60s and 70s? I guess high taxes are fine for fighting wars and communism, and putting a man on the moon, but shouldn’t be used to fight poverty and disease, or build roads and bridges.
