Taxes on the rich under President Eisenhower

Liberals often claim that the rich paid a 91% income tax rate during the Eisenhower years, and while it is true that the top marginal rate was 91% from 1954 to 1963 that is not what matters. The important part is how much the rich actually paid.

Here were the effective individual income tax rates of the 3 very high income AGI groups.

$200,000-$500,000 group: Tax as Share of Amended AGI (%)

1953 = 45.9
1954 = 39.3
1955 = 36.8
1956 = 37.4
1957 = 38.6
1958 = 36.9
1959 = 33.8
1960 = 33.1
1961 = 31.5

$500,000-$1,000,000 group: Tax as Share of Amended AGI (%)

1953 = 46.3
1954 = 38.7
1955 = 35.6
1956 = 36.7
1957 = 36.6
1958 = 36.0
1959 = 32.1
1960 = 30.8
1961 = 29.1

Over $1,000,000 group: Tax as Share of Amended AGI (%)

1953 = 49.3
1954 = 38.8
1955 = 35.8
1956 = 36.1
1957 = 40.0
1958 = 33.1
1959 = 30.6
1960 = 31.3
1961 = 27.2

SOURCE: William Williams, The Changing Progressivity of the Federal Income Tax, National Tax Journal (1964)

SOURCE: Eisenhower-Era Marxist-Confiscatory Taxation: Requiem for the Rhetoric of Rate Reduction for the Rich

So the rich really didn’t pay anything close to 91% during the Eisenhower years, and their effective tax rate was steadily reduced.

George Romney for example earned $129,674 AGI in 1955 (which was a very high income) and paid $45,651 in income tax, which is an effective tax rate of 35.2%, much lower than the marginal rate.

I’m not exactly what your point is, but I do find it interesting that 30% seems to be the average low-end effective tax rate. For 2009 it was 22%. And, conveniently enough, 30% is exactly what the Buffet Rule would set as the effective tax rate those with AGI over $1 mill. Sounds like a great way to raise revenue and be consistent with Eisenhower policies.

This is something I’ve been wondering about for some time, so I’ll look forward to more readable info from other posters. The link in the OP is the mother of all TLDRs.

I think an important thing to note, though, is that even the rates reported in the OP are much higher than those paid by “the rich” today, so it’s hard to argue that increasing taxes on the order of what Obama wants to do would be particularly harmful to the economy.

Here is a chart with similar numbers for today. People today making over $77 million pay an effective 20% tax rate, less than those making between 10 and 77 million who pay 24%. Still much less than during the Eisenhower years.

But this all goes to show that slight increases in the top brackets are unlikely to stifle innovation, since it is not clear that the very rich who pay 20% (suckers! says Mitt) are much more innovative than the poor souls who make only $10 million and pay 24%.

It is mathematically impossible for anyone’s effective tax rate to be equal to their highest marginal rate, so I fail to see your point. For the rich the capital gains rate is far more important than the marginal income rate.

The point is that the rich didn’t pay anything close to 91% which liberals claim they did.

Yes, I think everybody knows that effective tax rate isn’t the same thing as the top marginal tax rate. I don’t think I’ve ever heard anyone try to argue that most top earners in the Eisenhower years actually turned over 91% of their incomes to the government, or anything close to it.

So what is your point? That imposing high marginal tax rates on top earners won’t make them significantly poorer? Goody, that sounds like a win-win: more money for the government’s tax revenues, but no negative impact on the top taxpayer’s standards of living.

The capital gains effective tax rate was 13-15% during Eisenhower.

What was the tax rate on “carried interest” back then?

Interest income was tax-exempt.

What liberals claim that? As I noted above, anybody who understands even the most rudimentary facts about progressive taxation knows that top marginal rates are different from effective rates.

Your cite shows top income earners paying a significantly higher rate then they do today.

Today people like Mitt Romney are paying 14 percent and want to lower that even further.

Your gotcha look at the liberals lying really fails here. Many liberals would like to see the rates under Eisenhower return even if it isn’t actually 90% because it’s double what the wealthiest Americans are paying now.

You still don’t get it. The lower effective rate was because people had to invest their money or lose it to taxes. The opportunities to invest out of the country were limited, as were the ‘casino style’ financial instruments behind our most recent collapse. I can’t speak for others, but I have no concern about people paying an effective 0% tax rate if they are investing enough of their income into the domestic economy.

Which indicates that the marginal tax rates contributed more to the clear increase in revenues (relatively speaking) from then versus today.

And CEOs were less greedy to get gigantic paychecks from their companies when the government was going to take most of it at the highest levels. So they were moderate, and there was more money left over for investment, the employees, and the stockholders.

Well, I think you have it backwards. Interest paid might have been tax exempt, but not interest earned.

The tax reforms that came afterwards lowered marginal rates, but effective rates stayed the same. A true 91% tax rate would be disastrous. It would never happen anyway. Congressmen pay taxes, and no congressman will vote to give up almost all of his money.

So yeah, when anyone talks about going back to those rates, they are speaking out of serious ignorance. Those rates existed because the tax system was grossly unfair. Some really rich people paid no taxes, which is why the AMT was imposed. 91% was the “sucker” rate, meant for those either too stupid or too politically unconnected to avoid it.

So your argument is that extremely unfair tax rates will lead to an economic boom and budget surplus, and that’s a reason to make the current tax system even less fair. I wonder why current politicians aren’t running with that one.

Tax policy has little to do with economic growth. I don’t think you’d find any economists agreeing that the notoriously inefficient system we had in place in the 1950s was a pro-growth factor.

In fact, it’s hard to argue that a 91% marginal tax rate doesn’t seriously alter economic decisionmaking. When path A means you pay 0% and path B means you pay 91%, everyone’s going to go down path A, whether or not that’s better for the economy as a whole.