What did the rich used to pay in taxes?

[sweeteviljesus]

I keep seeing people here noting that the highest marginal tax rate used to be sky-high. Without getting into GD territory, I don’t believe that the rich really paid 91% of there income in the 50s nor 70% in the late 70s or whatever it was. What did they really pay as a percentage of their income?

Thanks,
Rob

[Keeve]

See Wikipedia’s article, History of Income Taxation in the United States, which says:

For tax years 1944 through 1951, the highest marginal tax rate for individuals was 91%, increasing to 92% for 1952 and 1953, and reverting to 91% for tax years 1954 through 1963.

But that was not 91% of the ENTIRE income. It was 91% of the income above a certain level, and a smaller fraction of the under-threshold amount. Still, it was a big chunk.

[Jas09]

From Politifact:

A 2007 study by economists Thomas Piketty and Emmanuel Saez calculated effective tax rates for various income groups.

For people whose income ranked between the top 1 percent and top 0.5 percent, the effective tax rate for individual, corporate, payroll and estate was 34.0 percent in 1960, 36.1 percent in 1970, 37.6 percent in 1980, 31.5 percent in 1990, 35.7 percent in 2000 and 31.3 percent in 2004.

For those earning between the top 0.1 percent and 0.5 percent of the income curve, the numbers were 41.4 percent in 1960, 44.6 percent in 1970, 43.0 percent in 1980, 33.0 percent in 1990, 38.4 percent in 2000 and 33.0 percent in 2004.

For those earning between 0.01 percent and 0.1 percent, the rates were 55.3 percent in 1960, 59.1 percent in 1970, 51.0 percent in 1980, 34.3 percent in 1990, 40.2 percent in 2000 and 34.1 percent in 2004.

Finally, for those in the top 0.01 percent of the income distribution, the effective tax rate was 71.4 percent in 1960, 74.6 percent in 1970, 59.3 percent in 1980, 35.4 percent in 1990, 40.8 percent in 2000 and 34.7 percent in 2004.

[Terr]

@Keeve

See Wikipedia’s article, History of Income Taxation in the United States, which says:But that was not 91% of the ENTIRE income. It was 91% of the income above a certain level, and a smaller fraction of the under-threshold amount. Still, it was a big chunk.

It was 91% of the income above a certain level after deductions. There were a LOT more ways to deduct back then.

http://online.wsj.com/news/articles/SB10001424127887324705104578151601554982808

The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today. Tax shelters were widespread, and not just for the superrich. The working wealthy—including doctors, lawyers, business owners and executives—were versed in the art of creating losses to lower their tax exposure.

For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.

…

It’s hard to determine how much otherwise taxable income disappeared through tax shelters in the 1950s. As a result, direct comparisons between the 1950s and now are difficult. However, it is worth noting that from 1958 to 2010, the taxes paid by the top 3% of earners, as a percentage of total personal income (which can’t be reduced by shelters), increased to 3.96% from 2.72%, while the percentage paid by the bottom two-thirds of filers fell to 0.51% in 2010 from 2.7%. This starker division of relative tax burdens can be explained by the inability of upper-income groups to shelter income.

Also see this: http://www.aei-ideas.org/wp-content/uploads/2012/04/041812wsj.jpg

[Batistuta]

Back in the 1970s, Swedish author Astrid Lindgren was faced witha 102% marginal tax rate. However, a previous thread here on SDMB shows that she didn’t actually have to pay 102% of her wages, since taxes are graduated.

I imagine the 91% or the 70% that OP mentions were only applied to the part of a person’s income that was above a certain threshold. Everything below that threshold was taxed at a different rate

EDIT: Ninja’d. But anyway, the Astrid Lindgren story is cool.

[Amateur_Barbarian]

All of which is an argument that tax rates should be kept moderate but broad, rather than trying to selectively target niches that can evade most of the demand. My understanding is that’s Greece’s problems: in trying to keep revenue at a sustainable amount, they keep jacking up the rates in the face of ever-wider evasion.

[samclem]

@Amateur_Barbarian

All of which is an argument that tax rates should be kept moderate but broad, rather than trying to selectively target niches that can evade most of the demand. My understanding is that’s Greece’s problems: in trying to keep revenue at a sustainable amount, they keep jacking up the rates in the face of ever-wider evasion.

Moderator Note–

Stick to answering the OP without bringing up a debate. Thanks.
samclem, moderator

[md2000]

Let me tell you how it’s going to be,
One for you nineteen for me,
'Cuz I’m the taxman, yeah, I’m the taxman…
-Lennon

The top marginal rate before Thatcher took over in Britain was 83% from what I’ve read. Of course, in those days benefits were not taxed, so it was simpler and more beneficial to pay for club memberships, lease a car for him and hire a driver, etc. than to give a highly valuable employee like a senior engineer a decent raise.

Plus - IIRC, capital gains have always had good tax exemptions, so a lot of tricks consisted of turning earned income into capital gains for rich people.

As mentioned above, the rate applied on income over a certain amount. Keep your alleged taxable income down and you were fine.

[Amateur_Barbarian]

@samclem

Stick to answering the OP without bringing up a debate.

He started it, by bringing up Piketty.

Sorry. Didn’t think that was too much redirection but I concede it may be.

[Labrador_Deceiver]

@md2000

Let me tell you how it’s going to be,
One for you nineteen for me,
'Cuz I’m the taxman, yeah, I’m the taxman…
-Lennon

The top marginal rate before Thatcher took over in Britain was 83% from what I’ve read. Of course, in those days benefits were not taxed, so it was simpler and more beneficial to pay for club memberships, lease a car for him and hire a driver, etc. than to give a highly valuable employee like a senior engineer a decent raise.

Plus - IIRC, capital gains have always had good tax exemptions, so a lot of tricks consisted of turning earned income into capital gains for rich people.

As mentioned above, the rate applied on income over a certain amount. Keep your alleged taxable income down and you were fine.

Totally wrong. Harrison wrote Taxman.

[md2000]

@Labrador_Deceiver

Totally wrong. Harrison wrote Taxman.

Oops.
And yet he continue to live in Britain, even amassed enough money to finance “Life of Bwian”?

[Little_Nemo]

@Keeve

See Wikipedia’s article, History of Income Taxation in the United States, which says:But that was not 91% of the ENTIRE income. It was 91% of the income above a certain level, and a smaller fraction of the under-threshold amount. Still, it was a big chunk.

A big factor was that it was 91% of income from salary. Income from investments, then as now, was taxed at a lower rate.

[UltraVires]

@Terr

*snip Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.

I’m not sure I understand this. Today’s doctor can deduct legitimate business expenses. If he takes in $500k gross but has, say $300k worth of operating expenses he can put all of those on a Schedule C and deduct them. Is there a different deduction to which you were referring?

[Terr]

@jtgain

I’m not sure I understand this. Today’s doctor can deduct legitimate business expenses. If he takes in $500k gross but has, say $300k worth of operating expenses he can put all of those on a Schedule C and deduct them. Is there a different deduction to which you were referring?

You mean the article was referring. Let’s say you earned $100K and you lost $80K in the stock market this year. Way back when you could subtract your stock market losses from your earnings and come up with $20K income. Today the max you can subtract of your stock market losses is $3K/year.

[OldGuy]

@Terr

You mean the article was referring. Let’s say you earned $100K and you lost $80K in the stock market this year. Way back when you could subtract your stock market losses from your earnings and come up with $20K income. Today the max you can subtract of your stock market losses is $3K/year.

This has not been true for quite some time. I believe 1938 was the first revenue act which made net recognized long term losses deductible without limit against ordinary income. This was changed in 1942 so only $1000 of capital losses could be deducted against ordinary income – the rest had to be carried forward for up to 5 years. In 1969 only half of net long term losses could be deducted against ordinary income and this was limited to $1000, but the 5 year roll-over became unlimited roll-over. In 1976 the deductible amount was raised to $2000 and then $3000 for 1978.

[Deeg]

@Jas09

From Politifact:

That’s a pretty cool cite; thanks Jas09. I’m surprised that the (presumably) Reagan tax cuts were for such a small percentage of income earners. I would have thought it included most of, say, the top 5%.

[Terr]

@OldGuy

This has not been true for quite some time. I believe 1938 was the first revenue act which made net recognized long term losses deductible without limit against ordinary income. This was changed in 1942 so only $1000 of capital losses could be deducted against ordinary income – the rest had to be carried forward for up to 5 years. In 1969 only half of net long term losses could be deducted against ordinary income and this was limited to $1000, but the 5 year roll-over became unlimited roll-over. In 1976 the deductible amount was raised to $2000 and then $3000 for 1978.

Ok I mistook that stuff for capital gains. The article referred to “paper losses or depreciation from property he owned through a real-estate investment partnership”. Apparently through manipulation of such a tax shelter the income could be significantly reduced back then.