So the tax rates in the 1950s were very high, especially for the richest folks. Were there more deductions back then? If not, how come in 1955 federal spending was 14% of GDP whereas today it’s over 25%? Even including all government in 1955 spending was only about 25% compared to today’s rate of 44%. If tax rates were so high, how come spending as a percent of GFP was almost half?
Printing presses.
Not a good response, anyone else?
I would think that debt has to be a major component. The borrowing would allow the government to spend more without haveing as high of a tax rate.
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So we got a high tax rate, low deficit, but also lower spending vs. a lowered tax rate, high deficit and higher spending.
The question remains were there many deductions? With such a high rate at the top i would think growth would have been stunted even with Europe in ruins, but it really wasn’t.
The graphs I made off the websites exclude state and local, so just federal
They weren’t high, check the tax revenue. Secondly the government’s operation is now funded by the selling of bonds.
Take into consideration that the size of the economy has nearly doubled per capita (well, 1.5x or so).
Didn’t FDR/Truman/Eisenhower have the top tax bracket at like 90%?
During the war he pushed for even higher income tax rates for individuals (reaching a marginal tax rate of 91%) and corporations and a cap on high salaries for executives. (From Wikipedia because I can’t find an old graph where I got the information from originally.)
Yes, FDR actually tried to tax the top bracket 100%, but that’s beside the point.
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You said they weren’t high. How is that beside the point?
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Do you have any sources that he wanted to make it 100%? I would assume that it’s true, but I like sources.
Taxes have little relation to spending % of GDP everywhere due to the ability to borrow.
Sources:
http://www.presidency.ucsb.edu/ws/index.php?pid=16171
@ Brian
It’s beside the pont mainly because (a.) the highest tax brackets effected very few people ($2.5 million/year adjusted for price inflation and that was hard to come by back then) and (b.) people could get away with not paying their taxes even better than now.
Keep in mind that the top rate is NOT the only rate and is always what hardly anyone pays.
P.S. the top BRACKET was 94% but the effective rate was never allowed to go over 90%.
Tax rates were 90% but they were marginal rates. An individual’s earnings would be taxed at approx 20% on the first $2,000, 21% on the next $2,000, etc graduating up to the 90% tax rate which you would not fall under unless you earned in excess of $300,000, whats $300,000 inflation adjusted dollars today?. I’ve read that an individual would have to earn several million dollars in 1950’s dollars to be fully taxed at the 90%.
Additionally everything was tax deductable, they were so pervasive that the AMT (Alternative Minimum Tax) was eventually introduced to offset the myriad deductions.
http://www.hoover.org/publications/hoover-digest/article/5728
I’m pretty sure there were far more deductions and loopholes back then. I think I remember hearing that JFK’s massive tax cuts were only able to be done due to new ways of shoring up said deductions and loopholes. And actual tax rates remained largely the same in practice, rather than on paper.
I’d assume there wasn’t a whole hell of a lot of revenue with a 91% top marginal rate, because not as many people would be working. Even if Obama were to raise the top marginal rate from 35% to 39.6%, that would only bring in 70B more/yr.