91% was the so called marginal tax rate, the rate
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Posted On: 02/16/2023 10:47:49 AM
91% was the so called marginal tax rate, the rate on an amount over a top threshold. The 91 percent bracket of 1950 only applied to households with income over $200,000 (or about $2 million in today’s dollars).
All we got from the tax rates in the 50's were the Interstate Highways, NASA and the military might to stand down the Russians in '62 and squander in Vietnam.
While marginal income tax rates have come down from their highs of 91 and 92 percent in the 1950s, changes in the tax base—how much and what types of income are subject to the tax—mean the effective rates on the wealthy haven’t changed nearly as much.
How could it be that a top marginal income tax rate of 91 percent resulted in an average income tax rate (including state and local income taxes!) of only 21.0 percent for the top 0.1 percent during the 1950s? A previous Tax Foundation analysis explains:
The 91 percent bracket of 1950 only applied to households with income over $200,000 (or about $2 million in today’s dollars). Only a small number of taxpayers would have had enough income to fall into the top bracket—fewer than 10,000 households, according to an article in The Wall Street Journal.
Even among households that did fall into the 91 percent bracket, the majority of their income was not necessarily subject to that top bracket. After all, the 91 percent bracket only applied to income above $200,000, not to every single dollar earned by households.
Finally, it is very likely that the existence of a 91 percent bracket led to significant tax avoidance and lower reported income. Many studies show that, as marginal tax rates rise, income reported by taxpayers goes down. As a result, the existence of the 91 percent bracket did not necessarily lead to significantly higher revenue collections from the wealthy.
Another factor to consider is that the wealthy aren’t a monolithic group of taxpayers. In fact, IRS data shows that there is typically a lot of churn within the group of top earners. For example, the number of taxpayers who report incomes of $1 million or more is highly variable, and fluctuates with the business cycle.
Ultimately, tax rates, while important, are only one part of the story. The top 0.1 percent of taxpayers pay nearly the same average tax rates today as they did in the 1950s because of other changes made to the tax system. And even with these changes, the American tax system is already highly progressive: according to the most recent IRS data, the top 0.1 percent of taxpayers paid more than six times the share of federal income taxes than the bottom 50 percent of taxpayers combined.
Context like this is crucial for discussions of how much the wealthy pay in taxes
All we got from the tax rates in the 50's were the Interstate Highways, NASA and the military might to stand down the Russians in '62 and squander in Vietnam.
While marginal income tax rates have come down from their highs of 91 and 92 percent in the 1950s, changes in the tax base—how much and what types of income are subject to the tax—mean the effective rates on the wealthy haven’t changed nearly as much.
How could it be that a top marginal income tax rate of 91 percent resulted in an average income tax rate (including state and local income taxes!) of only 21.0 percent for the top 0.1 percent during the 1950s? A previous Tax Foundation analysis explains:
The 91 percent bracket of 1950 only applied to households with income over $200,000 (or about $2 million in today’s dollars). Only a small number of taxpayers would have had enough income to fall into the top bracket—fewer than 10,000 households, according to an article in The Wall Street Journal.
Even among households that did fall into the 91 percent bracket, the majority of their income was not necessarily subject to that top bracket. After all, the 91 percent bracket only applied to income above $200,000, not to every single dollar earned by households.
Finally, it is very likely that the existence of a 91 percent bracket led to significant tax avoidance and lower reported income. Many studies show that, as marginal tax rates rise, income reported by taxpayers goes down. As a result, the existence of the 91 percent bracket did not necessarily lead to significantly higher revenue collections from the wealthy.
Another factor to consider is that the wealthy aren’t a monolithic group of taxpayers. In fact, IRS data shows that there is typically a lot of churn within the group of top earners. For example, the number of taxpayers who report incomes of $1 million or more is highly variable, and fluctuates with the business cycle.
Ultimately, tax rates, while important, are only one part of the story. The top 0.1 percent of taxpayers pay nearly the same average tax rates today as they did in the 1950s because of other changes made to the tax system. And even with these changes, the American tax system is already highly progressive: according to the most recent IRS data, the top 0.1 percent of taxpayers paid more than six times the share of federal income taxes than the bottom 50 percent of taxpayers combined.
Context like this is crucial for discussions of how much the wealthy pay in taxes
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