Honestly kinda worthless without knowing the average marginal rate that people in each income brackets payed. People always hype up the 90% tax bracket but tax deductions and credits were so plentiful that the raw rates are very misleading.
A reminder that comparing old tax rates with modern ones is very hard, since there was a huge amount of deductions available for the high income earners, and hardly anyone actually paid anywhere near the nominal 91%.
And there were fewer taxes and government income streams so single big taxes (like income tax) represented a larger share of an individual's overall tax burden.
I don't understand why we don't just not tax income below say $20k. It can't be a lot of money for the government even in aggregate, and it would make a huge difference in low income people's lives, arguably larger than any of the government programs their taxes are going to fund.
This is already the case and has been for quite some time. The table depicted at the link is shows tax rates before deductions. Think of it as a "top line" or "nominal" tax rate. People making under $20k (and more) have an effective tax rate of $0 in the USA.
As Mitt Romney pointed out in 2012 [1]: "Forty-seven percent of Americans pay no income tax."
The rates presented are slightly misleading because it's not including the standard deduction. For a single individual in 2021, income below $12,550 is effectively not taxed (or $25,100 for married couples).
If some politician really wanted to make a difference, then move FICA (employee not employer) to start at something like $30k and continue higher before the cutoff, then add a tax after a million to cover the low income folks' FICA. Then make the individual deduction $30k.
I am really opposed to taxing things that aren't actually realized (stock). The number of horror stories on HN about stock options just leads me to believe we do it wrong. I would rather we do a better job on the transaction to cash out.
The key problem for <$20k earners is the constant 7.65% FICA ("Social Security/Medicare") Tax plus any local taxes, not income tax.
After the standard deduction, the net income tax rate for a single filer making $20k is 3.75%. For a couple filing jointly it's 0 up through $25.5k/yr.
In both cases, the EITC guarantees those with at least one child a (substantially) negative effective tax rate, while single child-free filers are left with about a 2.6% effective rate.
We do this in Australia (($18,200). It largely works well. The downside is people can use others tax free threshold. E.g. If someone is working and is married to housewife plus has a couple kids at uni, if they have a business or assets in trust they can distribute $20k to each person so now they have $80k effectively tax free.
I'm not sure the scale of this being taken advantage off though but it's well know benifit if you situation allows.
If you would consider $12,400 a value of "say $20k" this is already the case... and the tax rate on the remaining $7600 is 10%. Someone earning $20k qualifies for other benefits worth more than $760, so their total effective tax rate is already negative.
I mean we basically don't 12% of $20k (ignore marginal rates just taking the top braket) is $2.4k and the standard deduction is $12,400 for single filers.
This is easy. Because we have a well-established institutional hate for poor people. There is a subconscious belief that poor people are poor solely because of poor decisions. So, it's not our job to improve their lives. It would be 'unfair' for the rest of society to keep these 'freeloaders' afloat. /s
There's gonna be a lot of comments in here saying ^^ but unironically. It's just ingrained in the fabric of our society.
I'd love to see these state-wise as well. Looking at the highest ever federal rate and adding my current california rate would put the total marginal rate at 103%.
It's actually kind of amusing to think about what a marginal rate over 100% would lead to. If the top bracket is $1M+ and you earn $100M, and that last $99M is taxed at 102%, then you owe roughly $101M of your $100M earned, leaving you negative for the year. Better not go above the max! Quick! Donate that $99M in order to maximize your earnings!
Then in future years, make sure to avoid the problem by furloughing all your workers as soon as you hit $1M. Sure, that means both you and your workers only work 1/100 of the year, but what's the point in working longer than that if it earns you nothing?
Yeah, you could also pay your workers a lot more and take less yourself. But in that case you'd spend the whole year working to make what you could make in 1/100 of the year. So again, what's the point?
So I suspect a >100% (or even >90%) marginal tax rate would have a lot of very negative side effects. (Keep in mind that back when the top rate was officially >90%, there were so many loopholes that nobody actually paid that. Closing the loopholes and drastically lowering the top rate was actually revenue-neutral.)
Interesting. I think it would be more impactful/meaningful if it also had columns for inflation adjustment, income distribution, and average effective tax rate.
It seems like when it first started, it only taxed the rich and at a very low rate. Then it expanded from there, to the point where 20% was the min and 91% was the max. Then lower to what we have now.
Looking at 1961, where we have 20% and 91% marginal tax rates, this comes out to be ~19k and 1.9mil, adjusted for inflation (2k and 200k nominally).
Compare these days, where we have 12% min and 37% max for 10k and 500k respectively.
If we were to tax at 37% using 1961 threshholds, you'd have to be making 95k inflation adjusted (that's the 38% threshhold), or 10k nominally.
Something else I found fascinating was that we had over 25 brackets back in the day. I can only imagine the headache that would be without an Excel spreadsheet.
People (myself included) might complain about taxes now, I can only imagine in the 60s.
Nowadays you get taxed because your mate lent you 1200 dollars through Venmo because you couldn't make the security deposit for the new overpriced apartment. (Of course your mate will be taxed as well when you repay him.) But Jeff Bezos can borrow against stock that he owns. Income tax is completely meaningless when the 1%-ers have tax evasion strategies that Joe Citizen couldn't possible take advantage of.
Better yet, do overall tax burden rather than just income tax.
Everyone loves to get a good ideological circle jerk going over the nominal 1950s rates but the actual tax burden at (various different points on the income spectrum) paints a very, very, different picture.
The economy overall grew by 37% during the 1950s. At the end of the decade, the median American family had 30% more purchasing power than at the beginning. Inflation was minimal, in part because of Eisenhower's efforts to balance the federal budget.
Posters will now stumble over each other to assure you that tax evasion was so widespread that actually the effective tax rate was lower than Reagan's wildest dreams.
insickness|3 years ago
https://commons.wikimedia.org/wiki/File:Historical_Marginal_...
revnode|3 years ago
[deleted]
tick_tock_tick|3 years ago
cplusplusfellow|3 years ago
BurningFrog|3 years ago
qeternity|3 years ago
throwaway0a5e|3 years ago
donatj|3 years ago
next_xibalba|3 years ago
As Mitt Romney pointed out in 2012 [1]: "Forty-seven percent of Americans pay no income tax."
[1] https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...
antognini|3 years ago
oh_sigh|3 years ago
For example, 57% of households did not pay any federal income tax in 2021: https://www.cnbc.com/2022/03/25/57percent-of-us-households-p...
That's not even from COVID, the percentages are fairly similar going back a number of years.
protomyth|3 years ago
I am really opposed to taxing things that aren't actually realized (stock). The number of horror stories on HN about stock options just leads me to believe we do it wrong. I would rather we do a better job on the transaction to cash out.
CaptainNegative|3 years ago
After the standard deduction, the net income tax rate for a single filer making $20k is 3.75%. For a couple filing jointly it's 0 up through $25.5k/yr.
In both cases, the EITC guarantees those with at least one child a (substantially) negative effective tax rate, while single child-free filers are left with about a 2.6% effective rate.
Gustomaximus|3 years ago
I'm not sure the scale of this being taken advantage off though but it's well know benifit if you situation allows.
whiddershins|3 years ago
Two theories: 1) Maybe it’s better for everyone to feel like they are ‘chipping in’ … for pride and unity.
2) Maybe the government is really invested in knowing what everyone makes, regardless of the net on it.
closeparen|3 years ago
tick_tock_tick|3 years ago
unknown|3 years ago
[deleted]
csdvrx|3 years ago
Because you want people to feel like they have skin in the game.
decebalus1|3 years ago
There's gonna be a lot of comments in here saying ^^ but unironically. It's just ingrained in the fabric of our society.
6gvONxR4sf7o|3 years ago
It's actually kind of amusing to think about what a marginal rate over 100% would lead to. If the top bracket is $1M+ and you earn $100M, and that last $99M is taxed at 102%, then you owe roughly $101M of your $100M earned, leaving you negative for the year. Better not go above the max! Quick! Donate that $99M in order to maximize your earnings!
diggernet|3 years ago
Yeah, you could also pay your workers a lot more and take less yourself. But in that case you'd spend the whole year working to make what you could make in 1/100 of the year. So again, what's the point?
So I suspect a >100% (or even >90%) marginal tax rate would have a lot of very negative side effects. (Keep in mind that back when the top rate was officially >90%, there were so many loopholes that nobody actually paid that. Closing the loopholes and drastically lowering the top rate was actually revenue-neutral.)
giantg2|3 years ago
It seems like when it first started, it only taxed the rich and at a very low rate. Then it expanded from there, to the point where 20% was the min and 91% was the max. Then lower to what we have now.
ljhsiung|3 years ago
Compare these days, where we have 12% min and 37% max for 10k and 500k respectively.
If we were to tax at 37% using 1961 threshholds, you'd have to be making 95k inflation adjusted (that's the 38% threshhold), or 10k nominally.
Something else I found fascinating was that we had over 25 brackets back in the day. I can only imagine the headache that would be without an Excel spreadsheet.
People (myself included) might complain about taxes now, I can only imagine in the 60s.
Thanks for the insights, OP.
HarryHirsch|3 years ago
throwaway0a5e|3 years ago
Better yet, do overall tax burden rather than just income tax.
Everyone loves to get a good ideological circle jerk going over the nominal 1950s rates but the actual tax burden at (various different points on the income spectrum) paints a very, very, different picture.
Volundr|3 years ago
Do you have this data? I'd be very interested in this picture.
SpodGaju|3 years ago
The economy overall grew by 37% during the 1950s. At the end of the decade, the median American family had 30% more purchasing power than at the beginning. Inflation was minimal, in part because of Eisenhower's efforts to balance the federal budget.
Unemployment remained low, about 4.5%.
cplusplusfellow|3 years ago
It took nearly 20 years to rebuild Europe to the point that it could compete, and USSR was largely cut off from global supply in western worlds.
It’s not the same today and one cannot possibly assert with a straight face that we would enjoy a decade of 37% growth with those rates.
nojito|3 years ago
https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/
Average rate paid by the 1% back then was around 41%
hackeraccount|3 years ago
arrty88|3 years ago
frabjoused|3 years ago
floren|3 years ago