91% tax rate
May 23rd, 2008 | Published in Economics, History, Politics | 10 Comments
I learned recently that in 1951 – 1963, the top tax bracket was 91% (and 92% for two years)! That means every $1.00 over $400,000 was reduced to $.09!
So an additional $200,000 of income over $400,000 would be reduced to a measly $18,000.
It seems like that would be a very big incentive not to make money.
Update: As Les points out in the comments, this was a marginal tax bracket, so only the income over a certain level was taxed at that rate. I’ve changed the post to reflect this.
May 23rd, 2008 at 10:44 am (#)
Josh,
What you should have said is, “If someone was in the top bracket and earned an additional $200,000, they would be left with only an additional $18,000.
Still, you’re right to say that it was a disincentive to make money.
Les Bollinger
May 23rd, 2008 at 10:45 am (#)
Is it any wonder the national economy tanked soon after?
May 23rd, 2008 at 10:55 am (#)
Les,
I don’t think I understand your point, could you clarify?
As I understand things, it wouldn’t be an additional $200,000 — if they earned $200,000 total for a year, they would have been taxed at 91% and then their income after taxes would be $18,000.
Thanks for commenting!
May 23rd, 2008 at 11:13 am (#)
Josh,
The top bracket is the marginal rate. Let’s say, for the sake of simplicity, there are two brackets:
First $50,000 is 10%
Everything after that is 90%.
If you make $200,000 dollars you pay $5000 on the first $50,000 and $135,000 on the next $150,000, for a total of $155,000 in taxes.
You only pay 90% on the amount over $50,000.
The wiki article you linked to doesn’t give the complete brackets, although the lowest bracket appears to have ranged between 14% and 21%. So you wouldn’t pay 91% on the entire $200,000. Just the amount of the $200,000 that fell in the top bracket.
Still, 92% was way, way too high.
I hope I’m clearer this time.
Thanks for responding. I have your blog in my reader and enjoy reading it!
Les
May 23rd, 2008 at 11:21 am (#)
Les,
Ah, I see what you mean now. Much clearer.
I didn’t realize the brackets were marginal. I thought that whatever rate you fall into, your entire income is taxed at that rate. Is that how it is now, too, or just then?
And very glad you enjoy the blog! That’s always a pleasure to hear.
Josh
May 23rd, 2008 at 11:26 am (#)
Josh,
It works the same now. Here’s an example:
http://www.moneychimp.com/features/tax_brackets.htm
Les
May 23rd, 2008 at 11:35 am (#)
Les,
My eyes have been opened. Thanks for eradicating some of my ignorance!
Josh
March 21st, 2009 at 9:53 am (#)
The Truman-Eisenhower years saw the greatest economic growth in this country’s history. The high marginal tax rate discouraged mindless greed (Income as scorekeeping) and kept the money circulating. Isn’t this what all the rescue plans are about? On the bottom end the payroll tax, FICA, was 3% on 3600 rising eventually to 4% on 4800. Now we have a 7+% payroll tax on something over $100K. The belief then was that 20 people buying Fords, Chevies, or Plymouths did a lot more for the economy than 1 plutocrat buying a Rolls Royce. The same principle holds today.
April 14th, 2011 at 10:58 pm (#)
Sid, you are simply wrong: http://yesbuthowever.com/obama-big-tax-8139060/
The rate may have been 92%, but hardly anyone, millionaire or otherwise, paid the rate. The effective tax rate under Eisenhower was close to that of Bush and Clinton.
January 4th, 2013 at 10:18 am (#)
A former Breitbart founding contributor as source?
Please.