Taxes in ‘The Good Old Days’
I grew up in the 1950’s, when schools and teachers were respected and the roads (at least in our small town) were in good repair. There was a bus stop on the corner, and police officers patrolled in pairs, not alone. How many readers remember the old B&W TV show Adam-12? I used to watch it regularly (at my friend’s homes, I guess, because we didn’t have a TV). Diversity meant that of the two male officers, one had blond hair and the other had dark hair....
Nowadays people around here constantly complain about the schools, the roads, the crime rate, and the Railrunner, which is handling 5,000 passengers a day (but doesn’t look like it will get down to our area for many years). AND they want more tax cuts.
Few people seem to make the connection between cuts in taxes and cuts in services. I decided to survey the history of our Federal tax rates—did you know the Federal government did not levy personal income taxes until 1913? Lets look at some of the tax brackets and changes that have occurred over the years, and adjust the dollar amounts using the Consumer Price Index (CPI) to the year 2000 to see how our taxes compare with those of “the good old days.” Of course the CPI measures purchasing power, and just because $4,000 in 1913 was the equivalent of $40,000 in Y2K doesn’t mean you could buy a laptop or an airplane ticket.
The first few years the rates went through a variety of adjustments. But from 1919 to 1931 the lowest tax bracket remained set at $4,000, which was about $40,000 in Y2K dollars (using the CPI index). The low-end % tax fell from 4% to 1.5%. On the rich end, both the threshold and the % tax fell, until from 1925 to 1931 anyone with taxable income of over $100,000 paid 25%. That was around 980,000 Y2K dollars.
Those roaring twenties ended in 1929, but the higher taxes needed to pay for things like the WPA projects were not implemented until 1932, when the $100,000-plus bracket jumped to 55%, and the new top bracket was a million dollars and a 63% bite. That is $12,600,000 when converted to Y2K dollars. The bottom bracket actually fared worse—their tax bite went from 1.5% to 4%, almost a three-fold increase.
The maximum high-end tax was during World War II, when those with taxable income over $200,000 (about 2 million Y2K dollars) forked over 94%. Again, those on the lowest end of the scale suffered disproportionately, with a 23% tax on income after deductions. That money was used to help rebuild Europe, through the Marshall Plan, and we did have good schools and other major infrastructure improvements. A lot of bridges and interstate highways got built. Our law enforcement officers were more plentiful and better paid.
So those were the good old days— a taxpayer with two thousand dollars of taxable (~ $20,000 Y2K$) income paid $400 in federal taxes, which left $1600 to live on (~ $16,000 Y2K$). A rich person, with $200,000 ($2M in Y2K$) paid a whopping $188,000 in taxes—but they still had $12,000 ($120,000 Y2K$) to live on, or more than 7 times the disposable income of the people in the lowest bracket.
This state of affairs continued, with little variation, from 1944 to 1963. From 1964 to 1981, the richest Americans saw their tax bite drop from 91% to 70%. Along came Reagan, and it dropped to 50% in one year (and during his eight years in office the national debt tripled). Meanwhile, at the lower end, the lowest taxable bracket dropped from 23% down to 14%. In 1985 the IRS finally started adjusting the dollar amounts in the tax brackets using the CPI, a very sensible decision.
Now, in 2009, those with taxable income less than $16,700 pay a 10% tax, while all those with taxable income over $373,000 pay only 35%. So what’s the disposable income differential, if we apply the current tax rates to those 1944 era incomes, converted to Y2K dollars ($20,000 and $2 million)? About $18,000 in pocket money at the low end, and $1,300,000 at the upper end, or more than 70 times the disposable income of the poorest taxpayers. The rich have gotten much richer, and the poorest taxpayers have not seen any significant improvement.
So according to my ‘back of the envelope’ calculations, in the “good old days” we had a more equal distribution of wealth, which means a strong middle class and better roads, schools, law enforcement—and higher taxes, especially for the rich. I think I’d like to return to the good old days.