Historic Tax Rates in the U.S.: Socialist?

There’s a lot of debate going around right now about tax policy. I thought it’d help to look at the actual tax rates compared to historic numbers. But let’s keep in mind that I took Math for Elementary Education in college (i.e., I’m no mathematician or economist).

The big question seems to be whether or not Barack Obama’s tax policy is socialist (or how socialist is it, depending on your perspective). So let’s take a look at those proposed income tax brackets and compare them to historic income brackets.

To simplify things, I’m only looking at income tax rates for the highest bracket:

  • Current income tax: 35% for those earning more than $357,700.
  • Obama’s proposed income tax: 39.6% for those earning more than $357,700.
  • McCain’s proposed income tax: remain at 35%
    (The current tax brackets are set to expire and revert to 2000 levels, so both Obama and McCain talk about their plans as cuts, which is a bit misleading. They’re both talking about extending the cuts, except that Obama wants to expire the cuts for the top two brackets; Source)

So the difference between McCain and Obama for the top bracket is 4.6% (for the second highest bracket the difference is 3%; for other brackets there’s no difference*). I have a hard time believing that 4.6% pushes us into socialist territory. The fact is both favor a progressive tax policy where the more money you make the greater percentage of taxes you pay.

Bottomline: The McCain and Obama tax proposals are relatively similar. Compared to a historic perspective, they’re very similar.

Historic Rates
Now let’s look at the income tax rate for the highest bracket throughout history (via Wikipedia):

  • 2003-2008: 35%
  • 2002: 38.6%
  • 2001: 39.1%
  • 1993-2000: 39.6%
  • 1991-1992: 31%
  • 1988-1990: 33%
  • 1987: 38.5%
  • 1982-1986: 50%
  • 1971-1981: 70%
  • 1970: 71.75%
  • 1969: 77%
  • 1968: 75.25%
  • 1965-1967: 70%
  • 1964: 77%
  • 1954-1963: 91%
  • 1952-1953: 92%
  • 1951: 91%
  • 1950: 84.36%
  • 1948-1949: 82.13%
  • 1946-1947: 86.45%
  • 1944-1945: 94%
  • 1942-1943: 88%
  • 1941: 81%
  • 1940: 81.1%
  • 1936-1939: 79%
  • 1932-1935: 63%
  • 1930-1931: 25%
  • 1929: 24%
  • 1925-1928: 25%
  • 1924: 46%
  • 1922-1923: 56%
  • 1918-1921: 73%
  • 1917: 67%
  • 1916: 15%
  • 1913-1915: 7%

Since it’s only the top bracket and it doesn’t give us the amount of income to qualify for the bracket, it doesn’t tell us a lot (I tried looking for more complete info, the best I could find showed all brackets back to 1992. Of course I spent about five minutes looking, I’m sure the info is out there.). But it does tell us that over the years the U.S. has had a progressive tax policy that has varied quite drastically.

So if you think Obama’s tax proposal is socialist, then the U.S. has been socialist for a long time. The bottom line, again, is that with the perspective of history, Obama and McCain aren’t that radically different.

*Of course there are all kinds of differences in how Obama and McCain roll out all kinds of other taxes or cuts or whatever which would change the situation. But like I said, I’m looking at the simplest, most basic scenario.

Update: Here’s a great PDF from the IRS that lays out lowest and highest income tax rates all the way back to 1913. It gives a little more context and quite a bit of history about income tax. One of the things it notes is that from 1913 until World War II income tax was mostly for those with the very highest incomes.

11 thoughts on “Historic Tax Rates in the U.S.: Socialist?”

  1. Yes, but when a Obama comes right out and says he wants to redestribute the small business owners wealth or anyones wealth, that doesn’t go over well. Especially with people who still believe in the American Dream of life, liberty and the pursuit of Happiness. I would think that since the founding founders fought Britian over taxes we should do the same. Here’s a question when did income tax first get institutated and become the norm?

  2. Economics are fairly simple, but not THAT simple. The top 1% of earners/producers in this country pay THIRTY-NINE PERCENT of all the taxes. This is 1% of earners paying the better part of half the entire bill. You could take *everything* that the “rich” have – every single penny that the top half of people in the U.S. have (only once of course) and pay for the government to run for only less than a year (half a year maybe) and that’s it. Nobody has a job left, nobody is funding all these programs and giveaways, and it all comes crashing to a halt. In the middle of an economic turndown it’s suicide to hike taxes – ESPECIALLY on the people who pay them (the wealthier, the higher earners, the bigger producers) – because what in heck good is that lousy $400 going to do ME and MY family or YOU and YOUR family (if you’re lower-income as we are, you don’t pay much in taxes and it MIGHT amount to that much) when neither of you has a job? No good, that’s what. Already businesses are looking at how many people they are GOING to (not might have to, but GOING TO) have to get rid of, how much of their businesses they’re going to have to get rid of or try to sell off because that is simply how it works. Punitive tax rates do that, every time – increases as opposed to cuts do that every time. If you’ll take a look at your list, you’ll note that the times when the biggest cuts were made were the beginnings of the largest booms we had – notably with the 1963 tax cuts, but even more notably with the longest sustained economic boom in the last century – 1982 and on. This is simply how it works.

    Also, Obama does not tell the truth – he keeps changing the tune on which brackets will be punitively taxed (let’s call a spade a spade – which ones will have more money confiscated) and lowering it and lowering it. Also, as soon as the disastrous results of an increase show up (which will not take long at all, especially considering the massive spending he’s going to undertake at the same time – double-whammy) it will be time to “be more patriotic” and hand over more – from lower and lower brackets all the time (which will be more and more of us, going lower and lower, because that’s simply how it works) – because there is a continued economic downturn and more and more people out of work and in crisis. Why do you think I explained that socialism leads to hunger, starvation, famine? Because it actually does. So that “plan” is going to go right out the window with the first wave of disastrous results, and keep going further south. I do not pretend to know if McCain is even close to free-market enough to save the floundering economy, because it has generally only been deep, meaningful tax cuts for the high brackets that have turned the economy around in any substantial way, and he’s not exactly planning to REALLY do much of that. But at least it’s not an immediate leap into the fire from the frying pan, as Obama’s economics are; it could stave off the real hurt just long enough for a genuinely good treasurer or economist to start getting their ears and doing the right thing. There isn’t going to be an inflated dotcom bubble to save Obama’s regime like there was Clinton’s.

    Let me tell you something, Kevin, I really recommend you start studying actual economics for a while – it is not as complicated or hard to understand as people think, it is endlessly fascinating, and it explains far more than you would imagine.

  3. Kevin’s points were these:
    1. McCain and Obama both believe in the progressive income tax.
    2. The difference in tax plans is so slight that it does not warrant calling Obama’s socialist and McCain’s not.
    3. If supporting a progressive income tax like Obama does is socialist, the America has been socialist for a long time.

    AnnieMcPhee said nothing in response to 1 or 3. It looks like she disagrees with 2, but it’s not clear why. Nothing else she says in any way responds to Kevin’s points. Maybe what she says is important or true, but it is not a response.

    She does manage to insult Kevin, and hey, we’ve all been there. (Kevin is a dookiehead.) But when AnnieMcPhee says it, it doesn’t sound quite as good-spirited.

  4. I find it amazing that in Australia, until 1970, we had a top rate of tax of 66.6% which would be on about $500,000 today. Our wage earners could buy new homes, every one seemed to be contented, even the rich, however our parliamentarians couldn’t think of anything better to do, so they started reducing the top tax rate. Everytime they reduced the rate, the price of homes and land and other goods increased. When it got down to our present rate, our wage earners could not afford to buy their home, and the rent has gone up so high that many cannot afford to even rent a home,and I suspect that this is the same as is happening in the US. I think that you will find that the multi-millionaires are doing very good, and I heard they even had a banquet to celebrate their increasing wealth.

  5. Merv alluded that their economy was growing with high tax rates. An economy can grow at almost ANY tax rate, IF it is stable. The Australian housing market skyrocketed because people had more money to spend on homes (theoretically, due to lower taxes). Lowering taxes makes the economy jump in the short run and makes inflation rise, sometimes dramatically, in the long run (unaffordable homes). If you want to lower taxes, the government will earn more revenue as the people with more money will not seek as many tax shelters (US statistics 1920’s, 60’s, & 80’s). If the tax rates look like a rollercoaster ride, then so will the economy. If the Australian government would have lowered taxes 2-3% per decade, you would have seen an economic boom that would not have left the housing market unattainable.

  6. I would like to point out that people who have the ability to increase their income at will, will do so, and the only way to stop that is to put a high enough tax in place ie 80% on about $2,000,000, and no tax on $20,000, to give the battlers a fair go. Put that in your excel and try it out,I have organised mine to be controlled by the minimum adult wage.I don’t know if you have that in the US. If you would like to try it, send your e-mail address and I’ll send you a copy. Of course if you can do a spreadsheet, you won’t need one will you.

  7. In addition to my previous input, the house prices were very affordable in the 1960’s during the 66.6% tax. A house and land (admittedly only a small 2 bedroom home for retirees) could be bought new for $3,700 since then, the price has climbed to $190,000 since our politicans have seen fit to bring the top tax down to 45%. If you look at “World taxes” which is also in Wikipedia,you will see the tax rates around the world, Australia is apparently not as hard hit as the rest of the countries, but is still sufering.
    I have inserted tax rates around the world, I don’t know how it will turn out.

    Tax Rates Around the World

    (Note: Only the underlined countries are currently ready)
    Country Income Tax VAT
    Corporate Individual Country Income Tax VAT
    Argentina 35% 9-35% 21% Corporate Individual
    Australia 30% 17-47% 10%GST Monaco 33.33% 0% 19.60%
    Austria 25% 21%-50% 20%GST Morocco 35% 0-41.5% 20%
    Belgium 33.99% 25-50% 21% Montenegro 9% 15% 17%
    Brazil 34% 15-27.5% 17-25% Netherlands 20-25.5% 0-52% 19%
    Bulgaria 10% 10% 20% New Zealand 33% 0-39% 12.5%gst
    Canada 19.5%(federal) 15-29% (Federal) 5%(gst) Norway 28% 28-51.3% 25%
    China 25% 5-45% 17% Pakistan 35% 0-25% 15%
    Cyprus 10% 20-30% 15% Philippines 35% 5-32% 12%
    Czech Rep. 21% 15% 19% Poland 19% 19-40% 22%
    Denmark 24% 38-59% 25% Portugal 25% 0-42% 20%
    Egypt 20% 10-20% – Romania 16% 16% 19%
    Estonia 22% 22% 18% Russia 24% 13% 18%
    Finland 26% 8.5-31.5% 22% Saudi Arabia 20% 20% —
    France 33.33% 10%-48.09% 19.60% Serbia 10% 10-20% 18%
    Germany 30-33%(effective) 15-45% 19% Singapore 18% 3.5%-20% 7% (gst)
    Gibraltar 33% 0-40% – Slovakia 19% 19% 19%
    Greece 22/25% 0-40% 19% Slovenia 22% 16%-41% 20%
    Hong kong 17.50% 2-17% – South Africa 29% 24-43% 14%
    Hungary 16% 18% and 36% 20% Spain 30% 24-43% 16%
    India 30-40% 10-30% 12.50% Sweden 28% 0-56% 25%
    Indonesia 10-30% 5-35% 10% Taiwan 25% 6-40% 5%
    Ireland 12.50% 20-41% 21% Thailand 30% 5-37% 7%
    Israel 27% 10-47% 15.50% Turkey 20% 15-35% 18%
    Italy 31.40% 23%-43% 20% U.K. 30% 0-40% 17.50%
    Japan 30% 5-40% 5%(consump) Ukraine 25% 15% 20%
    Latvia 15% 25% 18% U.S.A. 15-35% 15-35% –
    Lithuania 15% 15%/24% 18% Vietnam 28% 0-40% 10%
    Luxemburg 22% 0-38% 15% Zambia 35% 0-35% 17.50%
    Malta 35% 15-35% 18%
    Mexico 28% 0-28% 15%

  8. One thing you may have noticed in the messages on the economy, the writers are saying that the economy doesn’t rely on whether the top tax is high or low. Then why is it that the economy fails in times of the low top tax, and recouperate when the tax is increased. Because when the top tax is low, those individuals who have plenty of greed, opportunity and little integrity, increase their salary/profits to an obscene level, and increase costs to an obscene level – like now with salaries running onto millions while wage earners and small business go broke because the results of the economy has forced them into unemployment and bankruptcy, and the businesses which rely on them, also go broke. You can see the truth of this with the recessions/depressions in the 1930’s and today. You will also notice that wars, armed roberies, thieving and numerious other crimes are commited during the times of the low top taxes, impending depression. There is the probability that the war in the 1930’s 1945 was probably easily started by Hitler due to the depression , poor economy that Europe was suffering under at that time

  9. We could solve a lot of the problems just by removing the cap on social security and going back to 1980 tax bracket of about 50% for anything over 300,ooo

  10. AnnieMcPhee says that the top 1% pay 39% of the taxes. What she doesn’t say is that they make almost 80% of the money. That sounds like they are paying about half of what they should in taxes.

Leave a Reply

Your email address will not be published.