The Good Ol’ Days: When Tax Rates Were 90 Percent

It’s quite interesting indeed when both progressives and conservatives seem to be nostalgic for those good ol’ days in the 1950s, for different reasons, of course. Conservatives want to go back to the nuclear Leave It to Beaver family and what not, while liberals like to talk about those 90-percent tax rates that we owe our prosperity to. Or something like that. We’ll focus on the latter for the time being.

Bernie Sanders noted that “When radical, socialist Dwight D. Eisenhower was president, I think the highest marginal tax rate was something like 90 percent.” Paul Krugman said the same thing, as did Michael Moore in his film Capitalism: A Love Story, and you’ll see this factoid repeated on countless memes floating around the Internet.

However, what a tax rate is and what is actually paid are two very different things. Indeed, in 1955, the only people paying 90 percent (actually 91 percent) were those making over $3,425,766 when adjusted for inflation. And these are marginal rates, so they only paid that on any earnings above that threshold.

Tax law has changed a lot over the years. As you can see by looking at the top marginal rate versus the inflation-adjusted top income bracket for those filing jointly from 1950 until 2013:

Top marginal rate versus the inflation-adjusted top income bracket
Source: Tax Foundation.

Today, there are seven tax brackets. In 1989, there were only two. In 1955, there were an utterly ridiculous twenty-four different tax brackets.

Regardless, one should ask how much the rich were actually paying. It should be noteworthy that back in the 1950s, the government wasn’t actually collecting any more in tax revenue as a percentage of GDP. There’s something called Hauser’s Law, which basically states there is a maximum threshold on how much the government can tax out of its population. I think this “law” is no such thing. If the government really wanted to expropriate more, it could do so. But Hauser’s Law is based on the fact that in pretty much every year since 1950, the government has collected between 17 to 20 percent of GDP in taxes. Here are the government tax receipts compared to the top marginal tax rate:

Total Tax Receipts vs Top Marginal Tax Rate
Sources: Tax Foundation and Tax Policy Center.

As you can see, no matter what the rate has been, the tax receipts have pretty much been the same. Whether or not you can raise the amount collected is really immaterial here; the only thing that matters is what has happened (particularly when tax rates were over 90 percent), and it’s pretty much always been the same.

Of course, there are a lot of other taxes than personal income taxes. Still, tax receipts from personal income taxes have consistently been between 7 and 9 percent. In 2014, they were 8.1 percent. Furthermore, as you can see, the chart looks pretty much the same when looking at personal income tax receipts and the top marginal tax rate.

Income Tax Receipts vs Top Marginal Tax Rate
Source: Tax Foundation.

But who is paying these taxes, a liberal might retort? Has the burden fallen more on the middle and lower classes? Well, no. In fact, the percentage of taxes paid by the highest quintile of income earners has steadily gone up since 1980. In 1980, the top 20 percent paid about 55 percent of all income taxes. Today, it’s just shy of 70 percent. The same goes for the top 1 percent, which went from about 15 percent in 1980 to just shy of 30 percent today.

The first of many reasons that this was the case is that we need to look at the effective tax rate, not the top marginal tax rate. So for example, if I make $20,000, I owe 10 percent under today’s tax code, but only on any income over $18,450 (filing jointly). So I only owe 10 percent of $1550, or $155. Yes, my marginal tax rate may be 10 percent, but my effective tax rate is 0.78 percent.

A study from the Congressional Research Service concludes that the effective tax rate for the top 0.01 percent of income earners during the period of 91-percent income taxes was actually 45 percent. Given that the top bracket is so much lower today ($3,425,766 in 1955 vs. $413,200 in 2015), the 39.6 percent top marginal rate probably yields something pretty close.

Some of this was because corporate rates have always been lower than 50 percent. And as Alan Reynolds noted, when the personal income tax rates were reduced, it “… induced thousands of businesses to switch from filing under the corporate tax system to filing under the individual tax system.” In other words, many rich people kept their money in corporate entities when personal tax rates were higher.

Another major factor was the myriad of deductions and loop holes that used to be available. Many of these were eliminated by the Tax Reform Act of 1986, which by no coincidence coincided with the biggest rate deductions. For one, interest had previously been deductible on all loans. After the act, it has only been deductible on home mortgages.

But what was probably the biggest lost deduction for wealthy individuals was the elimination of deductions on passive investment losses on real estate. Before 1986, wealthy individuals would often buy real estate with no hopes at all of it cash flowing. That wasn’t the point. The point was that real estate is depreciated every year in the eyes of the IRS. Even though in the long run, properties usually go up in value, the IRS assumes that every twenty-seven-and-a-half years, a property’s value will depreciate to zero.

This “loss” can be written off. So, for example, say a man earning $100,000 a year buys a property worth $275,000. He rents out the property and breaks even on it. The tax code allows that person to write off $10,000 as a loss which he can count against his income for that year. So now he only has to pay taxes on $90,000. If he owned ten such properties, his income would be zero, at least according to the IRS.

That deduction is now gone for everyone but “active” real estate investors, or those who invest in real estate as a career.

Indeed, one former tax accountant even made the case that there were so many deductions, loop holes and the like in the pre-1986 tax code that “… there was a massive amount of tax fraud at all income levels under the old code. It was so bad and so common that most people took pride in telling others how they cheated on their taxes.”

I’ll leave how true that statement is to the reader; but from what I’ve heard, it sounds about right.

Regardless, the simple fact is that the rich never paid 90 percent of their income in taxes or anything even remotely close to that. Unfortunately though, some memes die hard.

This commentary originally appeared at and is reprinted here under a Creative Commons license

Here Is By Far The Stupidest Tax Americans Pay–Are You Paying It?

One of the stupidest, most asinine, and most evil things that Americans will encounter this tax season is the gift tax.

According to the IRS:

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

How bad does the IRS want to tax you for giving someone a gift? Here is your answer: “The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.”

  • Gifts that are not more than the annual exclusion for the calendar year.
  • Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  • Gifts to your spouse.
  • Gifts to a political organization for its use.
  • In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

And what is the annual exclusion amount? Again, according to the IRS: “All of the gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interest and they total $13,000 or less.”

My, how generous is the federal government! As long as you don’t give someone a gift worth over $13,000 then you don’t have to pay any gift tax.

But why do we have a gift tax in the first place? Don’t we already pay taxes on the money we earn? Why should we be taxed again just because we give away money instead of spend it? Is this not double taxation? Of course it is. But the federal government loves taxing money twice. Is there a tax deduction for Social Security and Medicare taxes paid? Of course not. Are dividends taxed after corporations already paid taxes on their profits? Of course they are.

The reason why we have a gift tax is because we have an estate tax. Without a gift tax, the rich could give away all their money before they die and thus avoid paying the estate tax. But what’s wrong with that? Haven’t they already paid taxes on not only the money they earned, but also on their capital gains and interest they received? For more on the estate tax, see my article “A Libertarian View of the Estate Tax.”

The rule that you cannot give away to someone more than $13,000 in a year without paying a gift tax is a stupid rule.

Stupid rule; stupid Republicans.

Republicans? How can I possibly blame this stupid rule on Republicans? Hasn’t the gift tax been around since 1932?

First of all, let’s be clear why I am singling out the Republicans. It is Republicans that talk about cutting taxes, not Democrats. It is Republicans that talk about limiting government, not Democrats. It is Republicans that talk about smaller government, not Democrats. It is Republicans that talk about getting the government out of our lives, not Democrats. This doesn’t mean that Republicans really believe any of these things, but they are the ones talking about them, not Democrats.

The Republicans gained a majority in the House and Senate in the third year of Clinton’s first term as president. This was the first time that the Republicans had controlled the entire Congress since the 83rd Congress of 1953-1955 under President Eisenhower. The Republicans could have put a bill to repeal the gift tax on Clinton’s desk every day. When Clinton refused to sign it, they could have garnered enough public opinion in support of repealing the gift tax so that Clinton was forced to sign it. The Republicans made absolutely no attempt to do so. Instead, all we heard from them were excuses about needing a larger, veto-proof majority in Congress or a Republican in the White House to ensure the passage of Republican bills.

Well, they got their Republican president in 2000, and what happened to the gift tax? Absolutely nothing. Why wasn’t the elimination of the gift tax made part of the Bush tax cuts? The Republicans controlled the Congress and the presidency from the inauguration of George Bush on January 20, 2001, until May 24, 2001, when Republican senator Jim Jeffords switched from Republican to independent. After the 2002 election, the Republicans regained control of the Senate. The Republicans lost both the House and the Senate in the 2006 election. This means that for four years without interruption, the Republicans controlled the Congress and the White House. If ever in history the gift tax could have been repealed, then that was the time. But it wasn’t repealed any more than any other wealth redistribution scheme was repealed. Instead, the government grew by leaps and bounds. It is not government that Republicans want to limit, make smaller, and get out of our lives, it is only government controlled by Democrats.

The late Sam Francis (1947-2005) used to call the Republican Party the Stupid Party. Is there any doubt that he was entirely correct?

Laurence M. Vance [send him mail] writes from Pensacola, FL. He is the author of Christianity and War and Other Essays Against the Warfare State and The Revolution that Wasn’t. His newest book is Rethinking the Good War. Visit his website.

Copyright © 2012 by

This article originally appeared at and is reprinted here under a Creative Commons license

The Constitution’s Big Lie

One of the greatest hoaxes ever perpetrated upon Americans at the time of its telling and which is still trumpeted to this very day is the notion that the U.S. Constitution contains within its framework mechanisms which limit its power. The “separation of powers,” where power is distributed among the three branches – legislative, executive, judicial – is supposedly the primary check on the federal government’s aggrandizement.

This sacred-held tenet of American political history has once again been disproved.

Last Friday (October 23), the Attorney General’s office announced that it was “closing our investigation and will not seek any criminal charges” against former Internal Revenue Service’s director of Exempt Organizations, Lois Lerner (or, for that matter, anyone else from the agency) over whether she improperly targeted Tea Party members, populists, or any other groups which voiced anti-government sentiments or views.

The Department of Justice statement read:

The probe found ‘substantial evidence of mismanagement, poor judgment and institutional inertia leading to the belief by many tax-exempt applicants that the IRS targeted them based on their political viewpoints. But poor management is not a crime.’

Incredibly, it added:

We found no evidence that any IRS official acted based on political, discriminatory, corrupt, or other inappropriate motives that would support a criminal prosecution.

That the DOJ will take no action against one of its rogue departments demonstrates the utter lawlessness and totalitarian nature of the federal government. The DOJ’s refusal to punish documented wrongdoing by the nation’s tax collection agency shows the blatant hypocrisy of Obummer, who promised that his presidency would be one of “transparency.”

It can be safely assumed that Congress will not follow up on the matter, as Darrell Issa (R-Ca.), who chaired a committee to investigate the bureau’s wrong doings, admitted that its crimes may never be known. The DOJ and Issa’s responses are quite predictable once the nature of the federal government, and, for that matter, all government, is understood.

Basic political theory has shown that any state is extremely reluctant to police itself or reform unless threatened with destruction, take over, or dismemberment (secession). The Constitution has given to the federal government monopoly power where its taxing and judicial authority are supreme. It will not relinquish such a hold, nor will it seek to minimize such power until it is faced with one of these threats.

While it was called a federated system at the time of its enactment and ever since by its apologists, the reality of the matter is quite different. As the Constitution explicitly states in Art. VI, Sect. 2, the central government is “the supreme law of the land.” The individual states are inferior and mere appendages to the national government – ultimate control rests in Washington.

In fact, it was the Constitution’s opponents, the much derided Antifederalists, who were the true champions of a decentralized system of government, while their more celebrated opponents such as Madison, Hamilton and Jay wanted an omnipotent national state.

Thus, in the American context, the only method for those oppressed by the federal government is to either threaten or actually go through with secession. Attempts to alter its dictatorial rule through the ballot box or public protests are futile. While there will naturally be outrage at letting the IRS off the hook, focus and anger must be redirected away from participation within the current political system to that of fundamental change.

Congress’ refusal to prosecute an executive bureau that has deliberately used (and is still using) state power to oppress and harass opponents of the Obama regime demonstrates the bankruptcy of the idea that separation of power limits tyranny. Federal power and the corresponding tyranny and corruption which it has bred has never been countered by the checks and balances and separation of powers of the supposed “federal republic” created a little over two centuries ago.

Until the “big lie” of the Constitution is realized, agencies like the IRS will continue to target and tyrannize anti-government organizations, groups, and individuals. The Constitution provides no real mechanism for the redress of grievances from the subjects which it rules. Only when the breakup of the federal Union has taken place will American liberties and freedoms be secured.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

House Republicans Just Launched A Massive Attack On The IRS That Could Have Big Repercussions

House Republicans introduced a resolution on Tuesday to impeach IRS commissioner John Koskinen.

It was introduced by House Oversight Committee Chairman Jason Chaffetz, R-Utah, and 18 other committee members.

Chaffetz said in a statement: “Commissioner Koskinen violated the public trust. He failed to comply with a congressionally issued subpoena, documents were destroyed on his watch, and the public was consistently misled. Impeachment is the appropriate tool to restore public confidence in the IRS and to protect the institutional interests of Congress.”

The resolution charges Koskinen with “high crimes and misdemeanors.” It alleges that Koskinen failed to preserve IRS records in accordance with a congressional subpoena. The resolution also says that hundreds of IRS backup tapes were erased, and that these records potentially contained thousands of emails by former IRS official Lois Lerner.

The resolution also alleges that Koskinen made “false and misleading statements” to Congress in which Koskinen stated “nothing” had been “lost” or “destroyed.”

Finally, the resolution contends that Koskinen did not make Congress aware of the missing emails until June 2014, despite allegedly being aware earlier.

The IRS said in a statement: “The IRS vigorously disputes the allegations in the resolution. We have fully cooperated with all of the investigations.”

Impeachment is a weapon Congress can use for “all civil officers of the United States” whom Congress considers guilty of treason, bribery or other “high crimes and misdemeanors.”

The move for Koskinen’s impeachment follows a Justice Department decision on Friday to not criminally prosecute Lois Lerner or any other IRS official in the Tea Party targeting scandal.

Regarding that decision, House Oversight committee member and Freedom Caucus head Jim Jordan stated: “That is just flat out wrong, in my judgment. Here’s a lady (Lerner) who systematically and for a sustained period of time targeted people for exercising their most fundamental rights, their First Amendment free speech rights.”

What do you think of this decision by House Republicans to introduce an impeachment resolution for IRS Commissioner Koskinen?

Obama Admin FINALLY Announces Decision On IRS Lois Lerner Charges- Some Are Enraged

An inspector general’s audit more than two years ago discovered that the IRS had singled out Tea Party groups for scrutiny of their tax exempt status during the 2010 and 2012 elections.

In turn, multiple congressional committees and the Justice Department embarked on an investigation of the scandal.

Now, the Justice Department has announced its decision: there will be no criminal charges brought by the department against Lois Lerner or other IRS officials.

The Justice Department’s letter was addressed to the leaders of the House Judiciary Committee and stated that, while “mismanagement, poor judgment and institutional inertia” were discovered, the department found “no evidence that would support a criminal prosecution.”

Assistant Attorney General Peter J. Kadzik wrote: “What occurred is disquieting and may necessitate corrective action — but it does not warrant criminal prosecution.”

The Department of Justice letter stated that there was no evidence that Lerner exercised her authority in a “partisan manner generally,” or that her political views impacted the way she addressed the tax-exempt applications.

It noted that she did, however, exercise “poor judgement” in using her IRS email account to send personal messages that voiced “political views.”

Lerner has since retired.

The letter found “no one person” responsible, and blamed “discrete mistakes by line-level revenue agents.”

Lerner was voted to be in contempt of Congress last year by the House after she refused to answer questions at two House Oversight hearings.

What do you think of the decision by the Justice Department to not criminally prosecute Lerner or other IRS officials?