Understanding the high marginal tax rates in the old days

Alexandria "dingbat" Cortez said:

“If you look at our tax rates 

back in the 60’s ...

once you get to like the tippy tops, 

on like your ten millionth dollar. 

Sometimes you see tax rates 

as high as 60 or 70%.”

Some tax facts for "Clueless Cortez":

The United States currently

has a 37% top tax bracket

for Federal income taxes.

Other nation's top tax brackets:

Finland (45 percent)

United Kingdom (45 percent)

South Korea (40 percent)

Norway (38.52 percent)

New Zealand (33 percent)

Hong Kong (15 percent)

Sweden (61.85 percent)

European Union (39 percent avg.)

Back in 2016, 

Bernie Sanders noted

“When radical, socialist 

Dwight D. Eisenhower 

was president, I think 

the highest marginal tax rate 

was something like 90%.” 

In 1955, the only people 

paying 90%

(actually 91%) 

were those making 

over $3,425,766 

when adjusted 

for inflation 

in 2013 dollars. 

Today, there are seven tax brackets. 

In 1989, there were only two brackets. 

In 1955, there were twenty-four !

Back in the 1950s, 

the US government 

wasn’t actually collecting 

any more in tax revenue 

as a percentage of GDP. 

Every year since 1950, 

the government has collected 

between 16% and 20% of GDP 

from federal income taxes.

No matter what the top 

marginal tax rate has been, 

the tax receipts 

have been similar.

In 2017,

income tax receipts

were 17% of GDP.

In fact, the percentage of taxes 

paid by the highest quintile (20%)

of income earners has 

steadily gone up since 1980. 

In 1980, the top 20% 

paid about 55%

of all income taxes. 

Today, it’s almost 70%. 

The top 1% went from paying

about 15% of all income taxes

in 1980, to almost 30% today.

A study from 

the Congressional 

Research Service 

concluded that 

the effective tax rate 

for the top 0.01%

of income earners 

during the period 

of 91% top bracket 

for income taxes, 

was actually 45%. 

Given that the top bracket 

starts as a much lower 

income today 

($3,425,766 in 1955 

vs. $500,001 in 2018), 

the current 37%

top marginal rate 

probably yields 

tax revenues 

something close

to that 45% effective

average tax rate

for the top 0.01%

of income earners

in the 1950's. 

When the personal 

income tax rates 

were reduced 

under president Reagan,

thousands of businesses 

switched from filing 

as corporations, 

to filing as individuals.

Many deductions 

and loopholes

that used to be available,

were eliminated by 

the Tax Reform Act 

of 1986.

For example:

Before 1986, 

wealthy individuals 

would often buy real estate,

that depreciated every year, 

in the eyes of the IRS. 

Even though buildings 

usually go up in value, 

the IRS assumed

that every 27.5 years

( 39 years for a commercial building ) 

a building's value would

officially depreciate to zero.

Example:

Assume someone 

earning $100,000 a year 

buys a property 

worth $275,000. 

He rents out the property 

and breaks even on it. 

The tax code allowed 

this person to write off 

$10,000 a year as a loss,

which can be counted against 

his income for that year. 

So he only has to pay taxes 

on $90,000 of income,

rather than on $100,000. 

That deduction is now gone 

for everyone except “active” 

real estate investors, or those 

who invest in real estate 

as a career.

The rich never paid 

70% or 90% of their 

TOTAL income 

in federal income taxes, 

or any percentage

even remotely close to that.