It's true that the top marginal rate was that high; however, that doesn't mean that someone with an income of $1 million would only take home $100 000. For one thing, the top rate on capital gains, which tends to be where rich people make a lot of their money, was only 25%. Even if you made $1 million in normal, taxable income, you would only pay the top marginal rate on income above the cutoff for that bracket, which in this case was $200 000. It should also be noted that $200 000 in the Eisenhower era would be well over $1 million today due to inflation.
No. Look up marginal tax rate. Say the tax was 90% on the million dollars level. Only the money you make over $1mil is taxed at the high rate. All your money under $1mil is taxed at a lower rate. In the case of 1950, the highest tax bracket was $200,000. Everything over that was taxed at 91% but your first $200,000 was taxed lower. Here's the chart of the exact tax brackets: http://imgur.com/ormSNjf
Here's my source: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets
Hi all, this is just a reminder that this is /r/AskHistorians, not r/ArgueAboutTaxPolicy. Answers here need to focus on the question asked. Thanks!
Tax history is complicated. I would generally say that based on what I've read and on actual tax records very very very few people, and certainly not the vast majority of "rich" people, actually paid that tax in full. Back then that tax rate only applied to people making about what is today $3.5 million a year.
But very importantly there were tons of loopholes and deductions to get out of it. You could write a lot of business expenses as a deduction. And if you thought loopholes are bad today, virtually anything, from lavish hotel visits and luxury cars, could be written off as a business expense. Tax rates were lowered eventually by Kennedy, not a small government guy, partly because of this.
Old tax records from Romney's father showed he had an effective income tax rate of 35%.
http://www.taxhistory.org/thp/readings.nsf/ArtWeb/AEEC9CAC8F773DD7852579C20073FD36?OpenDocument
This was mainly because of deductions and other loopholes. By the time the taxable income was to be taxed (i.e. if by then you are making 200k somehow you would be taxed 90%, which to me seems virtually impossible with clever accounting and if you really wanted to) the amount you had to pay was small. The government isn't going to touch anything outside of "taxable income" which could be very very different from what you originally make.
Romney's father made $125k in 1955 but his taxable income was only around $89k (i.e. 70% of the original income), and he paid a 50% tax rate on that taxable income, a far cry from 90%. Out of his $125k salary he paid only 35%, ridiculously smaller than 90%.
In addition to the many good points posted before, one other huge difference between taxing today and 60 years ago is the Alternative Minimum Tax, or AMT. Today, if you deduct more than a certain amount, you hit the AMT, which is a minimum income tax rate that you cannot deduct beyond. The AMT did not exist in the 1950s, meaning that a wealthy person could stack deduction on deduction to reduce their taxes to a very small amount or even, in extreme cases, zero.
One thing that needs to remembered about historically high marginal tax rates is that there used to be many more deductions, tax credits, and tax planning strategies available.
The tax reform act of 1986 marks a turning point for this. The highest rate went from 50% to 28%, but many deductions, credits, and business tax shelters were eliminated. For example, interest on consumer loans like credit cards used to be tax deductible, like mortgage interest. They also placed limits on how much someone could put into an IRA. They made changes to depreciation and some seemingly obscure things, like imposing taxes on awards like the Nobel prize.
So yes, marginal tax rates for high incomes were historically much higher, but very few actually ended up paying that much due to closing of 'loopholes'.
Remember that $200,000 now is more like $4million then Here's a good breakdown: http://www.politifact.com/truth-o-meter/statements/2015/nov/15/bernie-s/income-tax-rates-were-90-percent-under-eisenhower-/