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…and now for a brief interlude about taxes

Normally, my substantive posts relate somehow to media. This one doesn’t. At most, it connects with an issue I was recently discussing with a friend: the frequent lack of historical context in punditry, social science research, and the popular understanding of current events. As a former history student, it often frustrates me that a short-term, cross-sectional view of events dominates their understanding. For example, a major thread of media research probes whether or not exposure to violent media content causes violence. Without delving into details, in reading some of the (sloppier) examples of this work, I’ve noticed a tendency to assert that society is more violent than it’s ever been (and that it’s TV’s fault!). Taking a long view, however, suggests that this is the opposite of the truth. But I digress… Anyways… Yesterday, while I was doing some policy-oriented research, I ran into this paragraph in a 1981 New York Times article about the flat-tax:

Ever since the maximum tax on personal income climbed above 90 percent during World War II, a steeply graduated tax table has generally been regarded as equitable. The basic notion has been that taxes should be based on ”ability to pay,” and that ability increases disproportionately as income goes up. Consequently, the maximum tax remained at 91 percent until the Kennedy-Johnson tax cut of 1964 lowered rates across the board. It was 17 years before Congress got around to a second round of rate reductions, in the Economic Recovery Tax Act of 1981, which included President Reagan’s three-phase, 25 percent tax cut. Even though the maximum tax rate came down last Jan. 1 to 50 percent (from 70 percent, the level that had prevailed since 1965), interest is quickening in flat-tax proposals that would again reduce – and radically revamp – the Federal income tax. 

What’s interesting about that paragraph? Well, I for one, was pretty amazed by the 91% max tax rate. Amazed enough to poke over to wikipedia where I found out that the max tax rate actually peaked at 94% at the end of WWII. (Let’s set aside wiki’s accuracy for now…) Imagine that: after several grueling years of war – at the end of the Great Depression – the Federal government took 94% of all earnings (for dollars beyond a certain threshold). How things have changed – and we didn’t even need all of human history to show this. Just the last century! In the midst of the ongoing caterwauling about the mere possibility of increasing taxes on those making in excess of $250,000, it is pretty fantastic to see what the wealthy once sacrificed. And, pretty impressive to think that the government had the capacity to command (or demand) such a tax. As we fight a war in two countries, struggle to provide health insurance for many middle-class citizens, and try to cope with a bizarre economic collapse that seems to be preserving profits for those who survive at the top while stripping jobs from everyone else, maybe it would help if we had a little historical context. Would a max tax rate of 37.5% be socialism? Not if 94% when the US was winning WWII wasn’t!

There are 2 Comments to "…and now for a brief interlude about taxes"

  • Terry Easton says:

    While the tax rate for higher levels of income seem egregiously high during WWII, there were deductions and tax shelters that reduced the effective tax rate well below, say 94%. For example, the income from government bonds (& war bonds?) are typically tax-free.

  • lee says:

    Yeah – that’s the first reaction people who were alive back then have: I could write off my country club membership! Admittedly, I’m not talking about effective tax rates. But still: 94% as a starting point!

    Do war bonds even exist any more? By issuing them, would we have to admit that we’re in a war?

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