Did People Pay 91% Tax Rates in the 1950s & if not What was the Reality Compared to Today?
CCO FEATURE WRITER, JOE WALLACE
SEPTEMBER 27, 2024
The claim that the top 1% of earners in the 1950s paid a 91% tax rate is based on the statutory top marginal tax rate, which was indeed 91% at its peak. However, this figure does not reflect the actual effective tax rate paid by most of the top earners, as the tax system then, like now, included numerous deductions, exemptions, and loopholes. The effective tax rate (the actual percentage of income paid in taxes after deductions) was much lower than the marginal rate.
Here’s a breakdown to compare the tax rates and contributions of the top 1% from the 1950s to today:
1. Top Marginal Tax Rate in the 1950s vs. Today:
- 1950s: The top marginal tax rate was as high as 91% during parts of the 1950s (from 1951 to 1963). However, few people paid this rate due to deductions and exclusions.
- Today: The top marginal tax rate in the U.S. is 37% as of 2023, plus potential state and local taxes, bringing the effective rate higher in some states.
2. Effective Tax Rate for the Top 1%:
- 1950s: Estimates suggest that the top 1% paid an effective federal income tax rate of around 42-45%. The significant gap between the marginal and effective tax rate was due to tax deductions and exclusions.
- Today: In 2020, the effective tax rate for the top 1% was approximately 26-28% at the federal level, though it can vary slightly based on deductions and state taxes.
3. Percentage of Total Income Taxes Paid by the Top 1%:
- 1950s: The top 1% paid roughly 30-35% of all federal income taxes.
- Today: The top 1% pays about 40% of all federal income taxes in the U.S. (data as of 2020).
4. How Many People Pay the Top Rates?
- 1950s: The number of people actually paying the top 91% rate was minuscule, likely fewer than 10,000 households in a country of over 150 million people. Most wealthy individuals managed to pay a lower effective rate through deductions.
- Today: The top 1% of income earners consist of approximately 1.4 million households (based on the U.S. population in 2023).
Comparative Table
| Metric | 1950s | Today (2023) |
|---|---|---|
| Top Marginal Tax Rate | 91% | 37% |
| Effective Tax Rate (Top 1%) | 42-45% | 26-28% |
| % of Total Income Taxes Paid (Top 1%) | 30-35% | ~40% |
| Number of People Paying Top Rates | Fewer than 10,000 households | ~1.4 million households |
Summary:
While the top statutory tax rate in the 1950s was much higher (91%) than today’s rate of 37%, the effective tax rate for the top 1% was lower due to numerous deductions and loopholes. In reality, top earners in the 1950s were paying about 42-45% of their income in taxes, while today, it’s closer to 26-28%. Despite the reduction in rates, the top 1% today contributes a larger share (about 40%) of total federal income taxes compared to around 30-35% in the 1950s.
References:
- Tax Policy Center – Data on the top marginal and effective tax rates, as well as the share of taxes paid by the top 1% over time:
- Tax Policy Center, “Historical Highest Marginal Income Tax Rates” and “Distribution of Federal Income Taxes by Income Percentile”
- Available at: https://www.taxpolicycenter.org
- Internal Revenue Service (IRS) – Data on total federal income tax contributions by income groups:
- IRS, “SOI Tax Stats – Individual Income Tax Returns”
- Available at: https://www.irs.gov
- Congressional Budget Office (CBO) – Reports on federal taxes and effective tax rates for the top income earners:
- CBO, “The Distribution of Household Income and Federal Taxes”
- Available at: https://www.cbo.gov
- Peter G. Peterson Foundation – Analysis of tax rates and share of taxes paid by income groups:
- Peterson Foundation, “How Do Federal Income Tax Rates for the Wealthy Compare Today to the 1950s?”
- Available at: https://www.pgpf.org
& if not What was the Reality Compared to Today?
The claim that the top 1% of earners in the 1950s paid a 91% tax rate is based on the statutory top marginal tax rate, which was indeed 91% at its peak. However, this figure does not reflect the actual effective tax rate paid by most of the top earners, as the tax system then, like now, included numerous deductions, exemptions, and loopholes. The effective tax rate (the actual percentage of income paid in taxes after deductions) was much lower than the marginal rate.
Here’s a breakdown to compare the tax rates and contributions of the top 1% from the 1950s to today:
1. Top Marginal Tax Rate in the 1950s vs. Today:
- 1950s: The top marginal tax rate was as high as 91% during parts of the 1950s (from 1951 to 1963). However, few people paid this rate due to deductions and exclusions.
- Today: The top marginal tax rate in the U.S. is 37% as of 2023, plus potential state and local taxes, bringing the effective rate higher in some states.
2. Effective Tax Rate for the Top 1%:
- 1950s: Estimates suggest that the top 1% paid an effective federal income tax rate of around 42-45%. The significant gap between the marginal and effective tax rate was due to tax deductions and exclusions.
- Today: In 2020, the effective tax rate for the top 1% was approximately 26-28% at the federal level, though it can vary slightly based on deductions and state taxes.
3. Percentage of Total Income Taxes Paid by the Top 1%:
- 1950s: The top 1% paid roughly 30-35% of all federal income taxes.
- Today: The top 1% pays about 40% of all federal income taxes in the U.S. (data as of 2020).
4. How Many People Pay the Top Rates?
- 1950s: The number of people actually paying the top 91% rate was minuscule, likely fewer than 10,000 households in a country of over 150 million people. Most wealthy individuals managed to pay a lower effective rate through deductions.
- Today: The top 1% of income earners consist of approximately 1.4 million households (based on the U.S. population in 2023).
Comparative Table
| Metric | 1950s | Today (2023) |
|---|---|---|
| Top Marginal Tax Rate | 91% | 37% |
| Effective Tax Rate (Top 1%) | 42-45% | 26-28% |
| % of Total Income Taxes Paid (Top 1%) | 30-35% | ~40% |
| Number of People Paying Top Rates | Fewer than 10,000 households | ~1.4 million households |
Summary:
While the top statutory tax rate in the 1950s was much higher (91%) than today’s rate of 37%, the effective tax rate for the top 1% was lower due to numerous deductions and loopholes. In reality, top earners in the 1950s were paying about 42-45% of their income in taxes, while today, it’s closer to 26-28%. Despite the reduction in rates, the top 1% today contributes a larger share (about 40%) of total federal income taxes compared to around 30-35% in the 1950s.
References:
- Tax Policy Center – Data on the top marginal and effective tax rates, as well as the share of taxes paid by the top 1% over time:
- Tax Policy Center, “Historical Highest Marginal Income Tax Rates” and “Distribution of Federal Income Taxes by Income Percentile”
- Available at: https://www.taxpolicycenter.org
- Internal Revenue Service (IRS) – Data on total federal income tax contributions by income groups:
- IRS, “SOI Tax Stats – Individual Income Tax Returns”
- Available at: https://www.irs.gov
- Congressional Budget Office (CBO) – Reports on federal taxes and effective tax rates for the top income earners:
- CBO, “The Distribution of Household Income and Federal Taxes”
- Available at: https://www.cbo.gov
- Peter G. Peterson Foundation – Analysis of tax rates and share of taxes paid by income groups:
- Peterson Foundation, “How Do Federal Income Tax Rates for the Wealthy Compare Today to the 1950s?”
- Available at: https://www.pgpf.org
The big advantage in having a very high rate, like 91%, is charitable contributions only cost you 9%. So those very wealthy individuals were much more inclined to give to causes that they wanted to support. The other advantage was if you were considering a business venture that would create jobs and help the overall economy you were only risking 9% , so go for it!