Scot Wick Blog

The Myth of The Goodness of The 1950s Eisenhower 90 Percent Income Tax Rate

Mostly from article: The Good Ol' Days: When Tax Rates Were 90 Percent - Andrew Syrios

Bernie Sanders has noted “When radical, socialist Dwight Eisenhower was president, the highest marginal tax rate was 90 percent.”

How much the rich were actually paying?

Back in the 1950s, the government wasn’t actually collecting any more in tax revenue as a percentage of GDP than now.

There’s something called Hauser’s Law, which states there is a maximum threshold on how much the government can tax out of its population.

Figure A shows a history of income tax receipts compared to the top marginal tax rate.

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No matter what the rate has been, the tax revenues have pretty much been the same.

Tax receipts from personal income taxes have consistently been between 7 and 9 percent.

In 2014, they were 8.1 percent.

(In 2024, federal revenue received from personal income taxes was $2.43 trillion / $24.86 trillion GDP = 10 percent)

Of course, there is much taxation other than personal income taxes.

(In 2024, U.S. federal, state, and local governments total tax revenue was $9.53 trillion / $24.86 trillion GDP = 38 percent)

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A major reason the 91 percent tax rate did not create much revenue was the myriad of deductions and loopholes that used to be available.

Many of these were eliminated by the Tax Reform Act of 1986.

For one, interest had previously been deductible on all loans.

After the Act, it has been only deductible on home mortgages.

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One former tax accountant made the case there were so many deductions and loopholes 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 many people took pride in telling others how they cheated on their taxes.”

The simple fact is the rich never paid close to 91 percent of their income in taxes.

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Many economists argue for much lower tax rates.

Lower tax rates result in:

-less money spent on tax evasion and the economic inefficiencies caused by these efforts

-more business investment

-a larger economy with more and better jobs

-more tax revenues, because the economy is bigger

With lower tax rates tax revenues soon become much greater than with high tax rates, see Tables 1 and 2 example model.

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This short video is good:

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