I found among my dad’s papers financial statements he made thru the years. For fun, I took his numbers from 1950 and calculated his Federal income taxes. Oh, it was so simple then. The 1040 instruction booklet had only 16 pages!
$8736 income for 1950
$ 874 standard deduction
$1800 exemptions
$6062 taxable income
$1100 tax
12.6% effective tax rate
Then I used 2 online inflation calculators to estimate what his income of $8736 in 1950 would be worth in 2022, and calculated the taxes he would have paid in 2022:
$104643 equivalent of $8736 in 2022 dollars
$ 25900 standard deduction
$ 78743 taxable income
$ 9042 tax before credits
$ 2000 child tax credit
$ 7042 tax
6.7% effective tax rate
Wow, as a percentage of income, he paid almost twice as much in 1950 as he would have in 2022! Did people back then complain about the high taxes? My dad’s not around any more, so I can’t ask him. I doubt he complained…after surviving the Depression, working 3 years in the war effort, and with a good job, wife and kid, and new house in 1950, life was good.
I do wish today’s 1040 form was like the old one from 1950, then I wouldn’t need the stupid schedules B, 1, and 3 because that would fit on the old form.
Without the child tax credit it would be 11.5%, which is still 4-5 percentage points below my effective tax rate. I wouldn’t mind having those low effective tax rates.
Which is why so little revenue was collected - very few if any actually paid those rates. It also delayed the introduction of the personal computer as only insurance companies could afford to buy the mainframes. Computers could have dropped in price much faster with lower tax rates; demand for PCs spurred development
Once Reagan cut taxes in the 1980s, the PC exploded as very few innovations occurred during the high tax Nixon, Ford, and Carter administrations
Prior to the mid 70’s computers used vacuum tubes which required significant power, cooling and space.
In the late 70’s when integrated circuits became more common, Personal computers began to become available. We bought our TRS-80 from Radio Shack in 1979.
It was the integrated circuit that made the personal computer a reality.
Exactly this, the marginal tax rates didn’t matter. Tax rates have been really low for years, so how come worker productivity growth is stalled, how come new business formations are low? Taxes don’t explain everything.
I’d say you’re giving waay too much credence to the theory of trickle-down economics and not nearly enough to plain common sense and obvious reasons for the growth curve of personal computing.
The government’s investment in the space race spurred the development of integrated solid-state electronic technology. If it were not for all the players in that phenomena the development of personal computers would have happened much more slowly, and because they would not have had all that free R&D bought and paid for, the PC would have been many times more expensive than it was.
While large insurance companies were among the early users of large mainframe computers, they were just another user of large mainframes. The largest user was the federal government followed by the oil, banking, finance & insurance, medical, manufacturing and distribution/transportation industries. The major applications were described in the acronym “GLAPPER,” which stood for General Ledger, Accounts Payable and Personell.
Scientific and engineering applications were typically done on smaller systems with a limited number of users. HP & DEC had some of the first of those unibus machines.
PCs started out as a hobbyist’s phenomena and was attractive to people into to stuff like amateur radio, bread-boarding, CB radio and audio component equipment. Radio Shack was the retail giant in this arena and their introduction of the TRS-80 and the Apple II in 1977 really started the PC revolution.
IBM announced things like the DisplayWriter and the Datamaster 23 just prior to the IBM PC in 1981. But the large system folks that ran IBM at the time downplayed it as just another workstation to be attached to their multi-user centralized computer systems. The Apple Macintosh garnered a lot of the personal computing market because of it’s friendly user interface.
Things didn’t get going on PCs until programs like Lotus 123, MS Word and WordPerfect came along.
Thank you for doing all the work for the comparison, Lisa It is really interesting to compare taxation rates over time.
You must remember, however that only the poor planners paid the top rate. There were all sorts of schemes for high earners back then. Believe it or not, one was buying rail cars and leasing them to railroads.
Yeah, very interesting, and not just tax rates. Mortgages, smaller homes, stay-at-home moms, interstates later in the decade, such a different way of life. The way people today complain about taxes, jobs, the economy, etc., you might think that the 1950s were the good old days, but then people paid more taxes. Lower taxes don’t guarantee happier people.
Never heard of rich people buying rail cars! I’m sure there were schemes, plenty of them. We seem to be good at that, and when/where/how that started, I don’t know.
In the late 1970s there was something call the Investment tax credit. You could get a credit toward federal taxes owed on a qualified purchase. My father was making pretty good money, I was starting a business and making none. He bought the equipment I needed for my business, and took the ITC. I leased the equipment from him. All perfectly legal.
High tax rates caused people to concoct all sorts of unproductive schemes, instead of focusing on ROI. That is the sort of distortion that high tax rates cause.
I wrote off 25% of a sailboat in the late seventies. I was an outside salesman and entertained customers aboard it. I was audited by the feds twice and approved both times. On one of the audits I got back an additional $500. I think it was the ITC laws in effect at the time that allowed me to do it.
This graph (corrected for inflation) shows the income divide in the US from 1968 to 2022. It’s hard to present a convincing case that the upper income folks are being treated unfairly…
I would like to see a tax system which would allow for someone to stay at home while another wage earner brought in the income and the family could still maintain a good standard of living.
Today a family pretty much has to have two incomes. However, when you look at those incomes, the lower income earner makes about what it takes to pay the family’s total tax obligation for the year. In effect, a person has to work so the taxes are being paid for the family. If you live in a two income family, look at your tax return from last year and see how close you are to this example. Wouldn’t it be nice to have someone stay home to take care of the household?
When I was growing up, almost every family had a person home all the time. I don’t think such a thing as a “day care” center existed. Everything seemed to be more family centered at that time and it is probably because someone was home maintaining the household and not out trying to earn money.
I’m not sure what you mean about ‘tax system.’ As I showed in my OP, my parents paid a larger effective tax RATE in 1950 than they would have making the same inflation-adjusted income in 2022. Our tax rates now are lower than they were then.
I think what’s more of a problem is that wages have not kept up with inflation, and that the low- and middle-income classes today aren’t getting paid enough to make it as 1-income families once did. Money and power has shifted from the big middle class in the 1950s to a small number of rich people today. The wonderful stories we hear now about rich people have us fooled into thinking we can all achieve the American Dream.
I think its more that the skills that are valued have changed. We were in a production economy for a long period of time and now in a knowledge economy. The lower value skills have been replaced with technology and automation where possible. This also leads to a reduction in the number of people required to support the economy over time.
