March 17, 2016

Who Paid the 91% Tax Rate In The 1960s?

Back in 1960's we had a 91% top marginal tax rate.   Gee thats high.   It must have sucked to be a rich  1% guy back then... or did it?    Who actually paid that 91% rate?

The 91% rate was on only the top marginal income.   In Tax Foundations history of the tax rates we can see that the 91% rate was only on the income over $400,000.     If we inflation adjust that $400k to 2016 we come out with about $3.2M.    This is not just your high paid doctor then, we're talking very rich people.   However we can't really tell who made that kind of money back in the 60's by just inflation adjusting as high incomes have ballooned over the decades.   Lots of people make >$3M now.

Looking at an old Census report we can see that there were about 60M people / families with incomes.   We can also see from that report that the top 1% started at about $25,000.   Inflation adjusted that $25k is about $200k today.   But todays 1% is more in the $400k level.

Figure 2 and 3 from this report : Striking it Richer: The Evolution of Top Incomes in the United States gives us the % of total income earned by the top 1% and the top .01% respectively.   Roughly speaking the top 1% in 1960 made about 10% of the personal income and the top 0.01% made about 1% of all personal income.   Total personal income was about $418B.   I got that from this source who got it from the BEA.  I tried finding the 1960 figures on the BEA but couldn't find it easily.

Add this all up and we have : 
$418B total personal income 
60M people/families making incomes
1% of people (=600k people) make 10% of incomes or $41B
0.01% of people (6000 people) make 1% of incomes or ~$4B
Therefore the top 6000 people make average incomes of about $667k

Roughly speaking I'd estimate that the top 5,000 to 10,000 people in the US in the early 60's would have incomes high enough to fall in the top 91% tax bracket.

However, that doesn't mean they actually paid that 91% tax bracket.   I bet a lot of those ultra rich people found some pretty good tax loopholes.

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