Smart SpendingSmart Spending

When Americans took pride in paying taxes

Americans were generally content with across-the-board tax rates during the 1950s and '60s that were far higher than tax rates today.

By MSN Money Partner Nov 28, 2012 4:47PM

This post comes from Rick Newman at partner site U.S. News & World Report.

 

U.S. News & World Report logoTaxes are a necessary evil, and they're about to get a bit more necessary, with Congress seemingly poised to raise taxes on at least some Americans beginning in 2013.

 

Image: Group of older people seated © Image Source, Getty ImagesBut Americans didn't always view taxes with the dread and indignation they do today. In fact, during World War II, as the government was hiking taxes on most workers to help pay for the war, Irving Berlin wrote an upbeat patriotic ditty called "I Paid My Income Tax Today," which Danny Kaye sang and hundreds of radio stations played. And until the 1980s, many Americans paid income taxes at far higher rates than we have today, with little of the antipathy that taxpayers feel toward Washington now.

 

The paradox today is that the tax burden on most Americans is at the lowest level since at least 1979, according to the Congressional Budget Office. That's one reason Democrats are pushing for tax hikes on the wealthy, to help narrow the huge annual deficits that have pushed the national debt above $16 trillion.

 

Yet even as tax hikes on the wealthy are starting to seem inevitable, a huge fight is brewing over keeping them modest and exacting sharp cuts in government spending in exchange. The fight that's starting now over fairly modest tax hikes reveals a country that has changed dramatically over the past 30 or 40 years.

 

The first U.S. income tax was enacted in 1862 to help pay for the Civil War, according to Michael Lind's economic history "Land of Promise." It expired a decade later, and no permanent income tax was established until the 16th Amendment became law in 1913. (Don't expect much in the way of a centennial celebration next year.)

 

Tax rates rose during World War I, fell sharply during the 1920s, rose again during the Great Depression and rose more during World War II. They began to drift down starting in the 1950s, with the Ronald Reagan tax cuts of the 1980s eventually establishing the basis for today's tax code.

 

Here are the tax rates paid by a household earning the equivalent of $50,000 -- today's median income -- along with the top tax rate, during different points in the 20th century:

  • 1918 tax rate on median income, 6%; top rate, 77%.
  • 1928 median, 1.5%; top rate, 25%.
  • 1938 median, 4%; top rate, 79%.
  • 1948 median, 26%; top rate, 91%.
  • 1958 median, 22%; top rate, 91%.
  • 1968 median, 19%; top rate, 70%.
  • Today's median, 15%; top rate, 35%.

Looking back, what seems extraordinary is that Americans were generally content with across-the-board tax rates during the 1950s and '60s that were far higher than tax rates today.

Obviously World War II created a sense of national urgency unlike anything Americans feel today, which is why taxpayers felt a sense of pride in paying taxes and contributing to the well-being of the country -- even a decade or more after the war had ended.

 

But there are some other differences between then and now that reflect the tough new reality politicians and taxpayers face getting America back on track. For one thing, the U.S. economy grew about 4.3% per year on average from 1950 to 1970, a powerful rate of growth that made most Americans feel as if they were getting ahead. The U.S. economy today is growing at a sickly 2% or so, with many frustrated workers feeling as if they're falling behind. Nobody wants to contribute more to a system they feel is failing them.

 

Americans also had far more trust in government in the '50s and '60s, before the Vietnam War and Watergate cast Washington as inept and corrupt. Trust in government seesawed from 1980 to 2008, but it is now at record lows. This affects tax policy directly, because Americans are loath to give more money to the government when they feel it's likely to be wasted -- even if they're willing to do their fair share in other ways, such as contributing to charity.

 

If there's any good news in these changing attitudes, it's that a sour attitude toward government is likely to keep tax rates relatively low for the indefinite future. So compared with the '50s, '60s and '70s, Americans will most likely continue to keep more of their own money. The problem is that we need to get used to the lower levels of government spending on programs like Medicare, Social Security and defense that sooner or later must accompany lower taxes.

 

Maybe Washington needs to commission some fresh musical propaganda to glorify sharp cutbacks in government benefits.

 

More on U.S. News & World Report and MSN Money:

21Comments
Nov 29, 2012 5:00PM
avatar

$16,000,000,000,000 in debt and what do we have to show for it ?

 

I don't like paying taxes to the Federal Government because they do Not spend it wisely ! 

Nov 29, 2012 9:52AM
avatar

When tax rates were high, there were more deductions, more shelters, more ways to 'hide' income so it wasn't taxable. Everytime the government raises taxes, smarter people find out how to avoid them because our tax policies have become social engineering exercises instead of revenue programs for the government.

 

We also don't tax wealth or the wealthy, we tax people that make a lot of money..... and that includes millions of small business owners and highly compensated employees (sales, management, engineers, etc.).

 

America would be better served by FairTax for revenue and growth policies, it also captures the underground economy so the rewars of taking money under the table are eliminated. But, if you're sold on the Income Tax, then set a rate that people actually pay and eliminate all of the deductions. Set a base rate for everyone at 5%, set an additional 5% rate for those making $30-75K, an additional 5% for those making $75K-250K, another 5% for those making $250K-$1M, and another 5% for those making more than $1M.

Nov 29, 2012 12:39AM
avatar
This article didn't mention (conveniently) that Social Security and Medicare taxes were either lower or nonexistent in previous decades. Medicare didn't even exist until 1965.

Taxes like state sales taxes were also much lower or non-existent in previous decades.



Nov 28, 2012 9:05PM
avatar
Please publish how the rates changed from 1968 until now, say every 5 years.  I myself object to paying for the Communist Welfare Party's give away programs to all those who have never done anything. I am not talking about Social Security which those of us over 62 worked for and earned, or medicare for those retired. But the 4 times I have gone to the SS office over the last 5 year, there were generally 30 to 40 people in the waiting room only once was there 5 of us over 62, the other 3 times just 2 or 3 of us.  The other 30+ people were in their 20s and 30s, not at all physically disabled, but driving fairly new vehicles, my 2001 is always the oldest in the lot. Taking care of young kids when their parents die is one thing but that should stop when the turn 18, if they drop out of school stop it then, even if they are 14 or 15
Nov 28, 2012 7:58PM
avatar
Here's a few reasons why we don't take pride anymore. Marion Berry, John Edwards,Richard Nixon,Spiro Agnew,William "COLD CASH" Jefferson,Larry Craig, William Beavers,Rod Blagogevich,George Ryan,Otto Kerner,Marvin Mandel,Dan Walker,Dan Rostenkowski,Shelia Dixon,Vernon Buchanan, Charles Rangle,Ray Blanton,Budd Dwyer,Maxine Waters,Don Siegelman,John Rowland,Edwin Edwards,John Symington,Jim Guy Tucker, Bill Clinton, Frank Hill,Joe Montoya,David Lee Walters,Bill Janklow, and,Arch A Moore. I could keep on going but I think you know why now.
Nov 28, 2012 7:58PM
avatar
Drives me insane when comments are made such as 'we need to used to less government spending on programs like Medicare, Social Security and defense'. These are NOT 'programs'. We all pay an enormous amount of income into Medicare and Social Security. It is not our fault that the government has squandered what they were supposed to be holding in trust for us. Also, the defense of our nation should be just about the number one priority of our government, not a 'program'. When they talk about cuts in government spending, how about actually cutting the entitlements like welfare, food stamps, etc? 
Nov 28, 2012 7:55PM
avatar
A few quick questions, how much total revenue from income tax was taken into the government coffers relative to GDP at those historic tax rates? What percentage of the population paid federal income tax? What percentage of the total income tax was paid by the top two percent? What percent of the total economy did the federal government represent during those time periods? (Today, it's so swollen that nobody in their right mind wants to contribute to it! We need to ask ourselves why the government needs so much of OUR money, what are they spending it for?)

The rates are a sham and always have been: Those high tax rates had huge loopholes that you could drive a truck through, so no one paid the full ridiculously high rates. Let's just make it truly fair and phase out deductions, loopholes and subsidies.

I'm firmly opposed to a "progressive" tax rate system such as we have. I don't see how say 20% is different for a person with a $20K income, 200K, or a $2 Million income. Because it's a percentage, it's already progressive...$4K versus $40K versus $400K. Isn't that a big enough increase in actual tax paid? Let's just do a flat rate with no deductions, credits, or other subsidies. KISS it!

Nov 28, 2012 7:53PM
avatar
The top tax rate today is far above 35% because of the AMT. Anybody who earns enough money to reach the top rate knows that.
Nov 28, 2012 7:52PM
avatar
This article itsself proves that the top earners paid much more than your middle class.  People who say taxes are evil and governments are evil because you have to pay taxes has a screw loose upstairs.  Taxes are necessary to have any police force, fireman, Social Security, Medicare, and to pay our military people and help them when they come home disabled mentally and physically.  Other social programs not run by the government would be car insurance companies, health insurance companies, and home owners insurance companies... etc.  Now, people drive around without car insurance, live without health insurance, and own houses and don't have home owners insurance.  Granted, if your house has a mortgage and your car has a loan the government demands you buy insurance, but many people who own their stuff don't buy insurance.  This is what happens if you leave people to their own devices.  Where do you think our social programs would be if left up to people to willingly give of their money to keep these entities going.  These programs would be up sh*ts creek without a paddle.  People expect much but want to give little, except when it comes to the lottery. How greedy can you be.  You have 1 in 175 million chance of winning but people are out there throwing their money away hoping to become millionaires.  This is what people do with their money if it is left  up to them.  There are 300,000,000 people in the US.  How many of us would have what it takes to save enough money to pay our own retirement, take care of all our medical expenses at retirement age.  How would if feel not to be able to call 911 for help because there is no 911.  With no military our country would be flatten.  We would not even exist because the rest of the world would run over us.  CALL IT WHAT YOU WILL BUT TAXES ARE A NECESSARY EVIL.  TWO THINGS YOU CAN BE ASSURED OF IS DEATH AND TAXES!      
Nov 28, 2012 6:52PM
avatar
Nobody paid those top tax rates.  During most of that time, the top capital gains tax rate was 28%.  

It's too low now at 15%, but don't fool yourself into thinking the rich ever paid 70% for real.

Nov 28, 2012 5:32PM
avatar
the power to tax is the power to destroy. so lets not all forget that power corrupts. most of you have but i will not.
Nov 28, 2012 5:15PM
avatar

Me and hubby pay tons of taxes and are proud to do so.We make a very good living, better

than any other country and feel grateful.In most other countries unless you`re of royal blood

you can`t go from the bottom class to making 6 figure status like we did thru education and

hard work.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More