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.
This post comes from Rick Newman at partner site U.S. News & World Report.
But 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:
VIDEO ON MSN MONEY
Taxes like state sales taxes were also much lower or non-existent in previous decades.
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
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!
$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 !
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.
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.