18 February 2015

Eisenhower's 91% income tax rate

It wasn't that long ago:
[T]he most successful Republican of the 20th century up to that time, Dwight D. Eisenhower, had been quite happy with a top income tax rate on millionaires of 91 percent. As he wrote to his brother Edgar Eisenhower in a personal letter on November 8, 1954:
[T]o attain any success it is quite clear that the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything–even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon ‘moderation’ in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt [you possibly know his background], a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.
That was a marginal tax rate, of course, but still worth noting.


  1. What was really paid, was far different. Here's a good link on that: http://www.bloombergview.com/articles/2013-01-02/1950s-tax-fantasy-is-a-republican-nightmare

    1. Your Bloomberg article refers to the 90% rate as an "illusion", but they are trying to debunk the significance by citing that the "real effective tax rate for millionaires was 49 percent in 1953." All they are doing is restating what I put up above - the 91% is a marginal bracket.

      Then they say the rate wasn't important because "those earning more than $100,000 paid less than 5 percent of the taxes collected in the U.S." Which is not the point. Nobody expects to balance the federal budget by raising taxes on the 1%.

      I cite Bloomberg not infrequently, but one has to realize that obviously they have their own audience to address.

    2. Oh yeah Bloomberg does indeed have a bias in it's message but the reality of taxes paid vs the highest rates is pretty significant.
      The country was able to function with the rates and collections it had, but we also had a lot wrong that hadn't yet been addressed.

  2. That is quite an eye opening article, and by the way the same thing happened in several countries in Europe. The Beast (a government that redistributes wealth from the rich) was killed by running up huge deficits, forcing the working man's socialist parties to be very stingy with spending and even privatize (sell) telecoms, mail and energy grids.
    In my subjective evaluation this happened to the general detriment of society, BUT the goal or at least the main argument of "supply side economics" in the 80's and 90's wasn't to create financial bubbles, but to actually make the poor national working man wage-competitive with the general poverty of the global economy.
    The national perspective is very limiting, and so is the outrage over social injustice in the US, when there is an even bigger injustice worldwide. However to address that injustice we need an economy that isn't largely based on the exploitation of natural resources and massive consumption of cheap fossil fuel. Social justice isn't charity either it is to a certain degree in our own long term interest.

  3. Another interesting thing about this subject is that historically the amount of revenue collected by the federal government as a percentage of GDP has stayed roughly the same no matter what the tax rates were, between 18-20%. This has held true in times the rates were high during Eisenhower, cut by Kennedy or raised by Clinton. In simple terms, the Government has about 20% of GDP to spend if it does not want to run a deficit.

  4. "There is a tiny splinter group, of course, that believes you can do these things."

    Today, that tiny splinter group is known as The Republican Party.


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