18 Feb 2012

1950s High Tax Rate Bask

Economics 19 Comments

I am working on an article with a prominent supply-side economist dealing with the frequent objection, “If marginal income tax rates on the rich are so important, how come the economy boomed in the 1950s?” I know I’ve read lots of progressives making this type of comment over the least 3 years, but I can’t find any good examples. I.e. I want to show examples of the objection, before we try to answer it.

Any help?

19 Responses to “1950s High Tax Rate Bask”

  1. Watoosh says:

    Can’t seem to find a good example of that argument either. There was a rather funny (regardless of one’s stance on taxes) YT video last year where Bill O’Reilly was trying to get a seal of approval from Ben Stein (a conservative economist) for his claim that taxes on the rich can only ever lead to a worse recession, and Stein completely called him out on his BS, citing Ike’s tax rates and growth. O’Reilly was left stammering, basically trying to convey “C’mon, throw me a bone here! We’re all conservatives here, taxes are bad mmmkay?” and Stein just wouldn’t buy it. (There was another economist on the show who also wouldn’t back O’Reilly up, can’t remember his name though.)

  2. Uncle Sam says:

    I know I’ve seen this objection frequently as well. Something like this?


    I’ll keep looking.

  3. Ghengis Khak says:

    Krugman obliquely addresses the topic in this 2005 blog post, a piece which is referenced by William Anderson in this mises.org piece.

    Hope this helps.

  4. gienek says:

    Perhaps that will be of some help – /watch?v=6drf0DsnHRw – Peter Schiff on the 1950s’ taxes vs present ones.

  5. Daniel says:

    “Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

    I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

    – Warren Buffet in the New York Times

    He doesn’t mention the 1950s, but it is the typical cum hoc ergo propter hoc fallacy common to all these arguments. Buffet is obviously not aware of the concept of marginal utility.

  6. Ghengis Khak says:

    This post brings something else to mind that I’ve been thinking about. All this todo about the stated marginal rate is very likely to be misleading in my opinion. I’ve seen data going back as far as 1979 from CBO on a sort of related topic, but does anyone know what the effective total (or better, marginal) tax rates are at the top historically?

    My gut tells me there’s absolutely no way rich guys are paying anything near the 90%+ stated marginal rate in the 1950’s. Another way of putting this is that any discussion of marginal rates seems like a giant canard, unless we know that marginal rates are effective at pushing actual (that is including deductions) tax rates.

    Anyone have any good resources on this?

    • Bob Murphy says:

      One of the points I made in the draft was that when you adjust for price inflation, the 91% top rate in the 1950s only applied to income above $1.7 million or so (in 2011 dollars). In contrast, today the 35% rate kicks in I think around $380k. (I’m not looking it up; don’t quote me.)

  7. Uncle Sam says:

    Found a couple more examples, not sure if they’re what you are looking for but here they are:

    From ThinkProgress: http://thinkprogress.org/economy/2011/06/20/249061/chart-taxes-economic-growth/

    And then Peter Schiff at Wall Street: http://www.youtube.com/watch?v=UGL-Ex1CD1c

    Starting at about 15:10 there are several protesters who bring up the high marginal tax rates of bygone years.

    Then, Matt Yglesias had a post about “pity for the rich” which spawned a host of progressive bloggers who jumped on the “bash conservatives” band-wagon:

    Yglesias: http://thinkprogress.org/yglesias/2011/04/23/200706/pity-for-the-rich/

    Andrew Smith: http://andrewdsmith.wordpress.com/tag/inequality/

    Noah Smith: http://noahpinionblog.blogspot.com/2011/04/tax-debate-has-never-been-about.html

    Paul Krugman: http://krugman.blogs.nytimes.com/2011/04/23/on-pity-for-the-rich/

    • Bob Murphy says:

      Thanks Uncle Sam, I used one linked from the ThinkProgress article you listed.

  8. Marc says:

    Here’s Mark Cuban arguing with Chrystia Freeland and Dan Savage on Real Time with Bill Maher about the economy. Dan Savage says the line you’re talking about.


  9. steve says:

    The Myth of the Lower Marginal Tax Rates
    Conservatives’ Go-To Growth Solution Doesn’t Hold Up


  10. AC says:

    Because there were other factors. The End.

  11. Beckett says:

    Christina Romer and her husband David Romer (both of UC Berkeley) discuss this idea in great detail in these two papers:



    Their analysis comes down to a simple fact: High tax rates only affected 1/10 of the top 1% of income earners.

  12. Beckett says:

    This paper too provides more historical detail on changes in tax rates and who was affected the most by tax changes.

  13. kavram says:

    Kindof late in the game but I’ve heard that there were a lot more loopholes/deductions back in those days

  14. Edward says:

    three words

    Deductions, Deductions Deductions

  15. Anonymous says:

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