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A Look at Taxes of the Past

 

This year could be the last year before the Bush tax cuts expire and the tax rates increase.   If these cuts expire, single people and married people alike will have higher taxes.   A single person with taxable income making $100,000 will have a tax bill of $23,805 and an average tax rate of 23.8% come 2013 when these changes go into effect.

Giving the federal government 23.8% of your income, or over 30% when combined with FICA may seem like a lot, so let’s go back in time to compare:

Take a look at a decade (the 1970’s) when Stairway to Heaven was blasting on the radio and Don Vito Corleone was the most popular Halloween costume.   Adjusting for inflation, $100,000 today equals about $41,800 in 1972.   In 1972, the tax bill for a single person making $41,800 would have been $8,261 or 20%.   We’ve all heard about the exorbitant tax rates of the past so this is a little surprising that the tax, adjusted for inflation, is actually lower.   In analyzing the tax rates, adjusted for inflation, tax rates for single people don’t top out at 40% until $118,095 in income.   Then rates start to skyrocket.   At $171,774 the tax rate jumps to 50%, at $236,189 to 60%, and above $536,793 to 70%!

High taxes of the past were brought to my attention by the television series  Mad Men, about an advertising agency company based in the 1960’s. There is an opening scene where the Head of Television is talking about getting a raise.   He ends up saying he never wants to make more than $36,000 because then your just working for “them”.   “Them”  is the IRS and back in 1961 if you made between $36,000-$40,000, you were paying 53% in taxes.   Adjusting for inflation that is equivalent to someone making a little over $270,000 in todays dollars.  If the Head of Television was talking about a raise today, that conversation never would have happened, as he would be paying 33% in taxes and max out at 35%.

In 2013 when the Bush cuts expire that maximum is still only 39.6%.  Can you imagine what the partners of the agency were paying in 1961?  The maximum tax bracket in 1961 was 91%.   For every dollar in income above $200,000 (in 1961 dollars) they would only be taking home 9 cents!   So if taxes go up in 2013,  just remember that taxes could be worse.






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