Balancing Frugality with Generosity

Balancing Frugality with Generosity

April is finally behind us, but I feel safe in saying that Americans all over the country are probably still grumbling about their income taxes. On April 15th, I started googling information about the history of income tax in this country, with the intention of writing a blog. I am just now writing it, but I don’t expect that this subject will go away, especially in an election year.

Most of us learn much of our history from movies, from political rhetoric, or from word of mouth. When it comes to income tax, the oral history I learned went something like this: There was no income tax before Franklin D. Roosevelt. He introduced it as part of the New Deal, and we have been stuck with it ever since. During Republican administrations, taxes have been lower, but Democrats always bump them up to support their social programs.

What I learned from comparing different posts on Google and Yahoo is quite different from what I had believed, and what I think most of the public still believes. Income taxes had been temporarily levied by different states for different reasons in special circumstances. Abraham Lincoln collected an income tax to support the union effort in the Civil War. But the first federal income tax was started in 1913.

What follows is a simplified presentation of the federal income tax rate on the wealthiest among us from FDR until now:

  • F.D.R.: Just under 94% for income over $200,000 in order to support World War II.
  • Harry Truman: 92% for income over $400,000, still to support the war effort and rebuilding.
  • Dwight D. Eisenhower: In 1954, the 92% margin rate decreased to 91% for income over $400,000. The long term capital gains tax of 25% remained in place for a decade.
  • John F. Kennedy: The tax rate inherited from Eisenhower remained throughout the Kennedy administration: 91% on income over $400,00, and 25% capital gains tax.
  • Lyndon B. Johnson: The Revenue Act of 1964 cut taxes for the wealthy below 90% for the first time in 20 years. They dropped to 77% for income over $400,000, and 75.25% for people with income over $200,000 a year. The capital gains tax  began to rise; it peaked in the mid-70’s.
  • Richard M. Nixon: The rate on income over $200,000 ranged from 77% to 70%; capital gains rates ranged from 27.5% t0 36.5%.
  • Gerald Ford: 70% for income over $200,000; capital gains, from 36.5% to a little under 40%.
  • Jimmy Carter: 70% for income over $203,200; capital gains ranged from 39.875% to 28%.
  • Ronald Reagan: A little over 69% for income exceeding $215,400, and 28% for income over $129,750. Capital gains tax ranged from 20% to 28%.
  • George H.W. Bush: 31% for anyone earning over $86,500. So his administration dropped the percentage but widened the definition of high income bracket. The rate became 28% for anyone earning over $30,950. Capital gains tax ranged from 28% to almost 29%.
  • Bill Clinton: At 39.6% for earners over $250,000, the tax rate stayed the same for the highest earners, but the cut-off rate increased by $47,350. Capital gains tax decreased by 8%.
  • George W. Bush: 40% for earners over $297,350, 35% for earners over $357,700. Capital gains tax ranged from 21.17% to 15.35%. thus he decreased the rate by 4% for top earners and the capital gains rate by 15%.
  • Barak Obama: 35% for over $388,350 income and 15% capital gains rate. Thus the Bush tax rates have remained the same throughout the Obama administration.

One can draw one’s own conclusions from this data, but it does seem to defy the common assumptions. These figures, of course, don’t include inheritance taxes, state income taxes and sales taxes, or corporate taxes. The figures don’t take into account tax loopholes or money hidden in foreign bank accounts, which have always been part of the equation.

But it does put to rest the idea that federal income taxes are higher than ever because of rampant big government. Certainly there is plenty of government waste and bureaucratic extravagance. But it is also true that we must respond to crises like heightened need for national defense, a growing elderly population in need of Social Security and health care, and previously unprecedented environmental threats by opening our pocketbooks. As usual, I am pointing fingers in both directions. Balance the budget both by increasing taxes and by eliminating waste and unnecessary spending. Our national debt is intimidating. The way to “make American great again” is to return to our forbears’ habits of both being more frugal and more generous when it comes to the public good.

 

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