Remember, the real trick to individual taxes is not the marginal rates on taxable income, it is the method used to calculate taxable income. If you have a taxable income of $60,000, that implies a gross income of $80,000 or more (in today's dollars), so this is a reasonably comfortable person. Or perhaps more likely, set of people.
What I was curious about was comparing the actual tax such a person would pay with their actual taxable income. That would be the effective non-marginal tax rate, because it would amalgamate the taxes paid at the lower income brackets up through the top bracket. What I found sort of debunks several myths we have floating around our political consciousness concerning taxes, who raised them, who cut them, and how much good it did. Not all years are included because the bracketing did not change every year. Here are the results:
| Year | Taxable Income | Value in 2009 Dollars | Actual Tax Paid | Non-Marginal Tax Rate |
|---|---|---|---|---|
| 1945 | $5,115 | $60,000 | $1,283 | 25.08% |
| 1946 | $5,540 | $60,000 | $1,178 | 21.27% |
| 1948 | $6,849 | $60,000 | $1,216 | 17.75% |
| 1950 | $6,849 | $60,000 | $1,266 | 18.49% |
| 1951 | $7,389 | $60,000 | $1,575 | 21.32% |
| 1952 | $7,529 | $60,000 | $1,756 | 23.32% |
| 1954 | $7,643 | $60,000 | $1,602 | 20.95% |
| 1958 | $8,212 | $60,000 | $1,735 | 21.13% |
| 1964 | $8,811 | $60,000 | $1,670 | 18.96% |
| 1965 | $8,955 | $60,000 | $1,590 | 17.76% |
| 1968 | $9,885 | $60,000 | $1,907 | 19.30% |
| 1969 | $10,435 | $60,000 | $2,078 | 19.92% |
| 1970 | $11,029 | $60,000 | $2,090 | 18.95% |
| 1971 | $11,516 | $60,000 | $2,181 | 18.94% |
| 1979 | $20,619 | $60,000 | $3,273 | 15.87% |
| 1981 | $25,862 | $60,000 | $3,232 | 12.50% |
| 1982 | $27,397 | $60,000 | $2,937 | 10.72% |
| 1983 | $28,302 | $60,000 | $2,644 | 9.34% |
| 1984 | $29,557 | $60,000 | $2,497 | 8.45% |
| 1985 | $30,612 | $60,000 | $2,598 | 8.49% |
| 1986 | $31,088 | $60,000 | $2,695 | 8.67% |
| 1987 | $32,258 | $60,000 | $5,272 | 16.34% |
| 1988 | $33,708 | $60,000 | $5,571 | 16.53% |
| 1989 | $35,294 | $60,000 | $5,859 | 16.60% |
| 1990 | $37,037 | $60,000 | $6,152 | 16.61% |
| 1991 | $38,710 | $60,000 | $6,419 | 16.58% |
| 1992 | $40,000 | $60,000 | $6,546 | 16.37% |
| 1993 | $41,096 | $60,000 | $6,710 | 16.33% |
| 1994 | $42,254 | $60,000 | $6,891 | 16.31% |
| 1995 | $43,165 | $60,000 | $7,016 | 16.25% |
| 1996 | $44,444 | $60,000 | $7,231 | 16.27% |
| 1997 | $45,455 | $60,000 | $7,371 | 16.22% |
| 1998 | $46,154 | $60,000 | $7,418 | 16.07% |
| 1999 | $47,244 | $60,000 | $7,632 | 16.15% |
| 2000 | $48,780 | $60,000 | $7,958 | 16.31% |
| 2001 | $50,420 | $60,000 | $8,216 | 16.29% |
| 2002 | $51,282 | $60,000 | $7,092 | 13.83% |
| 2003 | $52,174 | $60,000 | $7,126 | 13.66% |
| 2004 | $53,571 | $60,000 | $7,321 | 13.67% |
| 2005 | $55,556 | $60,000 | $7,603 | 13.69% |
| 2006 | $57,143 | $60,000 | $7,816 | 13.68% |
| 2007 | $58,824 | $60,000 | $8,041 | 13.67% |
| 2008 | $61,224 | $60,000 | $8,381 | 13.69% |
| 2009 (proj.) | $60,000 | $60,000 | $8,165 | 13.61% |
Taxes on taxpayers with the equvialent of a present-day taxable income of $60,000 have been at more or less constant levels, fluxuating around 19-20% for most of the postwar years. Then, in the mid-1980's, they dipped low for about five years, then came back to about 16.5%, and took a modest stop down in the early 2000's, like so:
It is incorrect to say that Democrats have never cut taxes -- although their cuts have been modest compared to Reagan's.Which leads us to the myth that Ronald Reagan cut taxes irresponsibly, and thus inflated the deficit. It's at best half-true. He cut taxes for about five years, but with the passage of COBRA in 1986, he also presided over a hike back up to Carter-like levels.
A similar myth, about George W. Bush cutting taxes in 2001 as part of his post-9/11 budget planning, does seem borne out in reality. Taxes for such a taxpayer fell about 2.5% -- a modest amount, but enough to actually be felt by the typical consumer.
There is also a myth that George H.W. Bush was voted out of office for breaking a campaign pledge not to raise taxes. If you were in this comfortable income bracket, he didn't raise your taxes -- they fell very slightly.
The conservative myth that Democratic administrations impose burdensome taxes on the middle class is incorrect. They may impose burdensome taxes on the very wealthy. But the reasonably well-off have historically not been affected all that much from year to year.
The liberal myth that taxes are, in real dollars, lower than they have ever been is incorrect. Taxes for people like the ones I'm describing reached their lowest point in 1984, under the guidance of Ronald Reagan. Substantial economic growth took place in the mid-1980's.
But them's the facts.
The trick is to keep yourself in the sweet spot of where taxable income is low enough that you're paying a reasonable rate of taxes but still actually living a comfortable lifestyle. The way you pull that trick off is to spend your money in response to the incentives built in to the IRC -- which consists to a large extent of buying a house and keeping current on your mortgage, and to a significant degree, having dependent children.
However, this does seem to support my earlier suspicion that we simply cannot know what effect raising taxes on the comfortable but not wealthy middle class to the kinds of levels imposed on super-high income earners would have. We can't know this one way or the other, because no one has tried to do it in at least three generations. The closest we can get to is the effect of COBRA hitting the economy in 1987, not quite doubling the previously-lowered tax rate for this hypothetical taxpayer. The United States experienced a rise of about 3.3% in GDP in 1987.
All of which gets back to my main point -- changes to individual income tax rates are not likely to affect the economy one way or another. There may be other good reasons to raise taxes or to cut them, but tax policy, at least at the level of individual income taxes, will not have a substantial effect on the economy at all.
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