[keehun]

Are all the dollar amounts in the simulated tax output at the top of the page inflation adjusted?

For example, I inputted married, with no dependents with $500,000 salary and in 1977, the federal amount was $299,864 and in 2020 was $133,947. I assume these amounts can be compared without further adjusting for inflation?

Tangentially, did federal taxes really come down that much?

[jandrewrogers]

In the 1970s there were massive tax deductions that don't exist today, so the actual tax incidence was much lower than what is implied by the marginal tax rates.

There was a major overhaul of the tax code in the 1980s that simultaneously eliminated many of the tax deductions and offset that loss of deductions with lower the marginal tax rates. The change was approximately revenue neutral but made the tax code simpler.

[m0llusk]

That was a complex situation. At that time the IRS did a lot of investigation and you had to be very rich and clever to really make tax cuts work. My father worked as an airline pilot in the 1970s and paid a 75% rate which made him irrational about taxes. What was most often done was not relying heavily on tax exemptions but rather on compensation packages where employees could have a company car and a company condo and make use of the company country club membership and so on.

[hammock]

What were the biggest deductions that don’t exist today?

[ameister14]

So there were a few.

One of the biggest was that there was an investment tax credit of 7% in the 60's and 10% in the 70's, which I believe was uncapped. I think those were also able to be rolled over to cover multiple years. That means that if you invested enough, you could pay essentially no taxes. This was repealed in 1986.

[edit] Another that I should probably mention is the treatment of asset depreciation; in the 1960's and 70's the government was incredibly generous with regards to asset depreciation. For example, they allowed more rapid depreciation so you can have assets fully depreciated while still within their useful life and potentially if you sold those would pay capital gains tax on them, meaning you reaped significant tax savings over the asset's lifetime.

[PopAlongKid]

>[edit] Another that I should probably mention is the treatment of asset depreciation; in the 1960's and 70's the government was incredibly generous with regards to asset depreciation.

That is pretty much how it is today as well. 100% bonus depreciation, Sec. 179, and the safe harbor for writing off pretty much any item under $2,500 as an expense, are all in place currently, and the favorable treatment of subsequent gain from sale is still there too.

[ameister14]

I think 62-21's creation of broad industry classifications expanded rates of depreciation for a wide variety of assets, though; I'm pretty sure that was re-structured in the 80's, not sure if it was part of the 1986 Tax regulations but likely around that time.

[khuey]

On the individual side, all personal interest (e.g. credit card interest) was deductible and you could claim dependents (and their corresponding deductions) without any evidence (like a child's social security number).

[HWR_14]

The second one isn't a deduction, it was inadequate fraud and tax evasion detection. It's like saying that the tax rates didn't matter back then because you were a child and therefore paid no tax.

[throwaway0a5e]

Regardless, in aggregate it means the effective rate was lower.

If the subway costs $1 and 50% of the jump the turn-style 50% of the time the cost to ride the subway in aggregate is $0.75

Sure, if you take some asinine ideological hard line about the goodness or badness of taxation you'll probably get your panties in a knot but if you look at it from the perspective of who's spending money in the economy a little bit of broadly applied fraud and a little bit of tax reduction are the same thing because they shuffle money around in the same manner.

[HWR_14]

> If the subway costs $1 and 50% of the jump the turn-style 50% of the time the cost to ride the subway in aggregate is $0.75

No, you have jumpers whose aggregate cost is $0.50 and non-jumpers whose aggregate cost is $1.00. The revenues realized are $0.75 a ride, but the costs aren't distributed evenly. If the jumpers were caught, then the cost could decline to $0.75, the nonjumpers would pay less and the jumpers would pay more. That world is better for the half of the population that doesn't jump.

[JackFr]

> asinine ideological

Sometimes called “principled”

[themitigating]

The second deduction you mention is just tax fraud. If they didn't have stringent checks that doesn't make it a valid deduction compared to today

[wil421]

People can still claim children without any evidence. I worked with a cook who claimed like 6 or 7 kids. He never filed taxes at the end of the year so he didn’t need a SSN for them.

[cupofpython]

this is just called tax evasion

back then you could file your taxes with 6 or 7 kids and no one would check

that is not the same as claiming you have 6 or 7 kids that will be filed on your taxes and then just never filing it. Once filed he would need SSN for those kids, or he would owe taxes

[hnburnsy]

Might be missing out on EITC where the federal government would pay him (negative tax rate)

[ajmurmann]

seems like this would render the website pretty useless for anything before that period, right?

[femiagbabiaka]

It’s not useless, it’s just data which needs context. Like the claim which GP makes that the Reagan tax reform was “revenue neutral” which is dubious at best.

[jandrewrogers]

Tax revenues grew monotonically across the tax reforms of the 1980s in smoothly boring fashion with no discontinuities. That is pretty much a textbook definition of "revenue neutral".

Are you arguing that the tax revenue grew too quickly to be defined as "revenue neutral"?

I'm not old enough to have experienced it but the data is really obvious.

[taurath]

Would guess the idea is more about who pays that similar revenue, as since the 80s income inequality has shot upwards.

[tick_tock_tick]

I mean since we are talking Federal income tax the bottom 50% basically doesn't pay that.

[ChrisLomont]

It's easy enough to look up federal tax revenues during that period and see they were indeed revenue neutral. There's nothing dubious about it - it's trivial to check.

[m0llusk]

You are talking about revenue neutral at a population level. What matters to individuals is their own revenue. The impact of these changes on individuals varied a great deal. Many middle class lost valuable deductions while wealthy people saw their rate drop dramatically. There is absolutely nothing remotely neutral about any of that. So the only context where neutrality can be asserted is the same one where the statistician drowns in a lake that is an average of less than three feet deep.

[ChrisLomont]

>You are talking about revenue neutral at a population level.

Yes, that is the econometric definition of revenue neutral tax changes. Of course most any change in tax structures will affect individuals, but that is nearly irrelevant (unless you never want a change to tax law).

> while wealthy people saw their rate drop dramatically

Have you looked up this claim with actual historical effective tax rate numbers? It's simply not true.

Here's [1] CBO total effective tax rates across many income level, from 1979 to 2005. Look at Table 1, then Total Effective Rate (which is what each group actually paid). Take, for example, Reagan tax cut of 1986, and pick a window around it, saw 1984 to 1987. Top 0.01 effective rate increased from 31.8 to 33.9. Lowest quintile rate decreased from 10.2 to 8.7.

In fact, for the 1986 cut, the lowest 4 quintiles saw a slight tax decrease, the top quintile saw a tax increase.

Next, look through the individual income tax rates - again, the same. After the Reagan tax cut in 1986, the top 0.01% saw an increase in effective rates - higher than any from 1979 (start of the dataset) through 87.

Here too you see the bottom 80% ending up with lower tax rates across the board.

I don't know where you got the idea rates dropped dramatically. It's not in this data.

[1] https://www.cbo.gov/sites/default/files/110th-congress-2007-...

[pjc50]

The Reagan change probably was revenue neutral, but also changed tax incidence and its distribution across classes a lot.

[nicoburns]

A quick google shows that yes, there was a 70% marginal tax rate (applying to income over $108,300 - not inflation adjusted - for a single filer) as recently as 1981

https://taxfoundation.org/historical-income-tax-rates-bracke...

[sgjohnson]

But nobody ever paid it as there were millions of loopholes.

[standardUser]

You have to be actually wealthy for most "loopholes" come into play. Just like today, non-wealthy high earners take the biggest hit in taxes. And there are way more of those than actually wealthy people. Back then, the hit was even bigger, but the group being hit the hardest was smaller.

Politically, this setup seems to help keep those high-earners voting for lower taxes, which makes sense to them since they're the ones paying the highest overall rate.

[flomo]

Employee benefits like company-provided cars were way more common as it was a more favorable tax situation.

[refurb]

You did have to be wealthy, but $100,000 in 1980 is equivalent to $383,000 today which is pretty wealthy. So it’s basically income above $400,000 today.

And many of the tax “loopholes” involved real estate investment which would be accessible at that income level.

[jliptzin]

$380k is not wealthy. Most people can live just fine on $380k, don’t get me wrong, but it is basically upper middle class. If $380k/yr is wealthy then what is $20 million/yr?

[BoiledCabbage]

While technically a better term for assets than income, we'll continue to use "wealthy".

You should realize that multiple things can be wealthy.

$380k is wealthy and $20M is also wealthy. $20M is wealthier than $380k.

Im the US, an income of $380k is the 99th percentile.

In a higher COL state of California, an income of $380k is still in the 99th percentile.

And for the very high COL city of San Francisco, an income of $380k is still just about the 99th percentile

If a person is making $380k, regardless of what they may believe, they are absolutely not middle class in any way shape or form. They are "wealthy".

[refurb]

$400k per year put you in the top 1% of income earners in the US. 99% of people make less than those people.

That’s wealthy to me.

[zymhan]

> then what is $20 million/yr?

obscenely rich

[LeonB]

“More wealthy”?

100K in 1980 was sufficient to build and compound your wealth. That’s wealthy.

[UncleMeat]

Up thread somebody asked what these were. A response had credit card interest deductions (rich people aren't running a credit card debt today, and certainly not in 1970) and easier tax fraud.

This is such a compelling narrative for the "taxes should be lower" crowd that I'm skeptical. Granted, this is my personal bias. But I would love to see the actual clear examples of how people are deducting like 50% of their income or whatever they'd need to bring their 70% marginal rate down to 35%.

[brewdad]

In the 80s mortgage rates hit 20%. So there's a start. Wages weren't quite as skewed to the high end as they are today. The gap between low middle, middle, and upper middle was not as wide, so it was less likely to hit the threshold for the 70% bracket. There were far more single income families, so again, not as likely to hit the threshold. Finally it's a marginal rate. Only income above the threshold would be taxed that much, not one's entire income.

[thnujmikkkk]

source?

[lend000]

The top tax bracket in 1913, the first year of the federal income tax as it exists today, was equivalent to ~14 million dollars at today's value.

Our wealth inequality problems could largely be solved by fixing the tax brackets (especially w.r.t. capital gains). We don't need all sorts of new taxes, certainly not a wealth tax, before fixing the obvious problem.

That being said, $500,000 should have been taxed more heavily in 1977 relative to today in a perfect world, because that amount of money was worth a lot more back then. I don't think the numbers are inflation adjusted or it would make sense to do so without a big warning.

[ren_engineer]

as others stated there were a lot more loopholes

the other thing people don't mention is that companies got around higher tax rates by giving benefits like company cars and other things to entice employees when giving a higher salary would be stupid due to high tax rates. This is how things like health insurance ended up getting tied to employment, always unintended consequences

[sharkmerry]

It actually wasnt taxes with health insurance. They froze wages during ww2 but exempted health insurance from the cap.

Same result. different cause (in this case)

[calvinmorrison]

I was going to bring this up! good call out

[gopi]

Yes, the marginal income taxes were high but the capital gain taxes were low, so the rich didn't pay much. For example when the top income tax was 91% in the 1950s the capital gain tax was just 25%. See the historical top income and capital gain tax rates here https://ctj.org/pdf/regcg.pdf

[Melatonic]

Do you mean are the brackets themselves tax adjusted or the salaries? Because lets say there is a 300-500k bracket right now - that bracket (if it even existed in the 70s) would have been much, much higher.

[Nition]

Agreed in principle, but I think you mean much lower?

[pjc50]

I would not expect this to cope with inflation but to operate purely on nominal values; after all, that's what you'd put in the tax returns for those years.