(Host) Have you filed your taxes? Today, Commentator Kristen Laine joins us to talk about how she got an education on the history of America’s income tax laws…from a TV show.
(Laine) We’ve been watching the third season of Mad Men, which came out recently on DVD. The TV show follows a fictional Madison Avenue advertising agency through the 1960s. The era is part of the appeal for me: I was four years old in 1960, which makes me the same age as ad man Don Draper’s daughter. I recognize the dishes the Draper family uses, the food they eat, the toys the kids play with. I’ve seen where their lives intersect with American history, too. They watch the Kennedy-Nixon debates, they hear snippets of Martin Luther King’s speeches.
Early in the third season, which takes place in 1963, I ran into some unfamiliar history. One of the account guys in the ad agency complains to another, "Don’t you understand there’s no point ever in making over forty thousand when you’ll be taxed at 69%?" He continues: "And God forbid you really make it. Everything over seventy-five grand is 81%."
I turned to my husband and asked, "Did he say 81%?"
Since then, I’ve done some digging into the history of the income tax. Now I know that the Civil War prompted the nation’s first tax on personal income: 3% on earnings over $800 a year, which was then a middle-class income.
That first tax ended in 1872, although not before Republican Senator John Sherman of Ohio urged his fellow lawmakers to keep it. "The income tax," he argued, "is the only one that tends to equalize the burdens between the rich and the poor."
During a depression in the 1890s, Congress passed a 2% tax on income that would have affected fewer than 1% of the country’s households. The Supreme Court ruled it unconstitutional. It took an amendment to the Constitution to make a federal income tax legal. The Sixteenth Amendment passed the Senate without a single dissenting vote and went into effect in 1913.
Since then, we’ve always had an income tax. The rate has varied dramatically – but what really surprised me is how high the highest tax rate was for most of the twentieth century. For 50 years, from FDR to Reagan, it never dipped below 50%. During the last two decades of that span, it was never less than 70%. And for twenty years, up through 1963, the top tax rate for someone making $200,000 or more never fell below 91%.
Now we tax our wealthiest citizens, those whose income is at least a third of a million dollars, a top rate of 35%. We had a long run of a low top rate once before: during the decade leading into the Great Depression.
I’m not nostalgic for much of the world shown in Mad Men – not the drinking or smoking, not the girdles or garter belts, not the sexism or the racism. But I am nostalgic for a time when we were a middle-class society – when "really making it" meant you were taxed at 81%.
Happy Tax Day.