As a person born in New Jersey and raised in New York City I hope the personas put on display by the two Republican thugs, Christie and Trump, won’t unfairly rub off on the images of the rest of us tri-staters. They could foist a pretty nasty stereotype.
But Denis is there really a “New Jersey Nice” like there is a “Minnesota Nice”? Because the closer these things strike to home the less it seems like a stereotype.
For example it is a stereotype that all Manhattan-ites are always in a hurry. Until you go to Midtown and make the mistake of looking up at the buildings from the sidewalk or lingering over ANYTHING. At that point tourists become the equivalent of those plastic traffic cones, drive around them if you can, run over them if you must.
In contrast I just moved to Southern New Mexico and it mostly seems that nobody is in a hurry to do anything, and not only in the summer afternoon heat. The only electricity in the air around here is, well the electricity in the air from our summer desert thunderstorms. Otherwise the default speed is “stroll”. Plus you just don’t hear car horns. Who is in that much of a hurry?
Essentially it is a defense for keeping interest rates low from late 2002 to mid 2004. The defense is mainly that raising interest rates by enough to stop the housing bubble would have depressed output more than the Great Recession.
Why did we get the housing bubble?
In the mid 1990’s banks began to purchase residential mortgages, and package them as securities to be sold. The banker’s motivation was to collect fees. They needed mortgages and the mortgage brokers were happy to provide them. As demand for those mortgages increased the mortgage brokers became less interested in the quality of the mortgages. The broker’s motivation was to collect fees. They found appraisers who would appraise residences at a high enough value to support the loan. The appraiser’s motivation was to get work and any appraiser who would not cooperate would soon find less work available. As appraisals went higher and higher, existing homeowners found that they could remove cash from their homes by refinancing and that cash could be used to payoff other types of debt. The homeowner’s motivation was to supplement their stagnant wages.
There you have it. The bankers, mortgage brokers, appraisers, and the borrowers were all being rewarded. Where was the check on the process? That came when borrowers started missing payments and the payments to the holders’ of the securities began to slow. By about mid 2007 the problems with the home mortgages were so bad that they could no longer be ignored. News of Bear Stearns problems made the mainstream media and the game was up.
How could the Federal Reserve have missed the rapidly increasing borrowing on homes?
The best explanation that I can come up with is that they did not want to know. About 70% of GDP is consumer spending. Cracking down on the increasing number of home refinances would have reduced GDP.
Why were wages stagnating in the United States after the mid 1990s?
The wages paid to American workers are dependent on the supply and demand for workers. As corporations moved more and more production out of the United States, the demand for workers in the United States was reduced. As the demand for workers was reduced there was less need to raise the wages paid to workers. The workers would continue to work with reduced pay raises which barely kept pace with inflation.
NAFTA went into effect in January 1994. In 1997 homeowners removed $276Billion in equity from their home. In 2002 they removed $758Billion. In 2005 they removed $1,429Billion. (From 1991 to 1996 the equity removed had ranged from $184Billion to 277.1Billion.) See pages 16 and 17 in the Greenspan and Kennedy study.
See: http://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf
So the housing bubble was not our primary problem. It only served to mask the magnitude of the real problem which was rapidly growing. A growing problem which the federal government was determined to ignore. Otherwise they would have been forced to recognize the increasing damage being done by NAFTA and other trade treaties.
From the Economic Letter “What is the takeaway then? Slowing down a boom in house prices is likely to require a considerable increase in interest rates, probably by an amount that would be widely at odds with the dual mandate of full employment and price stability.”
They are discussing rearranging the deck chairs on a sinking ship. This could go on for another decade or two.
Bruce, when we used to visit our relatives in nearby New Jersey we had trouble sleeping the first nights because it was too quiet. True. Crickets just didn’t make it.
Yeah. I understand that there are part of Jersey which still justify its old nickname of “The Garden State”. I just suspect they are a long way away from North Jersey OR The Shore.
I don’t suspect you hear crickets at night in Newark or Asbury Park. But not because they were lulled to sleep by all the New Jersey Nice Noiselessness.
1) Eliminate all federal income tax for incomes less that $75k. This includes payroll taxes. I would replace the lost revenue from a national sales tax (VAT). These are two very progressive steps as the bulk of workers make less than 75k, and the VAT hits big spenders the most.
2) Every American citizen would get Medicare part B. (hospitalization). The cost would come in part from reductions in Medicaid, and other new taxes. Supplemental coverage plans for non hospitalization costs would be available.(there are many options for those who are 65 and on Medicare). Subsidies would be available to purchase basic supplemental plans for those who have incomes below 140% of FPL. (more or less ACA)
“VAT hits big spenders the most.”
That depends on what it is applied to. A lot of past Flat Tax proposals apply it to almost everything and so take a bigger PROPORTIONAL hit to small spenders. I mean yes not everyone buys a $25000 watch and so gets socked with a huge single VAT, but you can 12. 15, 25% people to death applying it to ordinary necessities.
Medicare Part B is Physicians, Part A is Hospitalization.
I do not think so. A VAT is, nominally, a flat tax. However, the rich spend a lower percentage of their income. (That’s how they get rich.) There would need to be a way to back-load it. So it we have a 20% VAT, then provide, say $2k per year per person to cover the first $10k of spending. (That is, I believe, part of the “Fair Tax” proposal.
Warren: “I do not think so. A VAT is, nominally, a flat tax. However, the rich spend a lower percentage of their income. (That’s how they get rich.) There would need to be a way to back-load it.”
I can’t believe that I agree with something you have written. You’re right, but that last piece about back loading is the problem. How do you overcome the inequities of a flat VAT? Why bother? Progressive income tax on all income no significant deductions except maybe for basic necessity spending. Break the income tiers down in some reasonable fashion and tax the highest brackets the highest percentage. It’s really not that complicated.
Investment spending needs no special government encouragement. That’s not free market capitalism. A good investment will attract money by its own value. That’s the free hand of the market in its only legitimate application.
If the CEOs of the 50s, early 60s, could (theoretically) pay 92% income tax on ten to twenty times smaller than today’s incomes, I don’t see why the CEOs of today cannot pay a comparatively high tax — say on income over $2 million — without distorting incentives (average CEO pay now $22 million?).
Concomitantly, CEO A players and B players — just like sports: the A players are going to be A with any kind of reasonable incentives because that’s what God gave them and they have only one life to be it. Just like sports, you always have all the B players you need.
Same goes for pro ball players, TV anchors and overpaid almost anybody else.
Jack: “[That] last piece about back loading is the problem. How do you overcome the inequities of a flat VAT?”
By back-loading it, as I said. If we decide “necessities” are about $10k per person per year, and our VAT is 20%, then give everyone $2k per person per year.
Jack: “Why bother? Progressive income tax on all income no significant deductions except maybe for basic necessity spending. Break the income tiers down in some reasonable fashion and tax the highest brackets the highest percentage. It’s really not that complicated.”
Indeed it is not. The problem is that politicians complicate it. They use the tax code as an instrument of social engineering rather than as a source of revenue. So we make mortgage interest deductible (driving up the price of housing), we make charitable contributions deductible (which means the IRS has to determine what is and is not a charity), and we have deductions for putting solar panels on our houses, and on and on until we have a ridiculous income tax system, and we need accountants and tax attorneys to do our taxes.
The reason for preferring a Value Added Tax over an income tax is not that a VAT is basically simpler, but that it is harder for the politicians to complicate.
Warren, I dunno. If the majority was getting the majority of the income (roughly speaking) I suppose the majority might actually have to pay a higher tax rate. 🙂
Warren even the lowest tax rate is a marginal rate. Because of personal and dependent exemptions. What was the effective rate for the median household?
Which is to say that your question is unanswerable as is. But I am going to go out on a limb and say “Yes let’s restore the marginal rate schedule as it was in 1953”. Which by the way you can find here:
I have found in the past that these kind of discussions bear a lot more fruit if they start from a data source rather than gotcha questions.
For example the personal exemption for a married filer in 1953 was $1200, a number that didn’t change between 1948 and 1970. And was only up to $1500 right through 1978. Meaning that even as the lowest rate dropped over time it doesn’t appear that the effective rate ever decreased. So it seems quite likely that workers were never more lightly taxed than in 1953. Effectively. The deduction tables are available here in PDF. Feel free to knock yourself out and make your case. With numbers.
1953:
Median Household income, $4,233.
Median household size: 3.32
Standard Deduction: $1,000
Exemptions: $1,992 ($600 * 3.32)
Taxable Income: $1,241
Income Tax: $273
Effective Rate: 6.45%
———————————————-
2013:
Median Household Income: $51,939
Median Household Size: 2.56
Standard Deduction: $12,200
Exemptions: $9,984 ($3900 * 2.56)
Taxable Income: $29,755
Income Tax: $3,574
Effective Rate: 6.88%
—————————————————————-
Not much difference there.
If household size had stayed the same, then the income tax for that “median family” would be $3,124, for an effective rate of 6.01% — below what it was in 1953.
BTW, the CPI in 1953 was 26.7. In 2014 it was 236.736.
So that $4,223 median household income compares to $37,443 in 2014.
So if we were to take a family making $4,223 then, and compare their taxes to someone earning $37,443 in 2014, the family is 2014 would be paying an even lower effective tax rate.
But this puts in perspective your slightly snarkish:
‘Denis, the lowest tax rate in 1953 was 22.2%. Shall we go back to that, too?”
Which to most readers would imply a conclusion rather different than:
“Not much difference there”.
As I say ad nauseum “Everything is Simple. If you Ignore the Complexities”. For example a throwdown on a 22.2% rate.
And I don’t quite follow your 9:57. Because it seems to be congratulating that $37k family because their lagging income compared to the overall economy has them paying a lower effective rate on taxes than if it had kept up. Which I think they would trade in for a gross salary of $51k. But as I say I am scratching my head a bit and will certainly read any clarification you would like to offer.
In 1953 the Baby Boom was picking up on its way to a 1957 peak (me!!). And in the nature of things household sizes for heads of households under 40 would be larger than those over 40 because in the later case the kids would be aging out of their parents’ household. On the other hand we would expect incomes to be higher for the over 40s than the under 40s and for both the demographic and economic disparity to be larger if we picked 30 and 50. Which seems to suggest that relatively lower income households would have more children and so more deductions and so a lower tax burden and so a lower effective rate.
That whole “simplicity/complexity” thing biting us in the butt yet one more time. And of course there might be offsets the other direction that just don’t come to mind. Say interest deductions being higher for higher income older households.
All of which just leads me to say “Lets let those Kennedy marginal rates rip and see what happens!!!”.
Bruce: “I don’t quite follow your 9:57. Because it seems to be congratulating that $37k family because their lagging income compared to the overall economy has them paying a lower effective rate on taxes than if it had kept up.”
I was not congratulating anyone on anything. I was merely trying to point out that, for one particular income level (compared by CPI), a similar family in 1953 would be paying a higher effective tax rate.
Let’s look at it another way — by maintaining the 1953 tax code, and indexing all the dollar values by CPI, and looking at median income families of four.
The personal exemptions would go from $600 per person to $5235. The standard deduction for a married couple would go from $1000 to $8725.
The bottom rate (22.2%) would extend up to $17,450, and the next bracket (24.6%) would end at $34,900.
So in 1953, a median income ($4,233) family of four would have $833 of taxable income, and pay $185 in tax, for an effective rate of 4.37%.
In 2013, and median income ($51,939) family of four would have $22,274 in taxable income, and pay $5,061 in tax, for an effective rate of 9.74% — more than twice as much as in 1953.
Comparing the taxes paid by CPI, that $185 in 1953 is about $1,613 in 2013. The median income, four-person family in 2013 would be paying more than THREE times as much in taxes.
Now, do you still want to resurrect the 1953 tax code?
One you are simplying your calculations by assuming that median size household correlates with median income household in a way that justifies calculation to two decimal points. That is you are not “looking at median income families of four”. So there is a certain amount of GIGO going on here. Plus on re-reading this I am left scratching my head.
You say “The median income, four-person family in 2013 would by paying more than three times as much in taxes” at a rate of “9.74%”. Then ask whether we “still want to resurrect the 1953 tax code” where that same family would be paying at 4.37%. Color me dumb but I don’t see why the answer, using your numbers, wouldn’t be “yes, lets go back”. Because you seem to be twisting yourself into knots here.
No, Bruce. Using the 1953 tax code, adjusted for inflation to 2013, a family of four with the 2013 median income would have paid an effective rate of 9.74%. Such a family in 1953 would have paid an effective rate of 4.37%.
To compare to the 2013 current system ($3900 personal exemption and $12,200 standard deduction, with a tax of 10% on income up to $17,850, and 15% up to $72,500), such a family would have paid $2728.30 in federal income tax, for an effective rate of 5.25%.
To sum it up, a family of four making the median income in 2013 ($51,939) would have paid $5,061 under the 1953 tax code (adjusted for inflation), but would have paid only $2,728 under the 2013 tax code.
(These assume standard deductions, not itemized deductions.)
Silly me — entirely forgot the Child Tax Credit, which was $1000 per child in 2013 (and did not exist in 1953).
So under the 2013 tax code, a family of four earning $51,939 would have paid only $728, not $2,728. Thus, they would have had a 1.40% effective tax rate.
Warren/Webb – I’m curious why you do not include payroll taxes in your calculations.
What was SS withholding in 1950? 2%?
Today it is ~7% (Includes medicare/unemployment tax) assuming that this is a one worker household. Of course if your guy is a self employed plumber he gets tagged for 14% off the top. If it is a two income family the plumber gets hit for the 14% and the wife pays an extra 7%.
I left out payroll taxes because, by prevailing theory, those taxes are insurance payments to cover periods of unemployment, and to supplement one’s own income in retirement.
I exclude State income taxes because the topic is federal income taxes, which do not depend on State income tax systems.
As a person born in New Jersey and raised in New York City I hope the personas put on display by the two Republican thugs, Christie and Trump, won’t unfairly rub off on the images of the rest of us tri-staters. They could foist a pretty nasty stereotype.
But Denis is there really a “New Jersey Nice” like there is a “Minnesota Nice”? Because the closer these things strike to home the less it seems like a stereotype.
For example it is a stereotype that all Manhattan-ites are always in a hurry. Until you go to Midtown and make the mistake of looking up at the buildings from the sidewalk or lingering over ANYTHING. At that point tourists become the equivalent of those plastic traffic cones, drive around them if you can, run over them if you must.
In contrast I just moved to Southern New Mexico and it mostly seems that nobody is in a hurry to do anything, and not only in the summer afternoon heat. The only electricity in the air around here is, well the electricity in the air from our summer desert thunderstorms. Otherwise the default speed is “stroll”. Plus you just don’t hear car horns. Who is in that much of a hurry?
The San Francisco Federal Reserve Bank is out with an Economic Letter titled “Interest Rates and House Prices: Pill or Poison?”
See: http://www.frbsf.org/economic-research/publications/economic-letter/2015/august/interest-rates-and-house-prices-central-bank-goals/
Essentially it is a defense for keeping interest rates low from late 2002 to mid 2004. The defense is mainly that raising interest rates by enough to stop the housing bubble would have depressed output more than the Great Recession.
Why did we get the housing bubble?
In the mid 1990’s banks began to purchase residential mortgages, and package them as securities to be sold. The banker’s motivation was to collect fees. They needed mortgages and the mortgage brokers were happy to provide them. As demand for those mortgages increased the mortgage brokers became less interested in the quality of the mortgages. The broker’s motivation was to collect fees. They found appraisers who would appraise residences at a high enough value to support the loan. The appraiser’s motivation was to get work and any appraiser who would not cooperate would soon find less work available. As appraisals went higher and higher, existing homeowners found that they could remove cash from their homes by refinancing and that cash could be used to payoff other types of debt. The homeowner’s motivation was to supplement their stagnant wages.
There you have it. The bankers, mortgage brokers, appraisers, and the borrowers were all being rewarded. Where was the check on the process? That came when borrowers started missing payments and the payments to the holders’ of the securities began to slow. By about mid 2007 the problems with the home mortgages were so bad that they could no longer be ignored. News of Bear Stearns problems made the mainstream media and the game was up.
How could the Federal Reserve have missed the rapidly increasing borrowing on homes?
The best explanation that I can come up with is that they did not want to know. About 70% of GDP is consumer spending. Cracking down on the increasing number of home refinances would have reduced GDP.
Why were wages stagnating in the United States after the mid 1990s?
The wages paid to American workers are dependent on the supply and demand for workers. As corporations moved more and more production out of the United States, the demand for workers in the United States was reduced. As the demand for workers was reduced there was less need to raise the wages paid to workers. The workers would continue to work with reduced pay raises which barely kept pace with inflation.
NAFTA went into effect in January 1994. In 1997 homeowners removed $276Billion in equity from their home. In 2002 they removed $758Billion. In 2005 they removed $1,429Billion. (From 1991 to 1996 the equity removed had ranged from $184Billion to 277.1Billion.) See pages 16 and 17 in the Greenspan and Kennedy study.
See: http://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf
So the housing bubble was not our primary problem. It only served to mask the magnitude of the real problem which was rapidly growing. A growing problem which the federal government was determined to ignore. Otherwise they would have been forced to recognize the increasing damage being done by NAFTA and other trade treaties.
From the Economic Letter “What is the takeaway then? Slowing down a boom in house prices is likely to require a considerable increase in interest rates, probably by an amount that would be widely at odds with the dual mandate of full employment and price stability.”
They are discussing rearranging the deck chairs on a sinking ship. This could go on for another decade or two.
Bruce, when we used to visit our relatives in nearby New Jersey we had trouble sleeping the first nights because it was too quiet. True. Crickets just didn’t make it.
Yeah. I understand that there are part of Jersey which still justify its old nickname of “The Garden State”. I just suspect they are a long way away from North Jersey OR The Shore.
I don’t suspect you hear crickets at night in Newark or Asbury Park. But not because they were lulled to sleep by all the New Jersey Nice Noiselessness.
If I was running for Prez I would propose:
1) Eliminate all federal income tax for incomes less that $75k. This includes payroll taxes. I would replace the lost revenue from a national sales tax (VAT). These are two very progressive steps as the bulk of workers make less than 75k, and the VAT hits big spenders the most.
2) Every American citizen would get Medicare part B. (hospitalization). The cost would come in part from reductions in Medicaid, and other new taxes. Supplemental coverage plans for non hospitalization costs would be available.(there are many options for those who are 65 and on Medicare). Subsidies would be available to purchase basic supplemental plans for those who have incomes below 140% of FPL. (more or less ACA)
Two tier system similar to what most of Europe does except bigger.
“VAT hits big spenders the most.”
That depends on what it is applied to. A lot of past Flat Tax proposals apply it to almost everything and so take a bigger PROPORTIONAL hit to small spenders. I mean yes not everyone buys a $25000 watch and so gets socked with a huge single VAT, but you can 12. 15, 25% people to death applying it to ordinary necessities.
Medicare Part B is Physicians, Part A is Hospitalization.
“[The] VAT hits big spenders the most.”
I do not think so. A VAT is, nominally, a flat tax. However, the rich spend a lower percentage of their income. (That’s how they get rich.) There would need to be a way to back-load it. So it we have a 20% VAT, then provide, say $2k per year per person to cover the first $10k of spending. (That is, I believe, part of the “Fair Tax” proposal.
Warren: “I do not think so. A VAT is, nominally, a flat tax. However, the rich spend a lower percentage of their income. (That’s how they get rich.) There would need to be a way to back-load it.”
I can’t believe that I agree with something you have written. You’re right, but that last piece about back loading is the problem. How do you overcome the inequities of a flat VAT? Why bother? Progressive income tax on all income no significant deductions except maybe for basic necessity spending. Break the income tiers down in some reasonable fashion and tax the highest brackets the highest percentage. It’s really not that complicated.
Investment spending needs no special government encouragement. That’s not free market capitalism. A good investment will attract money by its own value. That’s the free hand of the market in its only legitimate application.
If the CEOs of the 50s, early 60s, could (theoretically) pay 92% income tax on ten to twenty times smaller than today’s incomes, I don’t see why the CEOs of today cannot pay a comparatively high tax — say on income over $2 million — without distorting incentives (average CEO pay now $22 million?).
Concomitantly, CEO A players and B players — just like sports: the A players are going to be A with any kind of reasonable incentives because that’s what God gave them and they have only one life to be it. Just like sports, you always have all the B players you need.
Same goes for pro ball players, TV anchors and overpaid almost anybody else.
Jack: “[That] last piece about back loading is the problem. How do you overcome the inequities of a flat VAT?”
By back-loading it, as I said. If we decide “necessities” are about $10k per person per year, and our VAT is 20%, then give everyone $2k per person per year.
Jack: “Why bother? Progressive income tax on all income no significant deductions except maybe for basic necessity spending. Break the income tiers down in some reasonable fashion and tax the highest brackets the highest percentage. It’s really not that complicated.”
Indeed it is not. The problem is that politicians complicate it. They use the tax code as an instrument of social engineering rather than as a source of revenue. So we make mortgage interest deductible (driving up the price of housing), we make charitable contributions deductible (which means the IRS has to determine what is and is not a charity), and we have deductions for putting solar panels on our houses, and on and on until we have a ridiculous income tax system, and we need accountants and tax attorneys to do our taxes.
The reason for preferring a Value Added Tax over an income tax is not that a VAT is basically simpler, but that it is harder for the politicians to complicate.
Denis, the lowest tax rate in 1953 was 22.2%. Shall we go back to that, too?
Warren, I dunno. If the majority was getting the majority of the income (roughly speaking) I suppose the majority might actually have to pay a higher tax rate. 🙂
Warren even the lowest tax rate is a marginal rate. Because of personal and dependent exemptions. What was the effective rate for the median household?
Which is to say that your question is unanswerable as is. But I am going to go out on a limb and say “Yes let’s restore the marginal rate schedule as it was in 1953”. Which by the way you can find here:
http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets
I have found in the past that these kind of discussions bear a lot more fruit if they start from a data source rather than gotcha questions.
For example the personal exemption for a married filer in 1953 was $1200, a number that didn’t change between 1948 and 1970. And was only up to $1500 right through 1978. Meaning that even as the lowest rate dropped over time it doesn’t appear that the effective rate ever decreased. So it seems quite likely that workers were never more lightly taxed than in 1953. Effectively. The deduction tables are available here in PDF. Feel free to knock yourself out and make your case. With numbers.
http://taxfoundation.org/sites/taxfoundation.org/files/docs/feddividendtreatment-20061212.pdf
Well that’s reasonable.
Lessee….
1953:
Median Household income, $4,233.
Median household size: 3.32
Standard Deduction: $1,000
Exemptions: $1,992 ($600 * 3.32)
Taxable Income: $1,241
Income Tax: $273
Effective Rate: 6.45%
———————————————-
2013:
Median Household Income: $51,939
Median Household Size: 2.56
Standard Deduction: $12,200
Exemptions: $9,984 ($3900 * 2.56)
Taxable Income: $29,755
Income Tax: $3,574
Effective Rate: 6.88%
—————————————————————-
Not much difference there.
If household size had stayed the same, then the income tax for that “median family” would be $3,124, for an effective rate of 6.01% — below what it was in 1953.
BTW, the CPI in 1953 was 26.7. In 2014 it was 236.736.
So that $4,223 median household income compares to $37,443 in 2014.
So if we were to take a family making $4,223 then, and compare their taxes to someone earning $37,443 in 2014, the family is 2014 would be paying an even lower effective tax rate.
Thanks Warren, I do like numbers.
But this puts in perspective your slightly snarkish:
‘Denis, the lowest tax rate in 1953 was 22.2%. Shall we go back to that, too?”
Which to most readers would imply a conclusion rather different than:
“Not much difference there”.
As I say ad nauseum “Everything is Simple. If you Ignore the Complexities”. For example a throwdown on a 22.2% rate.
And I don’t quite follow your 9:57. Because it seems to be congratulating that $37k family because their lagging income compared to the overall economy has them paying a lower effective rate on taxes than if it had kept up. Which I think they would trade in for a gross salary of $51k. But as I say I am scratching my head a bit and will certainly read any clarification you would like to offer.
And just for amusement value.
In 1953 the Baby Boom was picking up on its way to a 1957 peak (me!!). And in the nature of things household sizes for heads of households under 40 would be larger than those over 40 because in the later case the kids would be aging out of their parents’ household. On the other hand we would expect incomes to be higher for the over 40s than the under 40s and for both the demographic and economic disparity to be larger if we picked 30 and 50. Which seems to suggest that relatively lower income households would have more children and so more deductions and so a lower tax burden and so a lower effective rate.
That whole “simplicity/complexity” thing biting us in the butt yet one more time. And of course there might be offsets the other direction that just don’t come to mind. Say interest deductions being higher for higher income older households.
All of which just leads me to say “Lets let those Kennedy marginal rates rip and see what happens!!!”.
Courtesy Slashdot I read an announcement that Netflix has now extended unlimited maternity leave to moms and dads for the first year. http://blog.netflix.com/2015/08/starting-now-at-netflix-unlimited.html
Bruce: “I don’t quite follow your 9:57. Because it seems to be congratulating that $37k family because their lagging income compared to the overall economy has them paying a lower effective rate on taxes than if it had kept up.”
I was not congratulating anyone on anything. I was merely trying to point out that, for one particular income level (compared by CPI), a similar family in 1953 would be paying a higher effective tax rate.
Let’s look at it another way — by maintaining the 1953 tax code, and indexing all the dollar values by CPI, and looking at median income families of four.
The personal exemptions would go from $600 per person to $5235. The standard deduction for a married couple would go from $1000 to $8725.
The bottom rate (22.2%) would extend up to $17,450, and the next bracket (24.6%) would end at $34,900.
So in 1953, a median income ($4,233) family of four would have $833 of taxable income, and pay $185 in tax, for an effective rate of 4.37%.
In 2013, and median income ($51,939) family of four would have $22,274 in taxable income, and pay $5,061 in tax, for an effective rate of 9.74% — more than twice as much as in 1953.
Comparing the taxes paid by CPI, that $185 in 1953 is about $1,613 in 2013. The median income, four-person family in 2013 would be paying more than THREE times as much in taxes.
Now, do you still want to resurrect the 1953 tax code?
One you are simplying your calculations by assuming that median size household correlates with median income household in a way that justifies calculation to two decimal points. That is you are not “looking at median income families of four”. So there is a certain amount of GIGO going on here. Plus on re-reading this I am left scratching my head.
You say “The median income, four-person family in 2013 would by paying more than three times as much in taxes” at a rate of “9.74%”. Then ask whether we “still want to resurrect the 1953 tax code” where that same family would be paying at 4.37%. Color me dumb but I don’t see why the answer, using your numbers, wouldn’t be “yes, lets go back”. Because you seem to be twisting yourself into knots here.
No, Bruce. Using the 1953 tax code, adjusted for inflation to 2013, a family of four with the 2013 median income would have paid an effective rate of 9.74%. Such a family in 1953 would have paid an effective rate of 4.37%.
To compare to the 2013 current system ($3900 personal exemption and $12,200 standard deduction, with a tax of 10% on income up to $17,850, and 15% up to $72,500), such a family would have paid $2728.30 in federal income tax, for an effective rate of 5.25%.
To sum it up, a family of four making the median income in 2013 ($51,939) would have paid $5,061 under the 1953 tax code (adjusted for inflation), but would have paid only $2,728 under the 2013 tax code.
(These assume standard deductions, not itemized deductions.)
Silly me — entirely forgot the Child Tax Credit, which was $1000 per child in 2013 (and did not exist in 1953).
So under the 2013 tax code, a family of four earning $51,939 would have paid only $728, not $2,728. Thus, they would have had a 1.40% effective tax rate.
Warren/Webb – I’m curious why you do not include payroll taxes in your calculations.
What was SS withholding in 1950? 2%?
Today it is ~7% (Includes medicare/unemployment tax) assuming that this is a one worker household. Of course if your guy is a self employed plumber he gets tagged for 14% off the top. If it is a two income family the plumber gets hit for the 14% and the wife pays an extra 7%.
Were there state income taxes back in the 50s??
I left out payroll taxes because, by prevailing theory, those taxes are insurance payments to cover periods of unemployment, and to supplement one’s own income in retirement.
I exclude State income taxes because the topic is federal income taxes, which do not depend on State income tax systems.