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.
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.
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 This was repealed in 1986.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.
>[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.
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.
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).
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.
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.
> 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.
It may be derived from principal but that does not change the fact that pretty much any take that's out there on either extreme (in this case "taxation is theft" on one side and "taxes are inherently good" on the other) is going to be regarded as asinine by the bulk of the population. Do you disagree?
No. I'm willing to stand that the majority of the population will agree that outright lying about numbers on your tax forms to "lower your bill" is wrong.
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.
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
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.
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.
Since the distribution is exponential, removing the top tax bracket and raising the rest a little would be revenue neutral, but exacerbate wealth inequality. Not arguing if thats fair or not, just that you can make policies revenue neutral while still favoring the ultra wealthy.
Except the Reagan cuts lowered taxes on the bottom 80%, and the top saw a small increase. See my other post with historical effective tax rates from the CBO.
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.
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.
>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.
My dad made around a quarter million a year as an airline pilot and was unable to make use of tax deductions to avoid the 75% taxes. When Reagan did his thing my dad's tax rate went down to around 33% or something like that. My dad loved to go around town bragging about his money and his income. When Reagan's tax cut gave him what amounted to roughly doubling his income he made sure everyone within a radius of five miles or so knew about that. His take home pay went from roughly $65k to $165k and he couldn't stop talking about that. And your point is some population level statistics make that into something that doesn't count. Maybe you need to take a walk and talk to some people to get a clearer idea of how people think about all this?
So an anecdote, hearsay at best, of one person is stronger evidence than the entirety of the entire population?
Maybe instead of your claiming "wealthy people saw their rate drop dramatically" you should more accurately claim "I heard one wealthy person claim their rate dropped, but I didn't actually inspect their taxes... The majority didn't see this mythical drop. Most saw the opposite." That is the claim you've provided evidence for.
If your world view is formed from choosing one off examples over well-sourced, broad based evidence, it's not surprising you believe things that are simply untrue.
> Maybe you need to take a walk.....
Maybe you need to learn what terms mean and how evidence works to before making wild claims. Anecdotes are irrelvant compared to population when making population claims for good reason.
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.