Good Old Ike Days of 91% Top Tax Rate

Original Article

Oh, the good old days of the Eisenhower Administration when the top income tax rate was 91%–now the source of sudden nostalgia by liberals like Paul Krugman. I was in college about the time in the early ’60’s when President Kennedy, a supposed liberal Democrat, cut that rate and ushered in a supply side economic boom that lasted at least a decade. “A rising tide lifts all boats,” as he put it. The 91% rate had proven a dud.

I have been waiting for someone to tell the truth about the tax rates of the Eisenhower era. And now our friend and DI senior fellow Michael Medved has done so on the front page of USA Today.

One reason the tax rates could be lowered in the 60’s and again in the 80’s (under Reagan) was that tax reform greatly reduced the ridiculous panoply of deductions that covered the tax code. In the 50’s all kinds of personal consumption by corporate executives, for example, could be written off as a company expense. Not just air travel and hotels, but some lavish vacations, second homes, vehicles, thinly disguised personal entertainment, etc. Some of that still goes on, but it was rampant under the rules that today’s left conveniently ignores.

For ordinary people, the personal exemption was worth roughly twice what it is now. That had the effect of giving a large up-front tax break for large families–that is, for people raising children. (Reagan increased it in the ’86 tax reform, but it needs to be indexed now.)

In any case, as Medved says, only .01% of taxpayers actually paid anything at the top rate in Ike’s days. Even after the top rate was cut to 70% under JFK, the top earners paid in less in the end than they do now. Says Medved, “(T)oday’s richest 5% cover a much bigger share of the total tax burden than the old rich ever did. In the good old days of 70% top rates, rich taxpayers covered barely a third of the 60% share of income taxes that they pay today.”

So, the redistributionist tax system that the left pines for and thinks existed a half century ago not only distorted market choices and limited economic growth, if failed to raise as much revenue as today’s lower rates for top earners. As Hayek famously said of socialism, “It has only one problem: It does not work.”

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.