The 91 Percent Tax Rate for Seekers

Dear reader — For most of the 1950s the top federal income tax rate was 91 percent. People on both sides of politics bring it up like it settles an argument. One side says it proves high rates and a booming economy go together. The other says it proves high rates on paper get avoided. Both are working from a real number, and both usually skip the same detail: almost nobody paid it.

Everything factual is tagged in the full Study Guide as Settled, Disputed or Popular myth, with a source. This guide doesn't say what the top rate should be today.

What 91 Percent Actually Means

A marginal rate applies only to the dollars above a threshold. In the 1950s the 91 percent bracket started at about $200,000 of taxable income for a single filer and $400,000 for a couple filing jointly, which is roughly $2 million and $4 million today. Dollars below that were taxed at lower rates, starting around 20 percent. So someone with $250,000 of taxable income paid 91 percent on the last $50,000, not on all of it. The myth is that the rich paid 91 percent of their income in taxes. They didn't, and it gets repeated from both directions.

91 percent is the MSRP of tax rates. Nobody pays it and everybody argues about it.

The rate itself is real. The 16th Amendment, passed in 1913, says Congress can tax "incomes, from whatever source derived, without apportionment among the several States." The top rate was 94 percent in 1944 and 1945, then 91 percent for most years from 1946 through 1963, with 92 percent in 1952 and 1953 during the Korean War. It dropped to 77 percent in 1964 and 70 percent from 1965 to 1981.

Why It Was So High, And Why Eisenhower Left It

World War II left a debt bigger than the economy, and the Korean War and the Cold War kept defense spending high. Rates set in wartime stayed because the money was still needed. Dwight Eisenhower, a Republican, cared about balanced budgets and left the top rate at 91 percent through both terms.

Both sides of today's politics cite this. Supporters of higher top rates say a Republican president kept 91 percent while the economy grew and the middle class expanded. Opponents say so little revenue came from the top bracket, and so much income was shielded, that the rate was more symbolic than effective. Do high top rates help or hurt growth? That's Disputed. One side points to the fastest sustained growth in American history, a Congressional Research Service study finding that cutting top rates didn't produce more growth, and an estimate that the revenue-maximizing top rate could be around 73 percent. The other says the boom came from the rest of the world being in ruins, that nine cents on the next dollar pushes people to find ways around it, and that lower rates on a broader base raise as much without the games. Both get their best case in the full guide.

What The Rich Actually Paid

The 91 percent bracket sat on top of a code full of ways to lower the bill. Long-term capital gains were taxed at a maximum of 25 percent, so income that could be turned into gains was taxed far lower. Many things were deductible. Business owners could leave profit in the company, and trusts and partnerships could shift income to lower brackets.

The 1950s tax code had so many deductions it was less a tax than a scavenger hunt with an accountant.

How much did the very top actually pay? Economists disagree, depending on what's counted. One Congressional Research Service review put the individual income tax rate on the top 0.01 percent at about 45 percent. Piketty and Saez's income-tax-only figure is lower, near 31 percent, and their well-known figure over 70 percent for 1960 adds corporate and estate taxes. All of them agree on the basic point: nowhere near 91.

How It Came Down

President Kennedy proposed cutting the top rate to 65 percent in 1963, arguing that lower rates and a broader base would grow the economy. He was killed that November. The Revenue Act of 1964, passed under Lyndon Johnson, cut the top rate to 77 percent that year and 70 percent in 1965. Reagan's 1981 tax cut brought it to 50 percent, and the 1986 reform, which Reagan signed with a Democratic House, dropped it to 28 percent while closing many deductions. Today the top federal rate is 37 percent.

The big number came back into the argument in 2019, when a House member proposed a 70 percent rate on income above $10 million. Should the top rate be much higher? One side says yes, at the very top: income there has grown much faster than the middle for decades, and a modern code with fewer loopholes could collect what the rate promises. The other side says fix the base and keep rates low: the people at the top can restructure income, so high rates collect less than promised, and a broad base with a moderate rate has collected well since 1986. Both get their best case in the full guide.

Where To Start

Read the number as a marginal rate before you repeat what it meant. Start with the first section of the Study Guide, which takes about ten minutes. Then read the 16th Amendment in the Amendments guide.