5 ms·

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

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.

ajmurmann 4y ago
seems like this would render the website pretty useless for anything before that period, right?
- sieabahlpark 4y ago
- femiagbabiaka 4y ago
  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.
  - jandrewrogers 4y ago
    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.
    - taurath 4y ago
      Would guess the idea is more about who pays that similar revenue, as since the 80s income inequality has shot upwards.
      - tick_tock_tick 4y ago
        I mean since we are talking Federal income tax the bottom 50% basically doesn't pay that.
        galangalalgol 4y ago
        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.
        ChrisLomont 4y ago
        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.
        closeparen 4y ago
        It would exacerbate income inequality. It would favor higher-wage workers. Income and income taxes are irrelevant to the wealthy. Changes in wealth inequality are mostly changes in asset prices.
  - ChrisLomont 4y ago
    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.
    - m0llusk 4y ago
      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.
      - ChrisLomont 4y ago
        >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. [1] https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/12-23-effectivetaxratesletter.pdf https://www.cbo.gov/sites/default/files/110th-congress-2007-...
  - pjc50 4y ago
    The Reagan change probably was revenue neutral, but also changed tax incidence and its distribution across classes a lot.
hammock 4y ago
What were the biggest deductions that don’t exist today?
- khuey 4y ago
  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).
  - themitigating 4y ago
    The second deduction you mention is just tax fraud. If they didn't have stringent checks that doesn't make it a valid deduction compared to today
  - HWR_14 4y ago
    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.
    - throwaway0a5e 4y ago
      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.
      - JackFr 4y ago
        > asinine ideological Sometimes called “principled”
m0llusk 4y ago
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.

ajmurmann 4y ago

seems like this would render the website pretty useless for anything before that period, right?

sieabahlpark 4y ago
femiagbabiaka 4y ago
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.
- jandrewrogers 4y ago
  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.
  - taurath 4y ago
    Would guess the idea is more about who pays that similar revenue, as since the 80s income inequality has shot upwards.
    - tick_tock_tick 4y ago
      I mean since we are talking Federal income tax the bottom 50% basically doesn't pay that.
      - galangalalgol 4y ago
        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.
        ChrisLomont 4y ago
        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.
        closeparen 4y ago
        It would exacerbate income inequality. It would favor higher-wage workers. Income and income taxes are irrelevant to the wealthy. Changes in wealth inequality are mostly changes in asset prices.
- ChrisLomont 4y ago
  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.
  - m0llusk 4y ago
    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.
    - ChrisLomont 4y ago
      >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. [1] https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/12-23-effectivetaxratesletter.pdf https://www.cbo.gov/sites/default/files/110th-congress-2007-...
- pjc50 4y ago
  The Reagan change probably was revenue neutral, but also changed tax incidence and its distribution across classes a lot.

hammock 4y ago

What were the biggest deductions that don’t exist today?

khuey 4y ago
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).
- themitigating 4y ago
  The second deduction you mention is just tax fraud. If they didn't have stringent checks that doesn't make it a valid deduction compared to today
- HWR_14 4y ago
  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.
  - throwaway0a5e 4y ago
    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.
    - JackFr 4y ago
      > asinine ideological Sometimes called “principled”

m0llusk 4y ago

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.