Taxes, Spending, and Inflation from 1960 to Today (Part I)

My brother reminds me that the highest tax rate back in 1960 was 91% and the economy did well despite these high taxes. But there are several things my liberal sibling is forgetting that makes 1960 tax rates and the cost of living much different from today. Here are some glaring oversights by simply doing eyeball statistics between 1960 and today:

• Payroll taxes are much higher today. Back in 1960 the tax rate for Social Security was 2.9% on the first $4,800 dollars earned. Today, the rate is 6.2% on the first $106,800 dollars earned. And today taxpayers must pay an additional 1.45% on the first $106,800 dollars earned for Medicare that folks did not have to worry about in 1960. Hence, payroll taxes have increased more than twice as much in the past half century.

• The effective tax rate is higher today. In 1960 individual federal taxes accounted for about 40% of all revenues raised by the federal government. Today individual federal tax rates account for 46% of all tax revenues.

• In 1960 revenues collected from corporate taxes was nearly double what they are today. But this is mainly due to the global economy. Back in 1960 the U.S. was by far the leader in the industrial revolution and faced little global competition. Today, corporations face tough competition around the globe that do not have to face Union demands, higher regulations, and higher tax rates.

• Inflation is a key difference between 1960 and today. The below table shows how much real time dollars have increased from 1960 to 2008 for a family of 5 (and remember this is before the recession). The standard of living has nearly doubled in the past 50 years, including taxes.

Yearly Expenses per Average Household

Category, 1960, 1960Today, 2008

Food, $1,681, $11,681, $11,058

General Household, $2,491, $17,314, $24,305

Transportation, $ 759, $ 5,277, $ 9,601

Health Insurance, $ 107, $ 741, $13,968

Federal Taxes, $1,884, $13,096, $21,138

State & Local Taxes, $ 767, $ 5,331, $12,637

Total Expenses, $7,689, $53,440, $92,707

• State and local income and sales tax rates are higher today. And property tax rates are much higher today than back in 1960.

• Let’s not forget about those hidden taxes on gas, tolls, parking, etc. The above table details this showing that transportation rates have nearly doubled. And because of government mandates, rules, and regulations, we are being hit with fines and fees by companies for everything we purchase.