Bernie Sanders, the Independent-Socialist Senator and presidential candidate from Vermont was recently quoted as saying he would like to go back to the socialist tax rates of the Eisenhower administration.  Sixty years ago, Mr. Dermody, Mr. Burke and Mr. Brown were venturing forth on their very first tax season dealing with the tax code, as it existed back then.  Hardware back then was a pencil and software was a pad of paper.

The top tax rate for individuals started at 20% and rose drastically to 91% on incomes over $300,000.  The federal corporate rate was 25% on the first $25,000 of taxable income and 52% after that.  Social Security only taxed the first $4,200 of wages at a rate of 2%.  There was no Medicare tax, as that was not invented until the mid-1960’s.   Personal exemptions were worth $600 each and the standard deduction was 10% of adjusted gross income, not to exceed $1,000 for married taxpayers.   

While the tax rates seem quite draconian, the rules allowed for generous deductions and exclusions.  Employee business expenses were a deduction from gross income as opposed to the current treatment as a miscellaneous itemized deduction subject a 2% AGI threshold and not allowable for alternative minimum tax purposes.  Club dues, meals and entertainment were fully deductible as long as they were reasonable.  That might help explain the profligacy of the three-martini lunch back in the “Mad Men” era.

Long-term capital gains were given a 50% exclusion from income and long-term meant more than six months.  Qualified dividends had a $50 exclusion for each spouse.  Itemized deductions included charitable contributions (limited to 20% of AGI), interest expense of all types, not just mortgage interest and childcare expenses up to $600.  Casualty losses were not limited as they are now nor were miscellaneous itemized deductions.  Medical expenses were allowed if they exceeded 3% of AGI.

To put things into perspective, the average wage was $4,450 sixty years ago and the average cost of a new house was $11,400.  The minimum wage was $.75 an hour ($6.53 in today’s dollars), gas was 22 cents a gallon and the FHA mortgage rate was 4.5%.  A family of four earning average wages and having $1,000 in itemized deduction would have a total federal tax bill of $294, including social security.  The median income in 2014 was $53,657 and, assuming the same two kids (under 17) and all wage income, the total tax federal tax bill including social security would be $4,940 or 9.2% of income.

The first page of my copy of the Internal Revenue Code is cited as the Internal Revenue Code of 1954.  The law has changed innumerable times and bears little semblance to what existed 60 years ago.  The law will continue to evolve and we will continue to stay on top of it so that we can give you the same personal and professional service that Mr. Dermody, Mr. Burke and Mr. Brown provided sixty years ago.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.