I’m an overachiever. I filed my federal and state income taxes today. I have tax withheld as I draw money from my IRA, which is usually too much. I’d rather be safe as the year progresses.
Our 47th President has only been in office three weeks, and the cries of tax cuts for the rich are already hitting social media.
One post indicated that from 1956 to 1963, the top marginal tax rate was 91%. With that rate, the tax form would be easy: “How much did you make? Mail it in.” And, in the post, they indicated that these high earners were still able to send a child to college with only one earner in the household.
Looking at those years, Dwight D. Eisenhower (R-TX) was President in 1956, and John F. Kennedy (D-MA) in 1963. Those parties are counter to their current taxing policies.
In 1963 the highest marginal rate was lowered to 70% for taxable income above $100,000.
In my high school civics class, we learned that Democrats pushed for tax reform and Republicans for tax credits. Both parties worked social engineering into their taxing policies.
In the fall of 1976, I took a tax class at UVA. At that time, the top marginal rate and breakpoint had not changed,
In my first class, I learned the origin of the term loophole. It dates back to the time of castles. The openings in the castle walls were constructed narrow on the inside and wide on the outside. These openings protected the archers, allowing them a wide angle to shoot out of a narrow opening. These openings were called loopholes. A tax loophole allows us to shoot out without receiving return fire.
Most of that semester was centered around deductions, allowances, and credits. With the higher rates, there were many loopholes to reduce taxable income. The books were thick and helped employ accountants. They must have had a good lobby.
I wouldn’t say I’m a hoarder. My first federal return was in 1974, and I have every return I’ve filed since then. The first year I had enough taxable income was 1978, the year I took my BS in Commerce and started full-time employment in October.
My effective rate was 5%. The effective rate is taxes paid divided by total income.
My effective rate jumped to 18% in the next couple of years, with the highest year of 21%.
The Reagan tax cuts started in 1982. He dropped the top marginal rate to 28% and eliminated many loopholes. The three marginal rates were 10%, 20%, and 28%.
With the Reagan cuts, my effective rate dropped to 8%. Of course, I got married and bought a house simultaneously, which increased my loopholes.
Over time, more brackets were added, and the top rate jumped to 38%, adding more social engineering loopholes back to the books.
By 1991, my effective rate was back up to 19%, which resulted from additional income and a first divorce. Even after remarrying in 1999, that rate was still that high.
It wasn’t until 2008, when I started RTU and took almost no income that my effective rate dropped to 3%.
The Affordable Care Act had a huge impact on taxes. Before the act, I was paying $125 per month for insurance. The rate was based on age, sex, and health. With the ACA, the rate was only based on age. But wait, there was a subsidy loophole. For every $1000 of income under $49,000, the government would pay $250 of the annual insurance premium. Said another way, there was a 25% tax on additional earnings for low-income taxpayers.
By the time I went on Medicare, RTU paid my medical insurance at $950 per month with a $8500 per year deductible. Now, on Medicare, I’m back to $185 per month.
The Trump tax reforms of 2017 dropped the top marginal rate and eliminated many loopholes. 2025 is the last year of these reforms unless Congress agrees to extend them. One of the reforms reduced the corporate tax rate, enticing companies to return their headquarters and workforce to the United States.
By that time, I was taking a higher income from RTU. Even with a more straightforward structure, my effective rate was 8%
About my 2024 taxes, “What a country.” We do take care of senior citizens. Most of my social security income is not taxable, and my effective rate was 4%.
And over my 51 years of filing taxes, my effective rate is 15%. That doesn’t include the 7.5% tax for social security and 5% for Virginia state income tax. We can always add sales, property, and real estate taxes, too. I will have broken even if I draw social security until I’m 80.