1924 Income Tax Payers

Kennon-Green & Co. Fiduciary Financial Advisor, Wealth Management, Global Value Investing

In Wealth and Democracy: A Political History of the American Rich, Kevin Phillips looks at the biggest Federal income tax payers shortly after the income tax was introduced.  

Taxpayer Taxes in 1924 Dollars Taxes in 2012 Dollars
John D. Rockefeller (oil) $6,278,000 $84,249,292
Henry Ford (autos) $2,609,000 $35,012,170
Edsel Ford (autos) $2,158,000 $28,959,856
Andrew Mellon (finance, oil) $1,883,000 $25,269,420
Payne Whitney (oil) $1,677,000 $22,504,948
Edward Harkness (oil) $1,532,000 $20,559,082
Richard Mellon (finance, oil) $1,181,000 $15,848,744
Anna Harkness (oil) $1,062,000 $14,251,792
Mrs. Horace Dodge (autos) $993,000 $13,325,828
Frederick Vanderbilt (land, railroads) $793,000 $10,641,875
George F. Baker (finance) $792,000 $10,628,455
Thomas Fortune Ruyan (urban transit) $792,000 $10,628,455
Edward J. Berwind (coal) $722,000 $9,689,071
Vincent Astor (lands, railroads) $643,000 $8,628,910

Three of the nation’s richest people, William Clark (mining, banking, and railroads), Cyrus Curtis (publishing magnate), and John T. Dorrance (Campbell Soup Founder) were not on the list because they had rearranged their entire financial life to avoid paying the new income tax.  

To put this into perspective, the income tax brackets were as follows:

Federal Income Tax 1924 Dollars 2012 Dollars
7% $10,001 $134,211
11% $20,001 $268,410
27% $60,001 $805,200
43% $100,001 $1,341,990
44% $250,001 $3,354,955

There were no payroll taxes, because there was no Social Security or Medicare.  Even adjusting for that, it is clear that the tax system in the United States over the past 80 years has become horribly regressive, crushing the middle and lower classes.  That is because of a truth Americans do not want to confront: They demand more government than they are willing to pay for.  They don’t want military basis in their town closed, they don’t want their Medicare cut, they don’t want their pet projects defunded.  Thus, we now have a situation where the income tax brackets in 2012 are as follows:

Federal Income Tax 2012 Threshold
10% $0
15% $8,700
25% $35,350
28% $85,650
33% $178,650
35% $388,350+

And that is after the payroll tax, which has grown monstrously from 2% in the 1950’s to 15.3% today and still can’t fund the Medicare and Social Security promises it has made!

Meanwhile, the rich (rightly, it should be admitted) point out that the United States government keeps growing as a larger and larger percentage of the national economy, failing at almost everything it does.  Think about this: The $800 billion bank bailout was bigger than NASA’s entire research budget for the past 50 years.  That tells you what you need to know about our priorities.  I’d gladly pay more taxes if we were colonizing Mars or developing longevity projects.  We’re not.  The tax payers are used as geese to be plucked by a handful of military-industrial companies and pharmaceutical labs (in which, for better or worse, I own shares of stock).

Alexis de Tocqueville warned us in his classic 1835 novel, Democracy in America, when he came to the United States to study why rule-by-the-people worked in the United States but not in other nations, that it was because the American people were virtuous and hardworking.  We expected to earn our keep, not to receive it through entitlements.  Democracy collapses on itself when the people discover they can vote themselves benefits because, at some point, there are more benefits than cash and families can’t get ahead.  You see that today with young college students, drowning in student loan debt because, as a society, we allocate our capital to bombs and missiles instead of books and space stations.  Instead of cutting something to invest in youth, like a family does, we just want to tax people more.  It’s just … more.  More.  More.  More.  Everywhere more.  As Peter Drucker pointed out, the agriculture department is the same size as it was when it represented a vast majority of the entire American economy!  This is not a rational way to run a civilization.

I worry that we are facing a lost generation; that the 18-to-22 year old crowd right now is getting the short-end of a generational theft that is so massive it is almost incomprehensible.  At the same time, I know there will be exceptions (the fact you are reading blogs like this mean that you probably are one of them; it is a self-selected crowd).  Still, that isn’t good for democracy to have so many people unable to form families and get ahead.