The Obsession with Nominal Tax Rates or the Twinkie Romanticism

It has become a Don Quixote like quest for certain economists to romanticize the higher tax rates on the wealthy.  No less than Nobel Prize winners Paul Krugman has written that:

The best estimates suggest that circa 1960 the top 0.01 percent of American paid an effective federal tax rate of more than 70 percent, twice what they pay today.

The assertion that the top tax rate  paid an effective tax rate of more than 70% seems more than bit odd owing solely to the fact that the top nominal rate was 91% from 1960-1963 and then 70-77% the rest of the decade.  In other words, Nobel Prize winning economist Paul Krugman is claiming that the average top tax payer was paying an effective tax rate that in some years was higher than the nominal rate.

The average effective tax rate of an average tax payer in the top 1% is presented below.


The data itself tells an entirely different story from the idealized 91% tax rate.  According to Internal Revenue Service data, presented below on a graph, from 1966 to 1970 the effective tax rate of an average tax payer in the top 1% was 30.85%.  Throughout the time period in question, the effective tax rate of the average top 1% never exceeded 35%.


Addendum: This figure is calculated from Internal Revenue Service Personal User Files.  The Effective Tax Rate is the total federal income tax paid by a tax payer in the top 1% over the adjusted gross income (AGI).