The highest marginal tax rate was over 90%, but very very few people paid it.
More precisely, that was the marginal rate on income over $1 million/year. That would be about $5-6 million in today's dollars. Given much lower CEO compensation at the time, very few people encountered it. (And given those taxes, CEOs had less incentive to increase their salaries.)
The tax code was loaded up with deductions
Deductions have a tendency to accumulate over time. There were a bunch of deductions, but fewer than today.
only direct compensation was taxed, and you could still easily convert wages into capital gains
Theoretically true, but historically stock options were a much smaller portion of executive compensation than is the case today. See http://faculty.chicagobooth.edu/workshops/AppliedEcon/archiv... for a reference. (Incidentally their estimate is that only about 30% of the raise in CEO compensation is due to shifts in taxation policy.)
which even in that time were significantly lower than wage rates.
Massively so. If your ordinary taxes were over 50%, you could opt a 25% capital gains rate.
> (And given those taxes, CEOs had less incentive to increase their salaries.)
Of course. So they just gave themselves company cars and executive washrooms and million dollar desks.
> Deductions have a tendency to accumulate over time. There were a bunch of deductions, but fewer than today.
We got rid of a bunch in the early 80's. As a simple example, all interest (not just interest on primary housing) was deductible before then.
> but historically stock options were a much smaller portion of executive compensation than is the case today
I wasn't suggesting stock options. You don't have to rely on stock options to convert your salary into capital gains. If you were a doctor or a lawyer pulling down a lot of money, you just formed a company and left the money you weren't consuming immediately in the company's bank account.
More precisely, that was the marginal rate on income over $1 million/year. That would be about $5-6 million in today's dollars. Given much lower CEO compensation at the time, very few people encountered it. (And given those taxes, CEOs had less incentive to increase their salaries.)
The tax code was loaded up with deductions
Deductions have a tendency to accumulate over time. There were a bunch of deductions, but fewer than today.
only direct compensation was taxed, and you could still easily convert wages into capital gains
Theoretically true, but historically stock options were a much smaller portion of executive compensation than is the case today. See http://faculty.chicagobooth.edu/workshops/AppliedEcon/archiv... for a reference. (Incidentally their estimate is that only about 30% of the raise in CEO compensation is due to shifts in taxation policy.)
which even in that time were significantly lower than wage rates.
Massively so. If your ordinary taxes were over 50%, you could opt a 25% capital gains rate.