Mad Men and Mad Taxes

10/3/2012

Earlier this week, the Academy of Television Arts and Sciences handed out their 64th Primetime Emmy Awards. Showtime's political drama "Homeland" was the big winner — stars Damian Lewis and Clare Danes won Best Actor and Best Actress, and the series itself won Best Drama. AMC's period drama "Mad Men" was the big loser, failing to win the Best Drama award after four previous victories. And Mad Men's brooding star Jon Hamm lost again for Best Actor, for the fifth year in a row.
 

Mad Men is set in the cutthroat advertising world of the 1960’s. Hamm's character, Don Draper, is an advertising genius who creates campaigns for corporations as diverse as Lucky Strike cigarettes, Mohawk Airlines, Menkens Department Store, and Utz potato chips. The firm of Sterling Cooper Draper Pryce wines and dines with the upper echelon of New York high society, selling the idea that with clever words and images, they can sell the anything to the American public. The show not only chronicles the rise of the advertising industry during that period, but also depicts the culture and lifestyle of 1960’s Manhattan. The show is notorious for historical accuracy – even its musical score does not feature any songs that would not have existed yet. While watching the show, it’s easy to get swept into the glitz, glamour, and heartbreak of that time period. Being tax geeks, of course our question is, “What kind of tax world did Don Draper live in?” A radically different one, actually!
 

While our natural inclination may be to think that income tax rates have continually increased over time (a lot of the current political rhetoric would certainly suggest that), they have actually decreased – and by a lot. The most recent season of Mad Men takes place in 1966. At that time, the maximum federal income tax rate was 70 percent for income over $100,000 (that’s about $700,000 dollars today). While 70% seems eyebrow-raising, it had been even higher up until 1964 — 90%, in fact! As everyone who’s been following the news knows, the current federal income tax rate tops off at 35%. That’s a pretty drastic reduction! The New York State income tax rate was also higher. Today the rate for New York’s richest is 8.82% - in 1966 it was 14%. Lastly, long-term capital gains – what many of America’s richest make their millions from – were taxed higher as well.
 

On the flip side, while income tax rates were mind-blowingly high, 1960’s taxpayers did not have to contend with the current payroll tax rates. During that time, the Social Security tax rate was 3%, and only the first $4,800 were subject to the tax. Today, it’s 6.2% and $110,100. Also, Medicare taxes were not introduced until 1966 – the same year Don and the gang are currently living in – and the rate has not changed from its original 1.45%.
 

Amidst all the current chatter about tax rates and the looming “fiscal cliff,” it’s interesting to take a historical perspective and examine how tax rates have changed over time. We’ll see how this plays out in the coming months!