One can gainsay 1950s prosperity, call it a myth. The efficiency losses of the high-rate, high-deduction culture caused three recessions in the Eisenhower presidency, that of 1957–58 being the most severe. The impossibility of two household incomes stacked on top of each other on one tax return and facing the progressive tax ladder kept women in the Feminine Mystique box. Michael Harrington’s estimates of one-third of the nation at or near poverty indicted the system. And yet there were all the houses, the cars, the corporate jobs, the vacations, the inventions, “The Life!” as Tom Wolfe marveled while watching throngs of kids from that time cruising the ice cream shops and drive-ins at night, the scene exuding high-Roman levels of apex mass prosperity. We did not get this—halcyon days—while in any material way having high tax rates. We got this while not enforcing high tax rates due to high deductions, by making nosebleed numbers on a tax table inapplicable and irrelevant.
The left has a difficult time confronting this history. The famous Piketty-Saez income-inequality team in 2014: tax-deductible “consumption within corporations such as fancy offices or restaurants, corporate jets, etc. are intermediate costs of production and hence unrecorded in GDP estimates. Incidentally, we know of no evidence showing that such [deductible] intermediate consumption has declined since the 1960s (anecdotal evidence suggests that it might have risen, along with the rise of cash compensation).” As the tax-deduction value of intermediate corporate consumption decreased (as tax rates fell beginning with JFK), more of this consumption materialized. The evidence for such a claim had better be anecdotal. If you study the high-tax-rate era and do not see in it the peerless whiteout galaxy of tax deductions, tax deductions in their absolute glory, you are not studying that era at all.
The immense debt of the federal government has the nation thinking once again that tax rate increases might be the order of the day. The solace that once we had high tax rates and things went well is our memory playing tricks on us. In the several decades after World War II, we never had high tax rates in a meaningful sense. The high rates did their damage unimpeded at last when inflation blunted the force of the mass deductions. In the 1970s, annual double-digit increases in the consumer price index eviscerated the real value of depreciation schedules, among other dastardly effects, such as “bracket creep” that made large nominal/small real raises and cost-of-living adjustments face marginal as opposed to average tax rates. The United States finally got rid of high tax rates only when inflation, in the 1970s, started making them relevant for the first time.