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Wednesday, May 24, 2017

Personal history: Taxes and growing up

The other night, I was thinking about health care, and about the fairly common practice, as late as the 1950s, of primary care physicians (or, "family doctors," as they were called then) engaging in (informal, and mostly secret) price discrimination.  It was , as I say, common--doctors charged their low-income patients lower prices for office visits and often for simple, routine operations (tonsillectomies, for example), and their higher income patients higher prices.[1]  I was aware of this, even at the time, because my family was, in fact, a beneficiary of that price discrimination--we were low income, my father did not have health insurance through his employer, and my mother did not work outside the home for pay until around 1959 (when I was 11, and the youngest child in the family was 5 and in school half-days).

This led me to think, for some reason, about taxes.  In 1956/1957, my father was working as a credit manager for a wholesale plywood company.  The job was "white collar," but did not require significant skills; someone who could be employed as a bookkeeper could do the job.  At that point, he was 35/36 years old, with a BS (business, with a concentration in accounting) from a well-regarded local university.  He was making $300 a month.[2]  He was married, with four children. My mother, who at that time was not working, had a BA in music (with a minor in English) and an Indiana elementary/secondary teacher's license.  So what was the family tax situation?

He earned $3,600 per year.  At the time, the federal income tax provided personal exemptions of $600 per person for a family which was married and filing jointly.  Our family, then, had no federal income tax liability.  Indiana (where we lived) had a 2% personal income tax, applied to the family's adjusted gross income from the federal return.  Our AGI was $0, so we paid no state income tax.  The state had no sales tax until 1959.  Social Security tax was 2.25% per year, or $81 per year.

That leaves (besides excise taxes on cigarettes, gasoline, and alcohol) the property tax.  When my family moved to Indianapolis in 1952, my parents bought a fairly large 2 story house, for $9,600.  By 1967, the house was probably worth around $12,500, and the property tax rate (f my subsequent experience of living in Indianapolis is applicable) would probably have been (roughly) 2% of the market value of the property, or about $250 per year.  My best guess is that state excise taxes on gasoline, alcohol, and cigarettes probably cost our family another $150 or so per year. 

Adding that all up, I get something like $500 per year in federal, state, and local taxes, or about 14% of the total family income.  We were, in a very real sense, either very, very near the bottom of "lower middle income," or below that...we were most likely poor.  And our family doctor most likely knew that, and so we got a break on his rates.  (We were, I should note, a generally healthy family, so our health care expenses were probably quite low, but definitely not zero; I know that when my father broke his left thumb and wrist, paying the doctor and hospital bills were a big deal.)

There's no big point here, just a little family history...

[1] The practice is described here:
Reuben A. Kessel , "Price Discrimination in Medicine," The Journal of Law & Economics,Vol. 1 (Oct., 1958), pp. 20-53.

[2] The equivalent of about $2,600 per month today.


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