Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman
Yeah, I'm the taxman
These are the opening lyrics of the 1966 Beatles song “Taxman,” written by George Harrison. Why did he write it? Here’s my hypothesis.
The Beatles, living in high-tax England, started making serious money in 1963 and really serious money in 1964. As a result, they paid a top marginal tax rate of about 90 percent on their earnings. But of course, they didn’t spend it all and so they invested some of it. They would have gotten a real shocker in 1965 when they learned that the tax rate on the dividends from their investments was a whopping 95 percent.
So, George Harrison was probably hopping mad. Thus, the song.
I love numeracy, which is literacy with numbers. That’s why I love the second line in “Taxman.” If the taxman is getting 19 pounds and the person taxed is keeping 1 pound, that implies a marginal tax rate of 95 percent, which is the actual rate they paid on their “unearned” income. I put “unearned” in quotation marks because, of course, it was earned—the Beatles earned it on their investments.
George Harrison also knew on whom to blame these high tax rates: Britain’s politicians. That’s why in the background, you can hear the singer castigating greedy, grasping Mr. Wilson and Mr. Heath. Harold Wilson, of the Labor Party, was prime minister from 1964 to 1970, when Harrison wrote the song. Ted Heath led the Conservative Party from 1965 to 1975. He was prime minister from 1970 to 1974, but that was well after the song was written.
Fortunately, Margaret Thatcher became prime minister in 1979. At the time the top rate on both earned income and “unearned” income (you can tell that I hate that term) was a hefty 83 percent. That same year, as well as cutting rates at lower income levels, she cut the top rate to 60 percent and in the late 1980s cut it again to 40 percent.
In the United States, we don’t have the high tax rates that George Harrison wrote about in 1966. But we do have pretty high rates. The top combined federal and state tax rates for a Californian is 37 percent federal, plus 13.3 percent state, plus 3.8 percent on net investment income, for a total of 54.1 percent. If President Biden got his way, which, fortunately, he probably won’t, the top federal income tax rate would be 39.6 percent. That would bring the top marginal tax rate for a Californian with investment income to 56.7 percent.
Where is our George Harrison? I’ve even got the background lines: “Ya, ya, Mr. Biden; ya, ya, Mr. Newsom.”