When I was a teen in the ((gulp)) 1980s, the fifties was the decade everyone loved looking back on. “Happy Days” (1974 - 1984), the hit ABC fifties’ set sitcom, was appointment TV before that was a thing. It led to “Laverne and Shirley” and six other spinoffs. Every Halloween, you could count on at least a third of the room showing up costumed in poodle skirts, saddle shoes and bobby socks, and high ponytails (girls) and leather jackets or letter sweaters and slicked back hair (boys). In the landscape of our collective imagination, the decade was hallowed ground.
Known for its booming economy, booming suburbs and of course, booming birthrate, the fifties have become synonymous with American abundance. What’s not to love?
Admittedly, I wasn’t alive during the actual era, so to some extent I’ll cede the field to those who were. And yet, casting off the rose-colored goggles of throwback pop culture, it feels fair to say that the fifties weren’t the complete Camelot folks like my mom remember.
Admittedly, the things that are great about the Greatest Generation1 are hugely so. Patriotism. Public service. Dedication to duty, faith and family. Owing to the sacrifice of young people like my drafted dad, America and our Allies won a Second World War (1939 to 1945), defeating arguably the world’s greatest monster.
On the postwar home front, however, the rollbacks on civil rights, women’s rights and First Amendment rights were huge. Per the latter, Senator Joseph McCarthy’s Red Scare resulted in blacklisting 325 screenwriters, actors and directors.2
But there is another, lesser known reason to lose a little love for the 1950s.
Sky. High. Taxes.
According to the Tax Foundation, a leading independent tax policy nonprofit founded in 1937, a single person making $16,000 in 1955 — about $180,000 in today’s dollars — had a marginal tax rate of 50%. Compensation of $50,000 moved you into the 75% tax bracket. An income of $200,000, about $2.25 million today, put you in the 91% tax bracket! Yes, the federal government took 91 cents of every dollar over $200,000.3
Jeepers.
In the fifties, the top earners weren’t professional athletes or corporate execs but entertainers. Bold-faced names then and now like Frank Sinatra, Bob Hope, Bing Crosby, Sammy Davis Jr., Joan Crawford, Henry Fonda, and Humphrey Bogart were masters at coming up with creative, and perfectly legal, ways to skirt the system.
Bing Crosby, for example, was hired as a director of Vacuum Foods, maker of Minute Maid frozen orange juice, and overnight, became Minute Maid’s chief celebrity endorser. A contemporaneous Time magazine article reported:
Through a Loophole, Crosby, no mean businessman himself, became a director of Vacuum Foods, in which he recently bought 20,000 shares of stock… He has agreed, at an undisclosed salary, to plug the juice on a transcribed song & chatter program five days a week…
It looked as if Crosby and Vacuum Foods might have found a tax loophole which permitted 1) small companies to get big-time radio stars at comparatively small cost, and 2) big-time stars to keep much more of their income by making it in stock profits, taxable as a long-term capital gain (maximum 25%) instead of income (maximum 77%). In effect, if the stock should rise in value—thanks to Crosby's radio plugging—and Crosby should sell his shares, the profits were expected to be taxed as capital gain (emphasis added).4
Dubious endorsement deals aside, the two main tax loopholes favored by 1950s celebrities were the oil depletion allowance and the collapsible corporation.5
Created in 1926, the oil depletion allowance was meant to incentivize oil drilling, reducing by 25% the taxable income generated by an oil well. Crosby and Hope were the first Hollywood stars to cotton on to its tax benefits. Each man paid $40,000 to Monty Moncrief, a successful Texas oilman and their golfing partner, for a 25% share in a West Texas venture. For the venture, both stars earned $5,000,000 each on their initial $40,000 investment. When the depletion allowance was taken into account, $1,375,000 of that $5,000,000 was tax-free.6
Other Hollywood stars dove into the oil drilling biz, including Jimmy Stewart, Gene Autry, Don Ameche and Frank Sinatra, who gave his first oil well the cheeky title of Crooner No. 1. If a well was dry, you simply deducted the loss from your taxes.7
The collapsible corporation was the other tax loophole Hollywood stars utilized. At the time, the corporate tax rate hovered around 50% rather than 90%. Whenever a movie was made, stars would set up a corporation and have the movie producer pay the corporation. The corporation would pay their salary and all their expenses. Once the star’s fee had been paid out, the corporation would be dissolved.8
Some stars would sell stock in their corporation to the movie company, so they could take their fee in the form of capital gains, which had a maximum tax rate of only 25%. In the early forties, the IRS sued Groucho Marx and his producing partner, arguing that the $1 million they received from NBC, which aired their show, “You Bet Your Life,” should be categorized as income, not capital gains. Luckily for Marx, the courts disagreed.9 The comic star turned his run-in with the feds into comedy fodder, and income, with his cheeky 1942 book, Many Happy Returns: An Unofficial Guide to Your Income Tax Problems .10
By the mid-1950s, Congress passed a law aimed at halting collapsible corporations. But the fix had its own loophole: if 25% of the corporation’s income came from a different industry, then it was legitimate. The stars responded by merging their oil business and movie business into a single corporation.11
Bada bing, bada boom.
Read my previous post on taxes in the Gilded Age here.
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IRISH EYES (coming December 2023), Book 1 of my American Songbook series, spans twenty-five years of Gilded Age through the Jazz Age Manhattan, as seen through the eyes of spirited Irish-born Rose O’Neill. Read more here.
The term "the Greatest Generation" is believed to have been coined by former NBC Nightly News anchor and author Tom Brokaw in his book by the same name.
Among the blacklisted: composer Aaron Copland, writers Dashiell Hammett, Lillian Hellman and Dorothy Parker, playwright Arthur Miller and actor and filmmaker Orson Welles. https://www.history.com/this-day-in-history/congress-investigates-reds-in-hollywood
https://www.latimes.com/business/la-fi-nocera-tax-avoidance-20190129-story.html
https://content.time.com/time/subscriber/article/0,33009,799353,00.html
https://www.latimes.com/business/la-fi-nocera-tax-avoidance-20190129-story.htm
https://pubs.lib.uiowa.edu/iowa-historical-review/article/id/1620/
https://www.latimes.com/business/la-fi-nocera-tax-avoidance-20190129-story.htm
Ibid
Ibid
https://www.goodreads.com/en/book/show/3205168
https://www.latimes.com/business/la-fi-nocera-tax-avoidance-20190129-story.htm
I wonder if there's still a variation of the collapsible corporations still in existence. MOW (movies of the week) are made under the umbrella of bigger production companies, but each one is listed as a separate business with the name of the movie+productions. Many are made in Canada, so perhaps, it's a Canadian thing, even though a lot of the production companies are from the USA. I may have answered my own question.
I found this to be fascinating. Like you, I grew up watching Happy Days.