Ronald Reagan: Top Tax Rate Boast

To the Editor:

In his recent wonderful article (“High Rates and Hollywood: A Short History of Tinseltown Tax Avoidance,” Tax Notes, Jan. 28, 2019, p. 373), Joseph Thorndike should have been cautious about accepting Ronald Reagan’s claim that he was ever subject to a 91 percent tax rate.

Specifically, we should be skeptical about the statement by his treasury secretary, Donald Regan: “When he was in Hollywood he would make about three or four hundred thousand dollars per picture.”

Reagan surely didn’t command Clark Gable or Gary Cooper rates during the studio system years. Gable was paid $120,000 for Gone With the Wind (women earned far less; Vivien Leigh made $30,000). Cooper was paid $150,000 for his Oscar-winning role as the title character in 1941’s Sergeant York. José Ferrer was paid $30,000 for his own Oscar-winning performance as the title character in 1950’s Cyrano de Bergerac. Big stars could earn between $30,000 and $60,000 per picture, or they were under contract for a fixed salary.

Reagan had two big hits, Knute Rockne, All American (1940) and Kings Row (1942). His other films are forgettable. He made four films each in 1952, 1951, and 1949, two in 1950, none in 1948, three in 1947, none during army duty from 1944 to 1946, four in 1943, and five in 1942. He finally made two Hollywood movies in 1953, after which his film career tanked, and he became the television host for General Electric Theater.

Reagan was a contract actor who didn’t get his first top billing until 1941, before which he was a supporting or bit player, sometimes uncredited. It’s unlikely this second-tier actor would have such a full studio film schedule and be making four to five films per year in the 1940s while paying taxes at the 91 percent marginal rate.

From 1940 to mid-1949, he was married to Jane Wyman. She didn’t achieve top billing until 1944. Her only earning overlap year with Reagan would have been 1947. Community property California would have kept him below the top tax rate, and they could not file a joint tax return until first legislated in 1948.

Assume Reagan and Wyman each earned $30,000 per film in 1947, totaling for Reagan $90,000, and for Wyman $60,000. That could have placed him in an 81 percent bracket before deductions, but not the top 91 percent. It’s certainly a high bracket, but not the very top he claims, which was $400,000 married, $200,000 single.

Reagan was single from mid-1949 to 1951, so assuming $120,000 income, he might have been in the 89 percent bracket before deductions. He married Nancy Davis in 1952, the year she made two films. So he might have reached the 85 percent bracket, but not the 92 percent top 1952 bracket.

Reagan’s earnings were high enough to discourage work — although he made as many as four or five films a year — but did not place him in the very top tax rate he claimed to be subject to. Not $400,000 in married years, nor $200,000 in single years.

Of course, we don’t know what his actual pay was. It could have been over $30,000 per film. Perhaps he used the “collapsible corporation” device to treat earnings as capital gains.

In his 1990 autobiography, An American Life, Reagan complained about reaching the 94 percent bracket but didn’t mention stopping work on account of tax rates. Nor did he mention his personal taxes in his 1965 autobiography, Where’s the Rest of Me? (a famous line from Kings Row). But he did write that after he got out of the army, his studio contract paid him $3,500 per week, which would not have put him at the very top rate.

I doubt whether Reagan had enough high-income years to become sufficiently wealthy to refuse work, and there were widespread techniques before 1969 to shelter income from taxes. Indeed, Reagan had a penchant for exaggeration, as described by Carl M. Cannon in “Untruth and Consequences,” The Atlantic (Jan./Feb. 2007).

Moreover, given that Reagan made just three films in 1947 and none in 1948, that $3,500 per week might not have been on a long-term contract basis.

Jay Starkman
Atlanta
Jan. 30, 2019