Thursday, May 19, 2016

The History of Income Tax Brackets.

 Early cartoon view of the restored income tax.

Federal Individual Income Tax Rates History

Really interesting history of income tax rates.

Americans believe a lot of erroneous things about the Federal Income Tax.  For one thing, we constantly here that we're the most taxed people on earth, which is hardly true. In actuality, Americans pay a relatively low amount of their income compared to quite a few other peoples.  And we tend to actually pay them.  In some other countries tax evasion is the rule, rather than the exception.

This chart runs the rates all the way back, but the most relevant set are those that date from 1913 forward.  In 1913 the Income Tax, which had been declared unconstitutional in 1895, came back.  The tax was graduated, but the rates were pretty marginal, as can be seen.

They really began to increase in 1916, which isn't surprising as the nation was on the road to war, while desperately trying to avoid it.  In 1917 they really jumped, with the top rate being 67%.  Having said that, the number of people making that top rate would have been pretty small.  In 1918, things changed yet again, and really high rates were pretty common.

Rates didn't begin to decline, while remaining high, until 1922.  It took all the way until 1925, however, until they began to decline something recognizable to us today.

Top rates really began to jump again in 1932, which is interesting as we don't tend to think of there being really high tax rates until 1932.  During World War Two the rates were blisteringly high.  There was actually a 91% tax rate for very high earners during World War Two.  91%.  The bottom rate was 20% at that time.

Rates didn't begin to fall until 1964, although they sure didn't drop to the current low rate.  Rates like we have now didn't begin to appear until 1982, during Ronald Reagan's administration.  It wasn't until 1987, however, that there was no longer a 50% rate for high earners.  The following year was the first year in eons that there wasn't a rage of 30% or above.  That changed a few years later with the 30% rates came back in.

Be that as it may, the concept of Americans being heavily burdened by taxation is simply wrong.  And we live in an era in which, save for the period just before World War One, they are at an all time low. 

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