Income Tax – Some Historical Perspective

June 10, 2009 | Subscribe to our RSS Feed

No one likes paying higher taxes, of course, but there’s nothing like a little historical perspective to make you realize how low even a 39.6% rate is. Here’s an abridged tour of our income tax rates: when the income tax was enacted in 1913, the top rate was 7% on income over $500,000 (over $13 million in today’s dollars, using a 3.5% inflation rate); it has never been that low again. To illustrate, in 1918, the top rate was 77% on income over $1 million, in 1942-43, it was 88% on income over $200,000, and in 1944-45, it was 94% (the all-time high) on income over $200,000. After World War II and into the ’60s, the top rate was mostly 91% on income over $200,000 (the brackets started distinguishing among types of taxpayers in the 50’s; spouses could income-split as of 1948). By the mid-60’s and through the 70’s, the top rate had dropped to 70% on income over $100,000 for single taxpayers (brackets started to get indexed for inflation in the late 70’s). In the early 80’s, the top rate dropped to 50% on income over $41,500 (single taxpayers); by 1984, that rate applied to income over $81,800. The Tax Reform Act of 1986 dropped rates significantly, and introduced the 28% rate (a 33% “bubble” recaptured the benefit of the 15% rate for higher earners). In 1991, the top rate went to 31% on income over $49,300 for single taxpayers. In 1993, the top rates of 36% and 39.6% came into play (the latter applied to income over $250,000 for single taxpayers).