Federal Income Tax turns 100 …. Happy Birthday?

urlFor those of us still under 100 it’s probably difficult to imagine no income tax, yet prior to ratification of the 16th Amendment, February 3, 1913, there was no Federal Income Tax in the USA as it exists today.

To be fair the Federal Government had imposed income tax twice prior to the 16th Amendment:

  1. To help pay for the Civil War.  Rates ranged from 3% to 10%.  Income, in today’s dollars, below approx. $14K was exempt and the top rate came into play for incomes $225K and above.  This tax was repealed in 1872 as unconstitutional, tax revenue from repeal was largely replaced by a “sin tax” on alcohol & tobacco.
  2. Federal Income Tax was reinstated in 1894 with incomes below approx. $100K, again in today’s dollars, exempt. The Supreme Court ruled this income tax unconstitutional in 1895 and there was no income tax for the next 18 years until the 16th Amendment was ratified.

Since the 16th Amendment there have been widely disparate rates and brackets:

  • 1913-1915: the top rate was 7% on taxable income $500K and above.
  • World War I:  the top rate escalated to a high rate in 1918 of 77% on incomes $1,000,000 and above.
  • From 1919 through the Great Depression and World War II:  the top rate varied considerably from a low of 24% in 1929 to a high of 94% in 1945.
  • Throughout the ’60 and ’70s:  the top rate pretty much leveled off in the 70% range.
  • 1982 to 1986:  the top rate was reduced to 50%.
  • 1987 to 2013: the top rate has fluctuated from a low of low of 28% (1988-1990) to a high of 39.6% (1993-2000, 2013).

In full view of top rates that have fairly consistently gone down from the 1945 high rate of 94%, all that we often hear of loopholes, capital gains and the like the share paid in by the top 20% has risen steadily for the past 3+ decades with the top quintile now paying in 94%.

Regardless of where you may stand – taxes are necessary but probably not real popular.

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