Tuesday, October 2, 2012

A Century of Individual Income Taxes In America

I stumbled on this intriguing database from the Tax Policy Center.  The Tax Policy Center takes a look back at individual income taxes between 1913 and 2012, showing changes to the personal exemption, the tax rate and taxable income levels for both the lowest and the highest tax brackets.    For those of you who don't remember or weren't around at the time, the 1913 Sixteenth  Amendment to the Constitution made income tax a permanent fixture in the lives of Americans.  As the years passed, tax law changed and as these changes were enacted, the application of exemptions and imposition of surtaxes affected the final taxes owing.  For instance, in the years between 1968 and 1970, a Vietnam War surcharge equal to between 2.5 and 10 percent of tax was included in the highest tax rate but did not apply to "regular taxes" generated at the lowest rate.  Complicated enough without all of that, isn't it?

Here we go.

Here is a graph showing how the personal exemption for married couples has changed over the century:

The married couple personal exemption started out at $4000 in 1913 and fell gradually to a low of $1000 during and immediately after World War II.  I was rather surprised to see how little it changed during the early part of the Great Depression.  One variable in the tax equation that we do have to keep in mind is the point at which personal exemption amounts were deducted during the tax computation; for some of the earlier years, the deduction was from the statutory net income subject to the basic normal tax, in other years, it was deducted only from the net income subject to the surtax and in others, it was deducted from the net income subject to both normal and surtax.

Here is a graph showing the percentage tax rate for the lowest tax bracket over the past century:

Note that the rate peaked at 23 percent during World War II and that it gradually fell to its current level of 10 percent.

Here is a graph showing the income threshold for the lowest tax rate over the past century:

The lowest income tax bracket threshold peaked at $43,850 in 2000 and has fallen to its current level of $17,400.  Note that the income threshold for the lowest and highest income brackets are both adjusted on an annual basis to reflect inflation.

Here is a graph showing the percentage tax rate for the highest tax bracket over the past century:

The top drawer tax rate rose quickly during the Dirty Thirties, from 25 percent on taxable income over $100,000 in 1931 to 79 percent on taxable income of $5,000,000 in 1936.  The rate peaked at a whopping 92 percent in 1952 and 1953 and sat at 91 percent until it fell to 77 percent in 1964 and eventually to its current level of 35 percent.  

Here is a graph showing the income threshold for the highest tax bracket over the past century:

To reach the pinnacle of the tax brackets, one would have had to earn taxable income of $400,000 during the peak tax rate years.  The current rate sits at a rather miniscule 35 percent on $388,350 of taxable income although we all know that there are all sorts of ways around that, don't we?

I hope that you enjoyed your little tour through America's tax history.  In light of looming and rather uncomfortable federal debt levels, it will be interesting to see how long it is before Washington is forced to push income tax rates back up to where they once were.


  1. A belated thank you for this info. I'd like to see a graph that showed "skin in the game" for different income levels, but we'd have to quantify "skin in the game."

  2. The charts are rather meaningless, because they 1) don't account for inflation, and 2) don't suggest the fraction of the population actually paying top rates. Just think: how many people in 1936 were actually earning $5m/yr? Even during the 50s, only a few thousand, or fewer than %0.01 of the population, paid top marginal rates over 80%.

    This is why economists use indices like the Kakwani to compare the progressivity of tax systems over time and across different countries. These indices consistently demonstrate that our tax system now is more progressive (although not more redistributive) than any other country, and more progressive than essentially any other point in U.S. history.