Thursday, September 28, 2017

Income Tax Through History

Reading a book (a collection of articles) from the mid-1960's made me realize that the top income tax bracket used to be almost 3x higher than it is today. The top bracket is at a consistently low level compared to most of the 100+ year history of US income taxes.
 Though the top bracket was higher, fewer people were affected by it. Note: for simple analysis, I assumed that income distribution from 2013 is similar for similar incomes through the past 100 years. I used 2013 because the Tax Foundation kindly adjusted tax brackets into 2013 dollars.

(There was one period of time when nearly half of Americans would have been affected by the top bracket--and it was when there were only two brackets, except for a special 'gotcha' bracket. It was also a time that the brief flirtation with 0% bracket reverted to the 15% bottom bracket that affected half of the households.)
If we want tax reform, maybe one way to start is to put the bottom bracket at a point that encompasses a higher population of households, roughly 25-30% rather than 12%. That means raising the bottom bracket from a cap of $18,600 to about $25,000-$30,000. It's not much of an absolute increase but it doubles the number of households affected and puts them in a lower tax bracket.

The first World War changed the income tax for the worse. It started out as pretty much a flat tax with most people paying the bottom bracket. But with the need for more federal revenue it got changed and didn't really change back. Earlier in our history, the federal income tax was mostly utilized for short periods until it became permanent in 1913.

1 comment:

  1. Man, what a crazy story. I'll probably share this with some of my friends. Thanks again for posting it.need legal advise

    ReplyDelete