Question

How are the historical tax rates/tax brackets similar than the current tax rates/tax brackets today? in the united states

Answer 1

History of Federal Tax Brackets

Tax brackets have existed in the U.S. tax code since the inception of the very first income tax, when the Union government passed the Revenue Act of 1861 to help fund its war against the Confederacy. A second revenue act in 1862 established the first two tax brackets: 3% for annual incomes from $600 to $10,000 and 5% on incomes above $10,000 (those were the days!).7 The original four filing statuses were single, married filing jointly, married filing separately, and head of household, though rates were the same regardless of tax status.

In 1872 Congress rescinded the income tax.8 It didn’t reappear until the 16th Amendment to the Constitution—which established Congress’ right to levy a federal income tax—was ratified in1913. That same year Congress enacted a 1% income tax for individuals earning more than $3,000 a year and couples earning more than $4,000, with a graduated surtax of 1% to 7% on incomes from $20,000 and up.

Over the years the number of tax brackets has fluctuated. When the federal income tax began in 1913, there were seven tax brackets. In 1918 the number mushroomed to 78 brackets, ranging from 6% to 77%. In 1944 the top rate hit 91%,but it was brought back down to 70% by President Johnson. President Reagan initially brought the top rate down to 50%.

Then, in the Tax Reform Act of 1986, brackets were simplified and the rates reduced so that in 1988 there were only two brackets: 15% and 28%. This system lasted only until 1991 when the third bracket of 31% was added.Since then additional brackets have been implemented, and we have come full circle and are back to seven brackets, a structure that was retained by the 2017 Tax Cuts and Jobs Act.

State Tax Brackets

Some states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee only tax some dividends and interest income, with that practice set to expire in 2025 and 2022, respectively.

In 2020 nine states have a flat rate structure, with a single rate applying to a resident’s income: Colorado (4.63%), Illinois (4.95%), Indiana (3.23%), Kentucky (5.0%), Massachusetts (5.05%), Michigan (4.25%), North Carolina (5.25), Pennsylvania (3.07%), and Utah (4.95%).

In other states the number of tax brackets varies from three to as many as 9 (in Missouri and California) and even 12 (in Hawaii). The marginal tax rates in these brackets also vary considerably. California has the highest, maxing out at 12.3%.

State income tax regulations may or may not mirror federal rules. For example, some states allow residents to use the federal personal exemption and standard deduction amounts for figuring state income tax, while others have their own exemption and standard deduction amounts.

How to Find Your Tax Bracket

There are numerous online sources to find your specific federal income tax bracket. The IRS makes available a variety of information, including annual tax tables that provide highly detailed tax information–based filing statuses in increments of $50 of taxable income up to $100,000.

Other websites provide tax bracket calculators that do the math for you, as long as you know your filing status and taxable income.

 Your tax bracket can shift from year to year, depending on inflation adjustments and changes in your income and status, so it’s worth checking on an annual basis.