Question

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

Answer 1

In 1913, the States ratified the 16th Amendment, instituting the federal income tax. The 1913 tax looks nothing like it looks today. For example, where the actual form and directions fit on a mere four pages in 1913, they total an intimidating 106 pages today.

In 1913, the top tax bracket was 7 percent on all income over $500,000 ($11 million in today’s dollars1); and the lowest tax bracket was 1 percent

In order to finance U.S. participation in World War One, Congress passed the 1916 Revenue Act, and then the War Revenue Act of 1917. The highest income tax rate jumped from 15 percent in 1916 to 67 percent in 1917 to 77 percent in 1918. War is expensive.

After the war, federal income tax rates took on the steam of the roaring 1920s, dropping to 25 percent from 1925 through 1931

In 1944, the top rate peaked at 94 percent on taxable income over $200,000 ($2.5 million in today’s dollars3). That’s a high tax rate.

The Economic Recovery Tax Act of 1981 slashed the highest rate from 70 to 50 percent, and indexed the brackets for inflation.

Then, the Tax Reform Act of 1986, claiming that it was a two-tiered flat tax, expanded the tax base and dropped the top rate to 28 percent for tax years beginning in 1988

However, the Economic Growth and Tax Relief and Reconciliation Act of 2001 dropped the highest income tax rate to 35 percent from 2003 to 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained the 35 percent tax rate through 2012.

The highest income tax rate was lowered to 37 percent for tax years beginning in 2018. The additional 3.8 percent is still applicable, making the maximum federal income tax rate 40.8 percent