Question

1) How are the historical tax rates/tax brackets different than the current tax rates/tax brackets today?

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

Answer 1

Answer :

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. 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In 1872 Congress rescinded the income tax.8 It didn’t reappear until the 16th Amendment to the Constitution which established Congress’ right to levy a federal income tax was ratified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.

A tax bracket refers to a range of incomes subject to a certain income tax rate. Tax brackets result in a progressive tax system, in which taxation progressively increases as an individual’s income grows: Low incomes fall into tax brackets with relatively low income tax rates, while higher earnings fall into brackets with higher rates.

Current tax rates/ tax brackets:

• There are currently seven federal tax brackets in the United States, with rates ranging from 10% to 37%.
• The U.S. tax system is progressive, with lower brackets paying lower rates and higher brackets paying higher ones.
• Unless your income lands you in the lowest tax bracket, you are charged at multiple rates as your income rises, rather than just at the rate of the bracket into which you fall.

Understanding Tax Brackets

In the U.S., the Internal Revenue Service (IRS) uses a progressive tax system, meaning taxpayers will pay the lowest rate of tax on the first level of taxable income in their bracket, a higher rate on the next level, and so on. Currently, there are seven federal tax brackets, each assigned a different rate, ranging from 10% to 37%, with the dollar ranges in each varying for single filers, married joint filers (and qualifying widow(er)s), married filing separate filers, and head of household filers, resulting in 28 effective tax brackets.When determining which tax bracket to use, a taxpayer should first calculate their taxable income (earned and investment income minus adjustments and deductions).

Single Taxable Income Tax Brackets and Rates, 2019

Rate	Taxable Income Bracket	Tax Owed
10%	$0 to $9,700	10% of taxable income
12%	$9,701 to $39,475	$970 plus 12% of the excess over $9,700
22%	$39,476 to $84,200	$4,543 plus 22% of the excess over $39,475
24%	$84,201 to $160,725	$14,382.50 plus 24% of the excess over $84,200
32%	$160,726 to $204,100	$32,748.50 plus 32% of the excess over $160,725
35%	$204,101 to $510,300	$46,638.50 plus 35% of the excess over $204,100
37%	Over $510,300	$153,798.50 plus 37% of the excess over $510,300

Married Filing Jointly Taxable Income Tax Brackets and Rates, 2019

Rate	Taxable Income Bracket	Tax Owed
10%	$0 to $19,400	10% of taxable income
12%	$19,401 to $78,950	$1,940 plus 12% of the excess over $19,400
22%	$78,951 to $168,400	$9,086 plus 22% of the excess over $78,950
24%	$168,401 to $321,450	$28,765 plus 24% of the excess over $168,400
32%	$321,451 to $408,200	$65,497 plus 32% of the excess over $321,450
35%	$408,201 to $612,350	$93,257 plus 35% of the excess over $408,200
37%	Over $612,350	$164,709.50 plus 37% of the excess over $612,350

Source: IRS

As the tax brackets apply only to the portion of the income that reaches their respective thresholds, most taxpayers must look at several brackets when calculating the amount they must pay.