The History of the Federal Income Tax

You might want to have a secondary title for this of "How The Rich Keep Getting Richer."

Recently I decided to go back and see what has happened to the income tax brackets in the past, especially the bracket for the upper income area. You are going to be surprised at what I found.

First a bit of history; Federal Income Tax took effect after the 16th Amendment to the Constitution was passed and ratified in February of 1913. The Republican President , William Howard Taft, in an address to Congress in 1909, proposed a 2% income tax on corporations. The Congress took up the gauntlet and went all the way with an income tax on Corporations and Individuals. It was ratified by the necessary ¾ of the states and was enacted just before Woodrow Wilson took office in March 1913. As a sidebar; Arkansas and New Hampshire first rejected it and then came back and ratified it later. Connecticut, Rhode Island and Utah considered it but have never ratified the 16th Amendment. On the other hand; Florida, Virginia and Pennsylvania not only have never ratified it but they never even considered it.

I would like to take a look at various income brackets for the following amounts of income; $5,001/year, $50,001/year, and $225,001/year. I am not going to figure for inflation but you can figure that in 1913 $5,000/year went a lot farther than it does today, in fact it was a good sum of money. You might want to figure also that $50,000/year was more than 98% of the population made and that $225,001 was a fortune that only the top .01% were capable of making. Those are the three incomes I'll be looking at in this essay. I will not be looking at the deductions that people qualified for but you must remember that the more people make the more deductions they qualify for and the income tax is only on income after deductions. The top earners had lots of deductions to bring their taxable income down and the lower income had few.

I will most likely have to do this post in two editions (maybe more) because it will be longer than most.

Let's go back to the beginning, here is 1913;
$5,001 paid 1%
$50,001 paid 2%
$225,001 paid 5%

In 1916, with war on the way, the brackets were expanded a bit and most paid double what they paid earlier;
$5,001 paid 2%
$50,001 paid 4%
$225,001 paid 9%

The very next year, 1917, we were in war and things changed;
$5,001 paid 5%
$50,001 paid 16%
$225,001 paid 41%

In 1918, Congress found a gold mine in the income tax and they needed it to pay off the mounting debt the war brought on and the original 7 brackets had now expanded to 56 brackets and the top earners were paying through the nose;
$5,001 paid 13%
$50,001 paid 36%
$225,001 paid 72%
(The top bracket was at 77%)

In 1924, the war had been substantially paid off but the money was flowing and who could resist? The brackets have now shrunk to only 43 from the 56 in 1918;
$5,001 paid 4%
$50,001 paid 24%
$225,001 paid 44%

In 1928, the roaring '20s were in full swing and income taxes had now gone down to a very low rate compared to what it was in the early '20s. The U. S. at this time had a Republican President since 1921 and the rich were rolling in the dough;
$5,001 paid 3%
$50,001 paid 18%
$225,000 paid 25%

As you can see, just prior to the great depression, the wealthy had it made. That didn't bring on the depression but it didn't help either. It just shows that a low income tax rate for the rich doesn't create wealth in any class but the already rich. It also shows that without regulations, the wealthy will let the economy go to hell. Deregulation brings on unbridled greed and the end of a positive economy.

(The next issue of this post will come in about 2 days. There are some amazing things that you will not beleive in that post.)

I got the history of the income tax and the bracket history at:
www.taxfoundation.org/publications/show/151.html
www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml

The second part of this post is at:
http://swoopsfromsnowyowl.blogspot.com/2010/09/history-of-federal-income-tax-part-2.html