The History of the Federal Income Tax, Conclusion

As we have seen, since the beginning in 1913, the Federal Income Tax has been and rightfully so, a progressive tax. By 1918 they realized that the "Progression" should run higher . . . a lot higher. So, it went all the way from a top rate of 7% to a top rate of 77%, and the brackets went from 7 to 56.

The poorer pay a lower percentage and the wealthy pay a higher percentage. Why you ask? A person that pays 10% tax on an income of $15,000, pays 100% of their discretionary income on taxes and have nothing left for retirement or anything else, like a new refrigerator or furniture. That's not good for the refrigerator and furniture manufacturers. A person that pays 10% on $100,000 pays about 25% of their discretionary income on taxes and they have lots more means to acquire deductions to lower their taxable income. But, since the middle class doesn't have any money to spend on clothes and refrigerators and furniture, investments in those areas don't draw any income. In fact, our economy requires that middle income people to have spendable income to make everything work, otherwise the rich don't have anyone to sell their products. Without demand, there are no jobs in industry. Demand creates jobs.

Let's get back to where we were in our history of the Federal Income Tax.

As stated, the income tax brackets stayed pretty stable from 1965 through 1982. There was some small variance, but mostly it was the same. The top rate for 17 years was 70%.

That all changed when Ronald Reagan became President. He cut the top rate by almost 30% from a 70% rate down to a 50% rate and he cut the highest income bracket that started at $215,000, down to $85,000. This was massive for the guy that had a taxable income of $225,000. That guy or gal paid $45,000 less in taxes in one year than in the previous. It was a gift to the wealthy. Now let's look at the guy that made $50,000. He went from 49% to 44%. Wow! he paid $2,000 less. So, with Reagan the middle class got screwed when it came to taxes. Now, let's look at the brackets.

1981 taxes:
$5,001 paid 14%
$50,001 paid 49%
$225,001 paid 77%

All changed in 1982, the rich got richer:
$5,001 paid 12%
$50,000 paid 44%
$225,000 paid 50% (look at this and tell me who made out)

In the next 5 years nothing changed except the upper range income got higher and drove the top earners in 1982 of $85,600 to a lower bracket of 42%. That guy went down 8% but the $5,001 guy only went down one percentage point to 11%.

In 1987, also under Reagan, the top dropped down again. It went from 50% down to 38.5%. Now let's see what Reagan did for the rich. Under Reagan the top tax rate went from 77% down to 38.5%. That is a total decrease of 38.5 points or a 50% decrease. Reagan cut the taxes for the in HALF, and he considered the rich s anyone with a taxable income of over $45,000.

In 1988 the top rate went down again to 28% and it started at $113,300. That means the top tax bracket has now gone down, under Reagan, by 49 points. That is a total decrease for the rich of 64% in taxes.

So, in 1988, the taxes were:
$5,001 paid 15%
$50,001 paid 38.5%
$225,001 paid 38.5%

In 1989:
$5,001 paid 15%
$50,001 paid 33%
$225,001 paid 28% (A 15% rate bubble allowed a recapture from the
middle class of the discount to the rich)

Except for that rate bubble that expired in 1991, everything stayed close to the same till 1993. Under Clinton the three brackets went up a bit to five brackets and the top rate went back to 39.6%. The top bracket was 39.6% until 2001 when it went , under George W. Bush, to 39.1%, then in '02 to 38.6, and in '03 to 35%, where it has been until now.

In 2013 we will be celebrating the one hundredth birthday of the Federal Income Tax system. In the past 97 years the average top income tax bracket was 60.1%. For twenty years the top rate was 90% or higher. For forty nine years the top rate was 70% or higher. For sixty three of the past ninety seven years the top tax bracket has been 50% or higher.

Right now the top bracket is 35% and the wealthy is pissed off and they aren't going to put up with it any more! BULL! The rich are getting off lightly and they know it but have convinced the middle class that the rich are responsible for inventing jobs. Believe me, they are not. Demand creates jobs! Without demand for products, thee is no reason to manufacture those products. Demand comes from the people who use those products. If those people are unemployed, there is no demand.

I agree, the rich should pay 90% to income tax, but that almost never happened. That 90% rate was only on taxable income and with deductions, amortization, and reinvestment, the rich never paid much. In some cases the rich paid nothing after deductions.

Remember, just because some people are in a particular bracket doesn't mean that their taxable income will make them remain in that bracket. Warren Buffet has stated that his tax rate is less than his secretary's.

Don't let them fool you. They, the rich, are now paying less than they have paid in 90% of the life of the Federal Income Tax.