The Surprising History of Federal Taxes on Wealthy Americans

In the debate over tax cuts, it helps to look at the history of U.S. federal income taxes on high-income people. For the last 18 years individuals in the top income tax bracket (those making more than $250,000 to $379,150, depending on the year) have been paying 30-40% of their income in federal taxes. By itself, this figure might seem high. But unbeknownst to most Americans, today’s tax rates on wealthy Americans are LOWER than they’ve been in almost 80 years.  They are the lowest since the “roaring ’20’s” that led to the Great Depression, when the top rate was 25%.

Think about this:  FOR ALMOST TWO DECADES — from 1945-1963 — the richest people — those in the highest tax bracket, making over $200,000 — paid 91-94% of their income in taxes! After that the top rate dropped to around 70% (if over $100,000) for the rest of the 60s and all of the 70s. Even under Reagan, the tax rate was around 50%. The idea that today’s wealthy are being newly and unduly oppressed by federal tax rates seems contradicted by the facts. 

Here’s a more detailed history for those interested, taken from the complete historic tax tables on http://www.taxfoundation.org/publications/show/151.html.  (Note that the dollar amounts given are in the current dollar value at the time of that tax year, not in today’s equivalent (i.e., adjusted for inflation).  If you want to explore an equivalent in today’s dollars for one of the amounts given below, plug the number into http://www.1soft.com/todaysdollars.htm, without any dollar signs or commas.)

1924-1964: From 1924-1931 the top tax bracket was 25% for income over $100,000. During the depression (1932-1940) it was boosted to 63% for incomes over a million dollars, then 79% (and then 81% in 1941) for incomes over five million. During World War II the top bracket was 88% for income over $200,000, peaking at 94% in 1945. From 1946 until 1963 that remained the top bracket, taxed at a rate of 91-92%. It dropped to 77% in 1964.

1965-1982: For 17 years — from 1965 until Reagan, the top tax rate was 70% for incomes over $100,000 (over $108,300 for 1981). In 1982 the top three tax brackets were lopped off and the new highest tax bracket dropped to 50% for incomes over $41,500 (the year before, that bracket had been the fourth highest and paid 55%).

1983-1986: For four years the top tax rate remained at 50% but the bottom of the top income bracket slid upward, reaching $88,270 in 1986.

1987-1992: In 1987 a radically simplified tax table (going from sixteen tax brackets to four) had a top rate of 38.5% for those making more than $54,000. 1988 dropped to two tax brackets, the top one being 28% for income over $17,850 (which rose to $19,450 by 1990). In 1991 and 1992 a third tax bracket was added with a rate of 31% for income over about $50,000.

1993-2011: In 1993 top higher-income tax brackets were added back, and the tax rate for those with more than $250,000 leapt from 31% to 39.6% which remained the top tax rate until 2001, when it was dropped to 39.1% (for income over $297,350). In 2002 it was dropped further to 38.6% for income over $307,050, and continued to drop until 2011, when it stood at 35% for income over $379,150.

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Note:  One’s highest tax bracket rate does not apply to one’s entire income.  The rate for each bracket applies to one’s income at that level.  Say your first $10,000 is tax free and the tax rate on $10,000-$49,999 is 10% and the tax on $50,000-$99,999 is 20%.  If you make $70,000, you would pay no taxes on your first $10,000, 10% on the $40,000 above that, and 20% on the $20,000 above THAT.  For full details, see http://www.moneychimp.com/features/tax_brackets.htm.  Thanks to Laura “Follow the Money” Wells, California Green Party candidate for Governor, for the heads up about this, and for the link.