US Historical Income Tax Rates

https://taxfoundation.org/historical-income-tax-rates-brackets/

by hairytrog • 4 years ago

24 83 4 years ago

giantg210• 4 years ago

Interesting. I think it would be more impactful/meaningful if it also had columns for inflation adjustment, income distribution, and average effective tax rate.

It seems like when it first started, it only taxed the rich and at a very low rate. Then it expanded from there, to the point where 20% was the min and 91% was the max. Then lower to what we have now.

HarryHirsch3• 4 years ago

Nowadays you get taxed because your mate lent you 1200 dollars through Venmo because you couldn't make the security deposit for the new overpriced apartment. (Of course your mate will be taxed as well when you repay him.) But Jeff Bezos can borrow against stock that he owns. Income tax is completely meaningless when the 1%-ers have tax evasion strategies that Joe Citizen couldn't possible take advantage of.

modeless7• 4 years ago

This is false in the US. Neither loans nor gifts of $1200 are taxed.

Also, loans don't evade the capital gains tax, they merely delay it. Stepped-up basis is what evades the capital gains tax.

onlyrealcuzzo• 4 years ago

The 1% aren't borrowing against stock - or if they are - it's minimal and not worth discussion.

99% of the borrowing is coming from people worth close to a billion or more (0.001%).

oh_sigh5• 4 years ago

I'd encourage you to actually research how any of this works, because you are extremely misinformed and parroting the same lines that I see repeated verbatim around the internet by other misinformed people(ie "Bezos can just borrow against stock he owns and never pay any taxes!").

ljhsiung• 4 years ago

Looking at 1961, where we have 20% and 91% marginal tax rates, this comes out to be ~19k and 1.9mil, adjusted for inflation (2k and 200k nominally).

Compare these days, where we have 12% min and 37% max for 10k and 500k respectively.

If we were to tax at 37% using 1961 threshholds, you'd have to be making 95k inflation adjusted (that's the 38% threshhold), or 10k nominally.

Something else I found fascinating was that we had over 25 brackets back in the day. I can only imagine the headache that would be without an Excel spreadsheet.

People (myself included) might complain about taxes now, I can only imagine in the 60s.

Thanks for the insights, OP.

rootusrootus2• 4 years ago

Something else I found fascinating was that we had over 25 brackets back in the day. I can only imagine the headache that would be without an Excel spreadsheet.

I have to imagine that the IRS tax tables aren't a recent creation, so the math should have been similarly easy.

giantg210• 4 years ago

It might not be that bad, depending on the simplicity of deductions and other structures.

For example, 401k, IRA, 529, 403b, etc didn't exist. A lot of states and localities didn't have income taxes at that time either. If the deductions and overall tax code was simpler, then calculating the brackets would be easy - you're basically taking the percent times each bracket max until you get to your top bracket, then the amount in that bracket times that percent.

My understanding is that most people could do their taxes just based on the instructions on the back of the form just because there weren't so many deductions, credits, and complicated securities/instruments.

I couldn't find info on the deductions, but this was interesting.

https://www.nbcnews.com/id/wbna29861648

insickness• 4 years ago

Graph: Historical Marginal Tax Rate for Highest and Lowest Income Earners

https://commons.wikimedia.org/wiki/File:Historical_Marginal_...

donatj• 4 years ago

I don't understand why we don't just not tax income below say $20k. It can't be a lot of money for the government even in aggregate, and it would make a huge difference in low income people's lives, arguably larger than any of the government programs their taxes are going to fund.

csdvrx2• 4 years ago

I don't understand why we don't just not tax income below say $20k.

Because you want people to feel like they have skin in the game.

rootusrootus2• 4 years ago

I wonder if they'd feel better about that if they could instead earn enough where they actually had to pay income tax. It's not much consolation that you have skin in the game if you can only get 15 bucks an hour.

decebalus1• 4 years ago

This is easy. Because we have a well-established institutional hate for poor people. There is a subconscious belief that poor people are poor solely because of poor decisions. So, it's not our job to improve their lives. It would be 'unfair' for the rest of society to keep these 'freeloaders' afloat. /s

There's gonna be a lot of comments in here saying ^^ but unironically. It's just ingrained in the fabric of our society.

whiddershins• 4 years ago

I don’t disagree. And I think what with various subsidies and whatnot it may be that the effective tax rate for people making that little is zero.

Two theories: 1) Maybe it’s better for everyone to feel like they are ‘chipping in’ … for pride and unity.

2) Maybe the government is really invested in knowing what everyone makes, regardless of the net on it.

tapland• 4 years ago

Also avoiding the "they don't even pay taxes" talk about people with low incomes.

antognini• 4 years ago

The rates presented are slightly misleading because it's not including the standard deduction. For a single individual in 2021, income below $12,550 is effectively not taxed (or $25,100 for married couples).

hnburnsy• 4 years ago

The tax brackets are always based on AGI, millions have an effective negative tax rate due to EITC.

tick_tock_tick2• 4 years ago

I mean we basically don't 12% of $20k (ignore marginal rates just taking the top braket) is $2.4k and the standard deduction is $12,400 for single filers.

closeparen• 4 years ago

If you would consider $12,400 a value of "say $20k" this is already the case... and the tax rate on the remaining $7600 is 10%. Someone earning $20k qualifies for other benefits worth more than $760, so their total effective tax rate is already negative.

oh_sigh5• 4 years ago

That's what the standard deduction does.

For example, 57% of households did not pay any federal income tax in 2021: https://www.cnbc.com/2022/03/25/57percent-of-us-households-p...

That's not even from COVID, the percentages are fairly similar going back a number of years.

next_xibalba• 4 years ago

This is already the case and has been for quite some time. The table depicted at the link is shows tax rates before deductions. Think of it as a "top line" or "nominal" tax rate. People making under $20k (and more) have an effective tax rate of $0 in the USA.

As Mitt Romney pointed out in 2012 [1]: "Forty-seven percent of Americans pay no income tax."

[1] https://www.politifact.com/factchecks/2012/sep/18/mitt-romne...

modeless7• 4 years ago

With the earned income tax credit, many people at that income level "pay" negative income tax.

datavirtue• 4 years ago

It is often negative.

protomyth• 4 years ago

If some politician really wanted to make a difference, then move FICA (employee not employer) to start at something like $30k and continue higher before the cutoff, then add a tax after a million to cover the low income folks' FICA. Then make the individual deduction $30k.

I am really opposed to taxing things that aren't actually realized (stock). The number of horror stories on HN about stock options just leads me to believe we do it wrong. I would rather we do a better job on the transaction to cash out.

CaptainNegative2• 4 years ago

The key problem for <$20k earners is the constant 7.65% FICA ("Social Security/Medicare") Tax plus any local taxes, not income tax.

After the standard deduction, the net income tax rate for a single filer making $20k is 3.75%. For a couple filing jointly it's 0 up through $25.5k/yr.

In both cases, the EITC guarantees those with at least one child a (substantially) negative effective tax rate, while single child-free filers are left with about a 2.6% effective rate.

SomeHacker44• 4 years ago

$20k x 2 >> $25.5k. Marriage penalty in action.

Gustomaximus• 4 years ago

We do this in Australia (($18,200). It largely works well. The downside is people can use others tax free threshold. E.g. If someone is working and is married to housewife plus has a couple kids at uni, if they have a business or assets in trust they can distribute $20k to each person so now they have $80k effectively tax free.

I'm not sure the scale of this being taken advantage off though but it's well know benifit if you situation allows.

chrismcb3• 4 years ago

This should not be a problem. Basically you are saying each person gets 20k tax free. If one person is earning and supporting the other then yeah they should get 40k tax free. But if they are both working they will still only get 40k tax free.

tick_tock_tick2• 4 years ago

Honestly kinda worthless without knowing the average marginal rate that people in each income brackets payed. People always hype up the 90% tax bracket but tax deductions and credits were so plentiful that the raw rates are very misleading.

cplusplusfellow3• 4 years ago

Not to mention it was still a society where one could legitimately hide income from the government with ease.

frabjoused• 4 years ago

In 1944 the Federal income tax rate was as high as 94% for those making more than $200,000.

floren• 4 years ago

Posters will now stumble over each other to assure you that tax evasion was so widespread that actually the effective tax rate was lower than Reagan's wildest dreams.

credit_guy2• 4 years ago

All right, then I'll ask the other question. What do you consider "fair"? You don't say it, and the GP doesn't, but the implicit assertion is that the rich don't pay their "fair share", presumably because in some mythological past they used to pay 94%.

What is then "fair"? 94% ? Do you have a formula? At least a principle. If I make $100 MM (I don't), should I pay 50%, 60%, 70%? I mean, even if I pay 99%, I still retain more than 99% of the Americans, right?

throwaway0a5e3• 4 years ago

Posters will now stumble over each other to assure you that tax evasion was so widespread

Arranging your income to reduce the tax paid in accordance with the law isn't tax evasion.

lbrito• 4 years ago

This.

Brains here clearly in overdrive trying to elicit all the vaguely possible excuses and attenuations, everything but confronting the hard fact staring them in the face on a G-damn spreadsheet.

Folks, it doesn't get more straightforward than a spreadsheet. Income tax in the US was higher in the mid-1900s than it is today in Europe.

6gvONxR4sf7o2• 4 years ago

I'd love to see these state-wise as well. Looking at the highest ever federal rate and adding my current california rate would put the total marginal rate at 103%.

It's actually kind of amusing to think about what a marginal rate over 100% would lead to. If the top bracket is $1M+ and you earn $100M, and that last $99M is taxed at 102%, then you owe roughly $101M of your $100M earned, leaving you negative for the year. Better not go above the max! Quick! Donate that $99M in order to maximize your earnings!

diggernet• 4 years ago

Then in future years, make sure to avoid the problem by furloughing all your workers as soon as you hit $1M. Sure, that means both you and your workers only work 1/100 of the year, but what's the point in working longer than that if it earns you nothing?

Yeah, you could also pay your workers a lot more and take less yourself. But in that case you'd spend the whole year working to make what you could make in 1/100 of the year. So again, what's the point?

So I suspect a >100% (or even >90%) marginal tax rate would have a lot of very negative side effects. (Keep in mind that back when the top rate was officially >90%, there were so many loopholes that nobody actually paid that. Closing the loopholes and drastically lowering the top rate was actually revenue-neutral.)

6gvONxR4sf7o2• 4 years ago

furloughing all your workers as soon as you hit $1M

You'd likely have a hard time getting them to come back the next year. Who is going to take a job that pays a normal daily wage but only employs you for three days? And can you really ramp the org back up up in three days? Maybe you'd be better off working for a few days then handing the job off to someone else for the rest of the year. Even then, good luck convincing the board that you're doing anything worthwhile coming in 3 days per year.

I think the equilibrium for this would be fascinating.

BurningFrog• 4 years ago

A reminder that comparing old tax rates with modern ones is very hard, since there was a huge amount of deductions available for the high income earners, and hardly anyone actually paid anywhere near the nominal 91%.

qeternity• 4 years ago

It's also arithmetically impossible to pay the highest bracket given that it's a marginal tax rate.

chrismcb3• 4 years ago

Huh? This makes no sense. If you made over 400k you were in the guest tax bracket Yes, b you wouldn't pay 91% of your income but you would pay 91% of everything over 400k.

throwaway0a5e3• 4 years ago

And there were fewer taxes and government income streams so single big taxes (like income tax) represented a larger share of an individual's overall tax burden.

arrty88• 4 years ago

Now adjust those 1990 numbers for inflation

SpodGaju3• 4 years ago

1950 Tax Rate - 91.0% > $400,000

The economy overall grew by 37% during the 1950s. At the end of the decade, the median American family had 30% more purchasing power than at the beginning. Inflation was minimal, in part because of Eisenhower's efforts to balance the federal budget.

Unemployment remained low, about 4.5%.

nojito2• 4 years ago

No one paid that tax rate.

https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/

Average rate paid by the 1% back then was around 41%

SpodGaju3• 4 years ago

Apples, meet oranges.

"The data comes from a recent paper by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman that attempts to account for all federal, state, and local taxes paid by different groups of Americans over the last 100 years"

But regardless, it was higher in 1950, almost 6 points higher.

And look at al the caveats...

1] Some of the distributional assumptions in the Piketty, Saez, and Zucman paper are questionable. In particular, the authors assume that the full burden of the corporate income tax falls on owners of capital, which may not be correct. However, the authors note that they “have tested a number of alternative tax incidence assumptions, and found only second-order effects.”

[3] It is worth noting that, per the Piketty, Saez, and Zucman data, the tax rates of the top 0.1 and 0.01 percent of taxpayers have dropped substantially since the 1950s. The average tax rate on the 0.1 percent highest-income Americans was 50.6 percent in the 1950s, compared to 39.8 percent today. The average tax rate on the top 0.01 percent was 55.3 percent in the 1950s, compared to 40.8 percent today.

[4] The data from Piketty, Saez, and Zucman is not divided among federal, state, and local taxes, so it is difficult to tell exactly how much the rich were paying in federal income taxes specifically during this period.

cplusplusfellow3• 4 years ago

The United States held the majority of the worlds factories and almost all of the ones that weren’t in a decimated war torn country.

It took nearly 20 years to rebuild Europe to the point that it could compete, and USSR was largely cut off from global supply in western worlds.

It’s not the same today and one cannot possibly assert with a straight face that we would enjoy a decade of 37% growth with those rates.

throwaway0a5e3• 4 years ago

Ok, now do the effective rates paid.

Better yet, do overall tax burden rather than just income tax.

Everyone loves to get a good ideological circle jerk going over the nominal 1950s rates but the actual tax burden at (various different points on the income spectrum) paints a very, very, different picture.

Volundr• 4 years ago

the actual tax burden at (various different points on the income spectrum) paints a very, very, different picture.

Do you have this data? I'd be very interested in this picture.

hackeraccount• 4 years ago

The raw rate tells you something but not everything. What are the available deductions? What counts as income?

US Historical Income Tax Rates

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