HISTORICAL TAX RATES

This page contains two timelines. The first is a narrative account to which I will continually add as more information becomes available. The second is a quick-glance chart, courtesy of Citizens for Tax Justice.

Federal taxes (general)
Income and capital gains taxes (top rate)

FEDERAL TAXES (GENERAL, MARGINAL)

1913 - Income Tax instituted. Less than 2 percent of the population had to pay it. Income up to $20,000 was taxable at 1 percent, and above $500,000 at 7 percent. It exempted the first $3,000 earned by a single person and the first $4,000 by married couples. Since the overwhelming majority of Americans supported families on less than $1,000 a year, most were exempted from the tax.

1916 - Income tax, top rate: 15 percent.

1917 - Twenty graduated steps established for the income tax. Top rate on income over $2 million: 67 percent. Under $2,000: 2 percent. Exemptions reduced. Number of returns from 1916 to 1919 will climb from 437,000 to 4.4 million. Even so, 95 percent of all Americans will pay no income tax.

World War I - Income tax, top rate at 73 percent. Capital gains, top rate: 77 percent.

1921 - Capital gains, top rate: 12.5 percent. Income tax, top rate: 56 percent.

1924 - Income tax, top rate: 46 percent.

1926 - Income, top rate: 25 percent. Income tax on first $4,000 lowered from 2.0 to 1.5 percent. Estate tax, top rate, lowered from 40 to 20 percent. Abolished gift taxes.

1930s - Increased capital gains tax rates in the 1930s. For a short period, realized gains were taxed under a complicated schedule that taxed gains from very short-term investments in full, but excluded as much as 70% of gains from sales of assets held for more than 10 years. This system was widely criticized as unwieldy and complex, and in the early 1940s it was scrapped.

1932 - Income, top rate: 63 percent

1936 - Income tax, top rate: 79 percent. Roosevelt also institutes an inheritance tax, estate tax, gift taxes, dividend tax and progressive corporate tax.

Early 40s - capital gains taxed at half the regular rate or 25 percent, whichever is lower.

World War II - the bottom income tax rate climbs from 4 to 19 percent between 1940 and 1943. Top income tax rate climbs to 88 percent by 1943. By 1945 it hits 91 percent, where it remains until 1964.

1964 - Income tax, top rate: 77 percent.

1965 - Income tax, top rate: 70 percent.

1950s - Corporate tax: 52 percent.

Late 60s - cap gains start rising from 25 percent.

Mid 70s - cap gains reaches 39 percent.

1977 - Social Security Act Amendment of 1977 passed. With Social Security in trouble, Congress passed a schedule of Social Security tax increases, ending in the year 2030, that would gradually raise the combined amount paid by employers and employees from 11.7 to 15.3 percent. Also raised the maximum taxable income from $16,500 in 1977 to $42,000 in 1987. This schedule would be accelerated in 1983.

1978 - Revenue Act of 1978 makes unemployment benefits taxable for first time. Capital gains, top rate: 28 percent (enacted November, 1978).

1981 - The Economic Recovery Tax Act of 1981 (ERTA) passes. Otherwise known as Reagan's supply-side tax cuts. They included: An across-the-board reduction in individual income tax rates of approximately 23 percent, phased in over 33 months. A reduction in the maximum top rate from 70 percent to 50 percent, beginning in 1982. (Only unearned income - from interest and dividends - had been taxed at 70 percent. Wage and salary income was already taxed at 50 percent.) Inflation-indexing for the individual income tax brackets, the zero bracket amount and the personal exemption, beginning in 1985. The accelerated cost recovery system (ACRS), which provided depreciation write-off periods ranging from 3 years for equipment to 15 years for structures. Reduction of the maximum tax rate on capital gains to 20 percent.

1982 - Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) passes. Institutes a half-basis adjustment for investment tax credits in calculating depreciation. Repeals the acceleration of depreciation scheduled in 1985 and 1986 by ERTA. Raises the federal unemployment tax (FUTA) wage base from $6,000 to $7,000 and the FUTA tax rate from 0.7 percent to 0.8 percent. Increases airport, airway, cigarette and telephone excise taxes. Reduces tax-free contributions to a defined-contribution pension plan from $45,475 to $30,000 and reduced limits on benefits from a defined-benefit plan from $136,425 to $90,000.

1983 - Social Security Amendment Act of 1983 passes. This drastically accelerates the schedule of tax hikes in Social Security originally passed in 1977. The schedule is to be completed by 1990 instead of the year 2030.

1984 - The Deficit Reduction Act of 1984 (DEFRA) passes. A repeal, beginning in 1985, of the provision that allowed an exclusion from income tax of 15 percent of up to $3,000 in interest income for a single taxpayer ($6,000 for couples). A $2 per gallon increase in the excise tax on alcohol and a one-year extension of the 3 percent telephone excise tax. An increase in the minimum recovery period for real property from 15 to 18 years. A reduction in the holding period for long-term capital gains from one year to six months for assets acquired between June 1984 and January 1988.

1986 - The Tax Reform Act of 1986 passes. A reduction in the number of individual income tax brackets to two - 15 percent and 28 percent. Increases in the zero bracket amount and personal exemptions. Repeal of the two-earner deduction, income averaging, and the state and local sales tax deduction. Repeal of the 60 percent capital gains exclusion for individuals. Reduction in the maximum corporate income tax rate from 46 percent to 34 percent. Broadening of the corporate tax base through repeal of the investment tax credit, limiting depreciation deductions, restricting the use of net operating losses, etc. Capital gains, top rate: 28 percent. Corporate tax: from 46 to 34 percent.

1990 - Omnibus Budget Reconciliation Act of 1990 passes. Income tax, top rate: 31 percent.

1993 - Omnibus Budget Reconciliation Act of 1993 passes. Income tax, top rate: 39.6 percent. Corporate tax: 35 percent.

1997 - Taxpayer Relief Act of 1997 passes. Capital gains taxes are slashed in a complicated schedule. After July 29, 1997, assets that have been held for a year are taxed at 28 percent. For assets held over a year and a half, the rate is 20 percent (10 percent for individuals that were earlier taxed at the 15 percent rate). After the year 2000, assets that have been held for 5 years will be taxed at 18 percent (or 8 percent). The Alternative Minimum Tax is removed for C Corporations that earn less than $7.5 million in receipts after 1997. Also included: a $500 per child tax credit, tax breaks for college expenses and tuition, a higher exemption for estate taxes and expanded Individual Retirement Accounts.

INCOME AND CAPITAL GAINS TAXES (TOP RATE, MARGINAL)


Chart prepared by Citizens for Tax Justice.

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