History of Tax Day

Tomorrow is Tax Day again.  That is the day which is the deadline to file an annual income tax return in the United States.  In honor of tax day, let's look at the history of tax rates.

The biggest thing that should be noted is that for most of the history of the Untied States, there was no income tax.  It is not an inevitable part of funding a government.  For an even longer period of more than 150 years, there was no or minimal income tax on the average person.

I chose two marginal rates to track.  The first is the hypothetical income of $10 million dollars which has been bandied about by politicians lately.  This group of "the rich" has often been the target for income taxes.  The other group at which I looked was those with a medium income rate.  One of the ways in which taxes were sold by politicians was that for the first couple of generations, the median earner paid little to no income tax.  The taxes were then raised with the justification of paying for the World Wars.  Taxes went up briefly after World War I and came down again for the average worker.  It went up again after World War II and did not come down significantly until 2018.  The income tax became a regular feature of middle class life.

The figures below are using inflation adjusted incomes.  For most of the period, $10 million dollars of income placed a person in the top bracket.  However, in some of the earlier years it didn't.  The biggest change in what median earners paid came in the 1950s.  Several things happened in that decade.  The main ones were that the income tax became the main source of federal funding in the 1950s.  The other is that household composition began to determine tax rate.  Rather than a single percentage based on income, there became a range of percentages paid based on factors like married or single, parents or childless. 

Here are the ranges throughout history:

                                $10,000,000 Income             Median Income

Before 1913            No Income tax                      No Income Tax

1913                        6%                                        No Income Tax

1920                        72%                                      8%

1930                        25%                                      1 1/2 %

1940                        74%                                      4%

1950                        91%                                      30%

1960                        91%                                      22%-26%

1970                        70%                                      22%-32%

1980                        70%                                      28%-49%

1990                        28%                                      28%

2000                        39.6%                                   15%-27.5%

2010                        35%                                      15%-25%

2018                        37%                                      12%-22%