Congress and the president are missing an obvious chance to adjust income tax rates for everyone.
The flap over excessive bonuses has inspired Congress to take action (for a change) instead of scapegoating the Executive or Judicial branches to do their dirty work. The time is ripe to return to multiple income tax tiers reaching well into the nose-bleed reaches of the super rich.
Take a look at the history of America's progressive income tax back in the day.
This came from the National Taxpayers Union.
Historical Income Tax Rates & Brackets
| Tax Rates 1 |
Bottom bracket | Top bracket |
Calendar Year | Rate (percent) | Taxable Income Up to | Rate (percent) | Taxable Income over |
1913-15 | 1 | 20,000 | 7 | 500,000 |
1916 | 2 | 20,000 | 15 | 2,000,000 |
1917 | 2 | 2,000 | 67 | 2,000,000 |
1918 | 6 | 4,000 | 77 | 1,000,000 |
1919-20 | 4 | 4,000 | 73 | 1,000,000 |
1921 | 4 | 4,000 | 73 | 1,000,000 |
1922 | 4 | 4,000 | 56 | 200,000 |
1923 | 3 | 4,000 | 56 | 200,000 |
1924 | 2 1.5 | 4,000 | 46 | 500,000 |
1925-28 | 2 1? | 4,000 | 25 | 100,000 |
1929 | 2 4? | 4,000 | 24 | 100,000 |
1930-31 | 2 1? | 4,000 | 25 | 100,000 |
1932-33 | 4 | 4,000 | 63 | 1,000,000 |
1934-35 | 3 4 | 4,000 | 63 | 1,000,000 |
1936-39 | 3 4 | 4,000 | 79 | 5,000,000 |
1940 | 3 4.4 | 4,000 | 81.1 | 5,000,000 |
1941 | 3 10 | 2,000 | 81 | 5,000,000 |
1942-434 | 3 19 | 2,000 | 88 | 200,000 |
1944-45 | 23 | 2,000 | 5 94 | 200,000 |
1946-47 | 19 | 2,000 | 5 86.45 | 200,000 |
1948-49 | 16.6 | 4,000 | 5 82.13 | 400,000 |
1950 | 17.4 | 4,000 | 5 91 | 400,000 |
1951 | 20.4 | 4,000 | 5 91 | 400,000 |
1952-53 | 22.2 | 4,000 | 5 92 | 400,000 |
1954-63 | 20 | 4,000 | 5 91 | 400,000 |
1964 | 16 | 1,000 | 77 | 400,000 |
1965-67 | 14 | 1,000 | 70 | 200,000 |
1968 | 14 | 1,000 | 6 75.25 | 200,000 |
1969 | 14 | 1,000 | 6 77 | 200,000 |
1970 | 14 | 1,000 | 6 71.75 | 200,000 |
1971 | 14 | 1,000 | 7 70 | 200,000 |
1972-78 | 814 | 1,000 | 7 70 | 200,000 |
1979-80 | 814 | 2,100 | 7 70 | 212,000 |
1981 | 8 9 13.825 | 2,100 | 7 9 69.125 | 212,000 |
1982 | 8 12 | 2,100 | 50 | 106,000 |
1983 | 8 11 | 2,100 | 50 | 106,000 |
1984 | 8 11 | 2,100 | 50 | 159,000 |
1985 | 8 11 | 2,180 | 50 | 165,480 |
1986 | 8 11 | 2,270 | 50 | 171,580 |
1987 | 8 11 | 3,000 | 38.5 | 90,000 |
1988 | 8 15 | 29,750 | 1028 | 29,750 |
1989 | 8 15 | 30,950 | 1028 | 30,950 |
1990 | 8 15 | 32,450 | 1028 | 32,450 |
1991 | 8 15 | 34,000 | 31 | 82,150 |
1992 | 8 15 | 35,800 | 31 | 86,500 |
1993 | 8 15 | 36,900 | 39.6 | 250,000 |
1994 | 8 15 | 38,000 | 39.6 | 250,000 |
1995 | 8 15 | 39,000 | 39.6 | 256,500 |
1996 | 8 15 | 40,100 | 39.6 | 263,750 |
1997 | 8 15 | 41,200 | 39.6 | 271,050 |
1998 | 8 15 | 42,350 | 39.6 | 278,450 |
1999 | 8 15 | 43,050 | 39.6 | 283,150 |
2000 | 8 15 | 43,850 | 39.6 | 288,350 |
2001 | 8 15 | 45,200 | 39.1 | 297,350 |
2002 | 8 10 | 12,000 | 38.6 | 307,050 |
200311 | 8 10 | 14,000 | 35.0 | 311,950 |
2004 | 8 10 | 14,300 | 35.0 | 319,100 |
2005 | 8 10 | 14,600 | 35.0 | 326,450 |
2006 | 8 10 | 15,100 | 35.0 | 336,550 |
2007 | 8 10 | 15,650 | 35.0 | 349,700 |
2008 | 8 10 | 16,050 | 35.0 | 357,700 |
1 Taxable income excludes zero bracket amount from 1977 through 1986. Rates shown apply only to married persons filing joint returns beginning in 1948. Does not include either the add on minimum tax on preference items (1970-1982) or the alternative minimum tax (1979-present). Also, does not include the effects of the various tax benefit phase-outs (e.g. the personal exemption phase-out). From 1922 through 1986 and from 1991 forward, lower rates applied to long-term capital gains.
2 After earned-income deduction equal to 25 percent of earned income.
3 After earned-income deduction equal to 10 percent of earned income.
4 Exclusive of Victory Tax.
5 Subject to the following maximum effective rate limitations.
[year and maximum rate (in percent)] 1944-45 –90; 1946-47 –85.5; 1948-49 –77.0; 1950 –87.0; 1951 –87.2; 1952-53 –88.0; 1954-63 –87.0.
6 Includes surcharge of 7.5 percent in 1968, 10 percent in 1969, and 2.6 percent in 1970.
7 Earned income was subject to maximum marginal rates of 60 percent in 1971 and 50 percent from 1972 through 1981.
8 Beginning in 1975, a refundable earned-income credit is allowed for low-income individuals.
9 After tax credit is 1.25 percent against regular tax.
10 The benefit of the first rate bracket is eliminated by an increased rate above certain thresholds. The phase-out range of the benefit of the first rate bracket was as follows: Taxable income between $71,900 and $149,250 in 1988; taxable income between $74,850 and $155,320 in 1989; and taxable income between $78,400 and $162,770 in 1990. The phase-out of the benefit the first rate bracket was repealed for taxable years beginning after December 31, 1990. This added 5 percentage points to the marginal rate for those by the phaseout, producing a 33 percent effective rate.
11 Rates for 2003 are after enactment of the Jobs and Growth Tax Relief Reconciliation Act. Prior to enactment the rates were 10% up to $12,000 and 38.6% on amounts over $311,950.
Sources: Joint Committee on Taxation, "Overview of Present Law and Economic Analysis Relating to Marginal Tax Rates and the President’s Individual Income Tax Rate Proposals" (JCX-6-01), March 6, 2001, and Congressional Research Service, "Statutory Individual Income Tax Rates and Other Elements of the Tax System: 1988 through 2008," (RL34498) May 21, 2008.
Years ago, when my wife and I first married and were too poor to pay attention, I filed my own income tax. Being the nut case that I am for detail, I poured over those government-speak forms for days at a time, looking for ways to save money. Those were the days of multiple deductions and finding them was like looking for eggs on Easter morning. I remember saving all our sales receipts once for an entire year to find out for myself if the various individual state sales tax tables furnished by the IRS were really accurate. I discovered (to mixed disappointment and pleasure) that those tables - at least for Georgia - were actually pretty generous.
Those were the days when medical deductions meant something when you filed for an income tax return. One of our children had to be in a private school for learning disabilities for two years and the tuition was higher than our mortgage payment. We were able to do it because a registered clinical educational psychologist had made the recommendatiion (that was when many public school teachers "didn't believe in" learning disabilities. ADHD was to come later.) so the tuition could be considered a "medical" deduction.
Credit card interst was deductible, along with a host of deductions aimed at helping small businesses.
With the election of Ronald (Government IS the problem) Reagan, the tax codes were "simplified."
Multiple tax tiers were reduced to three.
In return for "flex-plans" allowing insurance premiums to be "pre-tax" individual medical deductions must now exceed a catastrophic percentage of earned income. Anyone with medical expenses over 7.5 percent of AGI is allowed the
excess to be deducted, which means you're in damn deep doo-doo for health care at your house.
The big benefit of tax simplification, though, was for those at the top, whose rate was slashed from seventy to fifty percent. As time went by that was reduced another ten percent.When the tax codes were complicated most wage earners took what was called the "standard deduction." leaving "itemizing" to those with a more complicated picture. Over time this habit has had the effect of dumbing down an already low tax IQ to the point where the "tax service" industry (seasonal, like Christmas tree sales) has become a flourishing enterprise that most ordinary people never realize eats away their hard-earned money worse than pay-day check-cashing outfits.
My wife and I, along with the rest of our super-rich peers, were awash with money after a few years so we didn't worry about anyone else. (Believe that if it makes you feel better.) But we looked with sympathy on our children who went into that dark earnings night unaware that their world was a very different place from the one into which they were born. It was about that time when easy credit became the order of the day.
Deduct credit card interest? Fugedaboudit! As long as you make minimum payments you can use credit cards to the max. Need another one? Go get it.
Don't ask if you can afford something. The question is
Can you make the payments?The reader can see where this is going.
Roubini put his finger on it over a year ago (and before) when no one was paying attention.
He summarized it well in Forbes last week.
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It is time for our elected representatives to see that the last twenty-five years has resulted in a near-fatal harvest of unintended consequences. The progressive income tax was essentially abandoned when three income tax tiers went into effect. Since that time the gap separating rich and poor has opened wider every year.
The time has come to set things right and return to a meaningful update of the Sixteenth Amendment.