Taxes

The Federal Income Tax Turns 100. Many Happy Returns!


Deputy collectors help citizens prepare their income tax returns at the Customs House, in 1945

Photograph by Joseph Costa/NY Daily News Archive via Getty Images

Deputy collectors help citizens prepare their income tax returns at the Customs House, in 1945

Dear Federal Income Tax,

I wanted to send you this note on your 100th birthday. My, how big you’ve grown!

It was on this day a century ago that President Woodrow Wilson signed a law allowing the federal government to collect income taxes on all citizens. So Oct. 3 is a time to celebrate you for lasting this long and making it this far. You never let up: One hundred years of doing your job without a single day off—something that can’t be said about the government you support. Just think of the many people who never wanted you born and have been trying to cut or kill you ever since.

Sure, we had seen previous incarnations of income taxes in the 1860s and 1870s as a result of the Civil War. They didn’t have the kind of staying power you did, though, and expired before we could really get to know them. You, however, were built to last.

I know this is a little embarrassing … but remember when you were first born how you taxed only the richest Americans? In case your memory doesn’t serve you well in your advanced age, here’s a look back at your original brackets:

Isn’t your first tax bracket so cute? You only charged 1 percent on the first $20,000 of income. In today’s dollars, that $20,000 would be about $464,000. When you were a newborn, your bracket levels were so high that the vast majority of people paid your teeny-tiny 1 percent rate. Let’s look at your first bracket again, this time with inflation-adjusted dollars:

So much for youth—you had quite the growth spurt. Who could have imagined you’d get so big? And you’ve had many adventures along the way. Remember in the 1940s, ’50s, and ’60s, when your highest marginal rates were more than 90 percent? Those were crazy times.

If we follow the path of marginal tax rates on a modern-day $400,000 (filing as a single person), we can see all your life phases. It’s the story of your life:

Look at that. You have been all over the place. Sure, the first couple years were in tiny 1 percent or 2 percent brackets, but your parents in Congress and the White House pushed you to grow up fast and get above the 10 percent and 20 percent thresholds. When World War II hit, you expanded past the 50 percent mark, even reaching 75 percent for a while. Finally, with the help of President Ronald Reagan, you dropped back down to a range of 30 percent to 40 percent, where you’ve been for a generation now. Young workers today don’t even know what it’s like to pay such high rates.

It’s funny to remember that a modern-day $400,000 is the top tax bracket now, but it was the lowest bracket when you were born. Times have changed, but your grasp on America has only gotten stronger.

Here’s to you on reaching 100. When we are all long gone, I am sure you will still be going strong in your second century—and we can only wonder what path the next 100 years will take you on.

Eric-chemi
Chemi is head of research for Businessweek and Bloomberg TV.

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