Monday, October 10, 2011


Prepared by: Brian T. Lynch


The Progressive Tax Code

Our progressive, or graduated income tax was implemented by Howard Taft in 1913.  The idea was to create a system where those who did well bore a greater responsibility for funding the government.  In fact, the original intent was to only tax the wealthiest citizens.  The income tax was never meant to burden the majority of wage earners.  The new law taxed individuals making $3,000 or couples making $4,000 per year. $4,000  at that time would be equivalent to about $100,000 per year in today’s dollars.  What the law did not take into account was inflation.  Much the same as is presently the case with the minimum alternative income tax, the original income tax brackets stayed constant every year while inflation and working class wages slowly rose.  Eventually, income taxes became a burden to lower wage earners as well as the rich.    [

The progressive nature of the income tax is achieved by creating multiple income tax brackets to for rising levels of income.  Each tax bracket has a slightly higher tax rate.  Between 1913 and 1918 the number of tax brackets that applied to wealthy incomes rose to 56 brackets.  By 1940 that number of brackets fell to 24 and there it more or less remained for the next 40 years.  

What did rise over this time period were the marginal tax rates.  By the 1950’s the top marginal tax rate for the wealthiest earners was 90 percent.  The top marginal tax rate was gradually lowered over the next 30 years until it was at 70% in 1980.  In 1981 President Ronald Reagan collapsed the top 9 tax brackets to lowered the top marginal tax rate from 70% to 50%.  During is second term he eliminated 10 more upper tax brackets dropping the top marginal tax rate from 50% to just 28%.  He also raised the tax rates on the lowest income earners, those who were originally not expected to contribute.  At the same time, tax breaks for the wealthiest Americans combined with huge jumps in military spending resulted in huge budget deficits and a large national debt that has been with us since.  

The top marginal tax rate for wage income was eventually raised back to 35% but not before capital gains income was stripped from the progressive tax code and separately taxed at a rate of just 15%.  Capital gains income represents the major source of income for the wealthiest Americans. So the original intent of the progressive tax code, that the tax burden should only fall on the wealthiest American’s, was turned upside down. 

For a glimpse of the problem with our current tax structure, see the US states map at the following URL to see how much more the bottom 20% are paying  in taxes, as a percentage of income, over the top 1%.

The graph below shows the 99 year history of tax rates for four incomes levels in the US. The data is adjusted for inflation and reflect the current value of the dollar.  Tax rates for those making one-million dollars are in blue, those making $100,000 are in  pink, those making $50,000 (approx. median household income) are in brown, and those making $25,000 (half of all American make less than $26,364) are in black.  All rates are based on the married, filing jointly category.  The tax information begins in 1913 and continue through 2011.

See data source here:

What the graphic says to me is that for most of the last 100 years the wealthiest Americans have been paying more taxes than they are today, a lot more.  Also, there was a period from around 1932 to 1988 when tax rates were lower for the working poor than for middle Americans.  I also noticed that beginning in the early 1980's the tax brackets for the wealthy began collapsing until 1987 when a person making a million dollars a year was paying the same tax rate as someone making $117,760 per year.  This had the effect of adding millions of tax payers into the same federal tax bracket as the ultra-wealth.  From a political perspective, they became a single voting block on the issue of taxation.  Also note that the tax rates for the two lower incomes jumped significantly in 1942-1946 and has been relatively steady since, decreasing only slightly during the Reagan administration when taxes on the wealthiest Americans began dropping sharply.  Remember that mantra in the 80's, "It's not what you make, it's what you keep."  This was never truer than for the wealthiest among us.

See Raw Data Here

The Rise and Fall of the US Progressive Tax Structure

Below is a companion chart to the 99 Year History of Tax Rates in America  (Click Here to see chart).  This graph charts the number of tax brackets into which income was divided over the years.  Looking back, it is apparent that our progressive tax structure had many more tax brackets separating rich and poor for most or hour history.  There was a peek of 56 income tax brackets in 1918.  In 1924 (the Roaring 20's) that number was compressed to just 23 tax brackets.  The number of tax brackets fluctuated over the next 62 years but maintained an average of 25 brackets until the 1980's.

In 1981 the first of Ronald Regan's tax cuts was passed dropping the top tax rate from 70% to 50%.  Five years later his Tax Reform Act of 1986 dropped the top tax rate again to 28% while raising the bottom rate from 11% to 15% where it remains today.  The 1986 law also collapsed the number of tax brackets from 15 in 1984 to 5 in 1985.  While lowering the top tax rate for the rich from 70% to 28% was a huge boost for the wealthiest Americans, compressing the top 10 tax bracket helped assure that the changes would not be undone.  The reduction in tax brackets meant that the number of people in the top earners bracket went from tens of thousands of the riches voters to many millions of voters including those with much more modest incomes. By lumping together people making over $300,000 with those earning many  times that amount the change created a large voting block of voters who would oppose future tax hikes.

During these same years the Regan administration began deregulating the banking and finance industries leading to more and more wealth building opportunities for those already blessed with riches.  Ronald Reagan was following the economic path created by the economist, Milton Friedman, who, in turn, was influenced by the Objectivissm philosophy of Ayn Rand.  Ayn Rand believed that altruism and self-sacrifice for others is evil.  See more here]! 

Source Material:  See Raw Data Here, and Tax Reform Act of 1986


  1. Your figures are in error. The taxes for both Clinton and Bush were calculated using the maximum rate for that selected income. For instance the Clinton 1999 tax rate on 30K was 28%, which is what they used to get the 8400 figure. However taxes are not calculated that way. The first 25K of income would have been 2013 tax brackets at the lower 15% bracket first, thus yielding a much lower figure than what you show.I am not arguing that Bush doesn't have lower taxes. He certainly does. Of course he obtained his lower tax brackets by using deficit spending and increasing the national debt. Add back in the interest payments we'll be making and I bet Bush actually cost taxpayers far more than Clinton ever did.

  2. Assuming what you say is so, and I will have to check but suspect you are correct, then my point is even stronger that taxes on the wealthiest has declined dramatically relative to lower income citizens, this contributing even more to the wealth and income disparity we have today. Thank you.

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