Back to George Bush’s famous read my lips statement. In 1991 and 1992 Congress added one additional bracket of 31% for married couples making over $82,000 per year. It was only 2.5% additional tax on higher end taxpayers, and yet it hammered him politically. I guess you do not make promises you cannot keep. In 1993 to 2000 under President Clinton, we went to five tax brackets ranging from 15% to 39.6%. Under George W. Bush, we went to 6 tax brackets ranging from 10% to 35%. Under Obama, we have six tax brackets that range from 10% to 39.6%.
In summary, the first four years after the 16th Amendment was passed, tax rates were very low by today’s standards. But after the United States entered WWI, tax rates went up significantly. The highest rate in our history was in 1944 (towards the end of WWII), 94% for those making over $200,000. The lowest the top bracket dropped to after WWI was 28.5% under Reagan, but started for those making around $30,000. Between 1946 and 1964, the period of the baby boom, tax rates remained at 91% for the highest bracket and 20% for the lowest bracket. From 1965 to the early 1980’s the top tax bracket was 70% and the lowest tax bracket was 14%. Thus, during some of our most prosperous years as a nation, tax brackets were much higher than they are today.
Of course, there were a lot of other factors leading to the prosperity of those years. We were basically the only industrialized nation not torn apart by WWII. Much of Europe was ravaged by the war. Thus, we had a huge trade surplus: we were a huge manufacturer and exporter of goods. Needless to say, we live in a much more competitive environment today.
In all, our tax rates today are higher than they were in the late 1980’s and early 1990’s, at least for higher income taxpayers. But our rates are lower today than most of our history (i.e., since the 16th Amendment was passed). Obviously, we existed for roughly the first 140 years without an income tax.