History of Taxation in US: Baby Boom years through Ronald Reagan

history of taxation in the us - baby boom years through ronald reagan

After the war was over in 1946, the top rate dropped slightly to 91% and the bottom rate dropped slightly to 20%.  It remained pretty constant until 1964.  It had a slight increase in rates in the early 50’s, but dropped back down to the 91% rate for the highest bracket and 20% for the lowest bracket.  One other thing that did happen during these years is that brackets were separated into Single, Head of Household, and Married Filing Separately.  Before that time there were different deductions and exemptions for married, single, etc.; but the tax brackets applied across the board.  When the changes were made, the highest tax bracket applied to Single and Married filing separately at $200,000.  It applied to Head of Household for those making over $300,000.  And it applied to Married Filing Jointly, if they were making over $400,000.

In 1964 the top tax bracket dropped to 77% (still very high by today’s standards) and the bottom tax bracket went down to 16%.   They dropped again to 70% and 14% respectively in 1965, where they remained until the Reagan administration during the 1980’s.  So for more than 15 years they remained pretty constant at 70% for highest income taxpayers and 14% for the lowest income taxpayers.

In 1982, the highest bracket dropped to 50% and the lowest bracket dropped to 12%.  Note, starting in 1977 there was a 0% bracket, which basically was a way of preventing lower income earners from being subject to tax. Basically, the $3,400 of what would otherwise be taxable income became non-taxable.  I did not include it because you are not paying tax in the 0% bracket.

In 1987, the top rate was lowered to 38.5% and the lowest rate was 11%.  Another significant thing that happened in that year is that the number of brackets was reduced to five.  This may not sound significant now, but there were 15 tax brackets in 1986 and many more than that during much of our history.  For instance, in 1977 there were over 30 different tax brackets for people filing head of household.

Then in 1988, tax brackets were reduced to two.   Lower income taxpayers were paying 15% (a slight increase).  The top (and only other tax bracket) was 28.5%.  The 28.5 percent bracket started at around $30,000 for married filing jointly taxpayers.   Keep in mind, this was around the time the first President Bush made his famous “read my lips” statement that there would be no new taxes.

Note, this was the lowest upper limit rates since before World War I.  However, the highest bracket began a lot lower.  The 28.5% bracket was higher than what those making around $30,000 were paying during and just after WW1.  For instance, people with taxable income between 30,000 and 32,000 (I told you there were a lot of tax brackets!) were only paying 22% during 1920.  That is, even though the highest rate was much higher right after WW1, it only applied to those making over $1,000,000.   In all, the late 80’s and the early 90’s is the closest we ever came to a flat tax.

To Continue: See Modern Day and Conclusions