A Short History Lesson on Income Taxes

By: Mike Earl

Quiz question: when did the US Government begin taxing individual American citizens on their earned income?

Answer: just over 100 years ago, with the passage of the 16th Amendment to the Constitution in 1913.

The 1913 tax rates started at 1% and topped out at 7%. That first tax bracket of 1% ran all the way up to the first $463,000 of income (in today's dollars). The top bracket of 7% did not kick in until you hit $11,500,000 of income (in today's dollars). Yes, you read those numbers correctly. And no, this is not a joke.

So, under the 1913 tax rates, a 2016 family with a household income of $125,000 would owe a mere $1,250 in Federal income taxes. Where do we sign up to opt for those tax rates? 

Needless to say, many things have changed since then.

As always, The Wealth Group is closely monitoring developments in tax law changes, with an eye toward reducing our clients' long-term income tax burden.

Source: Michael Kitces