The Internal Revenue Service has issued a data release from the Statistical Data Section of the service, and for those who are interested in a historical perspective of taxation in the United States, this release is a fascinating read.
Income taxes as we know them got their start in 1913 with the ratification of the Sixteenth Amendment to the Constitution. The first Form 1040 made its appearance that year, a mere shadow of the form we use today. The entire form was four pages: a page summarizing your income and deductions and on which you computed your income tax (eight lines), a page for listing the details of your income (12 lines), a page for listing your deductions (seven lines), and, if you can imagine, only one page of instructions.
The data release provides a detailed history of how taxes have grown over the past 89 years, including a complete chart listing the personal exemptions, lowest and highest tax bracket rates, and the tax base for regular income tax for each of those years.
In 1913, personal exemptions were $3,000 for single taxpayers and $4,000 for married couples (yes, the marriage penalty dates back to the very first income tax return). By 1917, the exemption was equalized, with single taxpayers getting $1,000 and married couples getting $2,000. Starting in 1921, married couples did better than their single counterparts, with singles getting an exemption of $1,000 and married couples getting to deduct $2,500.
The original income tax rate in 1913 was only 1% on incomes under $20,000, and the highest rate, 7%, didn't kick in until taxable income exceeded $500,000. In 1916 the highest rate had risen to 15%, but that only applied to incomes over $2 million. But by the next year the highest tax rate jumped to a whopping 67% and climbed to 77% in 1918.
The highest tax rate in history occurred in 1944 and 1945, when the top rate was 94% and incomes over $200,000 were affected. The government was trying to pay for World War II. By comparison, our 2002 top rate of 38.6% on incomes over $307,050 seems pretty tame.
The data release is not particularly lengthy at 10 pages, and half of that is footnotes explaining how the tax rates and exemptions were applied. The report is well worth an evening's bedtime reading.