The second major tax cut was approved in June of 1924 and it reduced marginal income tax rates by an average of 7.5 percent. Much of the following discussion relies upon two sources. Mellon was largely successful in getting his tax ideas enacted during this era. Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. When rates had been increased between 1915 and 1918 the higher-income taxpayers had found various ways to shelter their income from taxes. Rather than falling, real federal personal income tax revenues increased by 0.5 percent with this large tax cut. The author has no business relationship with any company whose stock is mentioned in this article. Federal Tax Brackets | What of the rise in income inequality that did occur? In other words, when politicians attempt to "soak the rich," the rest of us take a bath. This means lower income citizens bear a lower share of the tax burden - a consequence that should lead class-warfare politicians to support lower tax rates. To report a factual error in this article. It seems that marginal tax rates are not as informative as one might think: http://www.baldingsworld.com/2012/11/30/the-obsession-with-nominal-tax-rates-or-the-twinkie-romanticism/ The 1920s saw a dramatic reversal of the World War I era tax policies. In the chart below, you see the evolution of tax rates in the 20's. Federal income tax rates were last changed two years prior to 1920 for tax year 1918, and the tax brackets were previously changed in 1917. Most countries returned to the gold standard. What happened? President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. (1920 was the first year of the 1920-21 depression and is not an appropriate starting point.) It has remained this way as indicated by the vestiges of the progressive marginal rate structure which remain in the code. Please, enable JavaScript and reload the page to enjoy our modern features. This tax cut lead to an increase in real total federal personal income tax revenues of 5.9 percent. So as it turns out, cutting tax rates 65% - 85% only resulted in about a 30% reduction in receipts.
There are certainly more questions at play than what is fair. This is a very poor way to say what actually happens. I'm a bit surprised that you decided to write about tax rates without knowing these basic facts. It concerns me that such a simple path to a reliable source was not used despite its ready availibility. Help us keep Tax-Brackets.org up-to-date!
To see what effect this had, I calculated income shares which excluded realized capital gains, and when this was done, essentially all of the rise in income inequality in the twenties disappeared. The tenacity with which supporters of progressive tax rates cling to this idea is indicative of their redistributionist philosophy. [4] The government ran surpluses which allowed it to reduce the federal debt by 25 percent. Good tax policy has a number of interesting side effects. In fact an earner pays the listed tax rate on income in each bracket. Real GDP had also grown 22% during this time frame. Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. By 1925 the highest marginal rate was 25 percent for $100,000 and more net income. While we take all precautions to ensure that the data on this site is correct and up-to-date, we cannot be held liable for the accuracy of the tax data we present.