U.S. income tax brackets have varied (sometimes wildly) over time
Income tax law is complex and many of its variables change over time. One much-discussed example is its progressivity―that is, how much the tax rate increases when taxable income increases. In the United States, this progression is determined by a system of brackets: Once a taxable income threshold is reached, any additional income is taxed at a higher rate (the so-called marginal tax rate). The number of those brackets, the incomes at which they kick-in, the associated tax rates, and what constitutes taxable income are all elements in the complex formula of taxes.
The graph shows just two elements of that formula: the first and the last marginal tax rates. This highlights how much these rates have varied through history (compared, let’s say, with the past decade or two) and also how high they have been. In 1944, for example, the top-bracket tax rate was 94%! It also shows that some changes were absolutely brutal: 1917 to finance WWI and 1932 to finance the New Deal. WWII, despite the high tax rates, was actually financed mostly through debt (war bonds), which required keeping tax rates high to pay it off.
How this graph was created: Search for “tax bracket,” select the series, and click on “Add to Graph.”
Suggested by Christian Zimmermann.
View on FRED, series used in this post: