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Thu Mar 8, 2012, 10:28 AM

A Century of Tax Bracket Thresholds

Last edited Tue Apr 24, 2012, 09:52 AM - Edit history (2)

In many of the recent debates (and outright propagandizing) about taxes, one of the biggest obstacles to rational discussions on the topic -- other than pure anti-tax ideology – is simple ignorance of how taxation used to work in this country, especially progressive taxation. For instance, the whole debate as to whether a couple with a $250K income was “rich” was just nuts: why act like there was one simple dividing line?

The big reason for that is the “simplification” of the income tax system since the 1980s that has reduced the number of tax brackets drastically: from as few as two (1987-1990) to the current six (2002-present). Through most of the 20th Century, including all but the last few years of the Cold War, many more brackets were in place, making more gradations between income levels and making finer distinctions between who was trying to get ahead and who already was.

It’s fairly easy to find charts showing the history of the top marginal tax rate. It’s harder to find ones that illustrate the rest of the story clearly: what the taxes were for people well away from the top margin, what the people at the top actually paid once they’d made use of the vaunted loopholes, etc. The information is available, but hard to boil down to a bumper sticker.

These two charts are part of my effort to fill in some of those gaps in the bigger picture. They don’t deal with rates at all, just the breakpoints between different rates. Using the CPI inflation adjusted numbers from the Federal Individual Income Tax Rates History of The Tax Foundation (http://www.taxfoundation.org/taxdata/show/151.html). I’ve graphed the thresholds between one tax bracket and the next in 2011 dollars. The first is for the entire history of the income tax (1913-2011), and the second is the past 60 years (1951-2011). To keep it simple, these are for single-filers, but it is representative over the broader theme.

Remember, we’re just talking about bracket thresholds, so “series” just represents the number of brackets in a given year, not that they are the same rate or otherwise related. In 1932 and 1933 there were over 50 brackets, and only 4 of them dealt with incomes below the equivalent of $200K.

Gee, look at those brackets reaching way, way up into the 0.01%: incomes over the equivalent of $10 million, $30 million, even $80 million. Still want to quibble whether $250 thousand is “rich” (or rather, $200K since we’re talking single-filers in this chart)? Without even addressing levels that many more will agree fit that description?

The 1951-2011 chart is clearer, both because the period lacks those tens-of-millions brackets and because this is the period most familiar to most people. Changes in the tax code in the 60s, 80s, 90s and 2000s can be seen clearly.

Note how many brackets affected incomes above $200K before the Reagan era. Also note how there were more at lower levels below that level too.

Also note how it collapsed after Reagan: both at the high end (though inflation took its toll earlier) and by hollowing out gradations at the low end. From 1988-1990 there were only two rates: 15% up to ~$34,000, and 28% on everything above that. Very nearly a flat tax, and the one for which George H. W. Bush paid when it proved unsustainable and he had to go back on his “read my lips, no new taxes” line to add a higher bracket. Even when higher brackets were implemented under Clinton, you can still see the fruits of the conservative’s assault on the very idea of progressive taxation.

On edit (26 March 2012): Welcome to those following the link from Avedon Carol's blog The Sideshow.

Following one of the comments, I've added versions on a log scale. However, in ordinary, everyday terms it is only used in this context when referring to an "x-figure income". The median household income is in the ballpark of $50,000, and the vast majority of working Americans are somewhere in that 5-figure range. While useful for some forms of analysis, I think the way a log scale flattens the distribution visually was not appropriate to the point I was making. With a linear scale, a reader can pick out there their own income lies, see the way it was treated differently in the past, and most importantly can easily pick out how incomes that were double, 5 times, 30 times, etc. their own were treated in the past.

Note: on this graph the "series" legend on the right stops at 23 due to space. Also present but not displayed in the legend are more brackets for years which had more, up to 55 in the early 1930s.

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Reply A Century of Tax Bracket Thresholds (Original post)
JHB Mar 2012 OP
lumberjack_jeff Mar 2012 #1
liberalmike27 Mar 2012 #2
JHB Mar 2012 #3

Response to JHB (Original post)

Thu Mar 8, 2012, 10:58 AM

1. Plot this on a logarithmic scale and it will be sensible. n/t


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Response to JHB (Original post)

Wed Mar 14, 2012, 05:17 PM

2. Been saying for years now

That it's insane that the top bracket stops at 380,000, when we've got people making millions a year.

One of Reagan's most sinister feats was making the top bracket 28,000 a year, so way, way more people paid whatever the top rate was.

This is a great chart, and it just shows what a free ride they are getting now, and why they've got money to control everything, the media, both parties, just about everything.

Besides, not only do they tend to only argue about the federal income tax, and never discuss all of the rest of them, and how they affect each level of earning. But instead of arguing about how much one pays in taxes, the argument should center around HOW MUCH IS LEFT AFTER YOU PAY TAXES!!!! There is your gauge of fairness!

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Response to JHB (Original post)

Mon Mar 26, 2012, 06:29 AM

3. Kicked for an update

Got a link from The Sideshow, Avedon Carol's blog. Avedon is a contributor to Eschaton (as "Not Atrios" and to Virtually Speaking on Blogtalk Radio.

Added log-scale versions, and an explanation why I think the linear-scale versions are better for what I was trying to show.

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