I’ve been thinking about the unprecedented budget deficits the Obama administration is racking up. It has been said that these deficits are the highest since World War Two. Despite his claims, President Obama’s budget plans for cutting the deficit in half by 2010 would still leave an annual deficit in 2010 larger than any year under President Bush. It’s clear to me that the tax revolt parties on April 15th this year, were more about future tax increases than current tax rates. I decided it would be interesting to see what tax rates have been over the past 80years, especially after the World War Two deficits. In 1931, the highest federal tax bracket was 25% for all income over $100,000. Thanks to President Hoover, in 1932, the highest marginal rate increased to 63% of income over $1,000,000. At that time, the rate for income over $100,000 had increased to 56% from 25%. Talk about an increase! As if that wasn’t enough, our boy FDR increased the top rate to 79% on income over $5,000,000. Further, income over $100,000 was now taxed at 62%. Unsatisfied, in 1941 FDR increased the top rate to 81% on income over $5,000,000 and income over $100,000 was now taxed at 69%.
Then things got really bad… In 1942, the top tax rate increased to 88% for income over $200,000. Income above $100,000 was taxed at 85%. In 11 years, the tax rate on income over $100,000 increased from 25% to 85%. In 1944, the top bracket increased to 94% on income over $200,000. The rate on income over $100,000 increased to 92%. In 1964, the marginal tax rate decreased to 77% on income over $200,000. Income over $100,000 was taxed at 76.5%. In 1965, the top bracket decreased to 70% on income over $100,000. It stayed there until 1982 when President Reagan reduced the top marginal rate to 50% on income over $41,500. In 1987, rates were reduced again to 38.5% on income over $45,000. Then, the greatest year ever, in 1988, the top tax rate decreased to 28% on income over $89,560.
World War 2 ended in 1945. It took 43 years to pay down that debt and be able to reduce tax rates! The future looks scary. I believe this makes the case for investing in Roth IRA and Roth 401K instead of traditional IRA and 401K. Rates are definitely going up.
http://www.taxfoundation.org/publications/show/151.html
Last 3 posts by Jason
- You Can't Make This Stuff Up - February 19th, 2010
- Washington Gridlock - February 11th, 2010
- I Guess I'm Not the Only One Who Thought This - January 28th, 2010
I know your post covered a long period of time in which there were a myriad of varying economic circumstances, but I was curious if the sources you researched had any insight to whether the eventual decrease in taxes had more to do with greater tax revenues via economic booms or a decrease in government spending?
Not to be a harbringer of doom, but do you think there is any likelihood that there would ever be a tax change that removes the benefits of Roth IRAs? (begin taxing the earnings) I mean, if the “populist cries” grow loud enough, couldn’t this be pegged as another loophole?
I think there is some ex-post facto law that basically says you can’t change the rules after the game has started. I think that’s why there was some constitutional considerations that wouldn’t have allowed Congress to raise taxes on bonuses already paid. There is risk of getting rid of the Roth exemption on a go forward basis, but I think any money you put in while the law is there, would not be taxable in the future.