Monday, April 15, 2013

1913 Income Tax Starts at 1%

Tax returns are due today: April 15, 2013.  To make note of this day and provide a glimpse as to how federal taxes started exactly 100 years ago, I've attached page 1 of form 1040 from 1913 below.

Top Tax Rate was 7% in 1913

The tax rate for the vast majority of people, after the standard deduction of $3,000 and up to $20,000 annual income, was 1%.   There was another 1% (2% top rate) on income over $20k up to $50k, 3% on income of $50k to $75k.  The top rate on income over $500,000 was 7%.

Four years later, the tax rate was 77% or an eleven-fold-but that's another story.

Put This In Perspective

Prices (and presumably wages) are roughly 25 times higher now compared to 1913, so income of $20,000 in 1913 is equivalent to $500,000 today.  So, the 1% income tax covered incomes up to $500,000 (in today's dollars).  

Since the standard deduction was $3,000 or about $75,000 in today's prices, the vast majority of people did not pay any income tax at all.  The top rate was 7% on income over $500,000 (or $12.5 million in today's dollars).

The Federal Reserve act passed in 1913 and this body is responsible for the 23 fold price inflation (at least) in 100 years.  That's 2,300% over 100 years!  The Federal Reserve was created to maintain "price stability" and "economic growth."  What a joke! Prices went up 110% from 1913 to 1921 alone!  I'll cover this disaster in another blog entry.

IRS Form 1040 in 1913

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