25 April 2011

A brief history of the federal income tax

The y-axis shows number of tax returns filed divided by number of households.
In 1913, 358,000 returns were filed which was 2% of all households. While the top tax rate was 7% on incomes above $500,000 ($10.9 million in 2010 dollars), the first $3,000 ($65,331 in 2010 dollars) was exempt from the the income tax for single persons.

In 1918, 4,425,000 returns were filed which was 20% of households. Now the exemption was $1,000 ($14,352 in 2010 dollars) while the top rate of 77% was now applied on income over $1,000,000 to pay for World War I ($14.3 million in 2010 dollars). There was high inflation during and right after the war so by the peak in 1923 almost 40% of households were being taxed due to bracket creep. This was fixed in 1925.

In 1942, 36,619,000 returns were filed and the exemption had been dropped to $500 for single persons ($6,613 in 2010 dollars). For the first time the number of income tax returns filed exceeded the number of households.
And the last 70 years the data are self-evident.  These data are potentially relevant re the currently ongoing discussion re raising tax rates on America's wealthiest people.

Graph and text from Visualizing Economics, via Yglesias.


  1. Though this is graph is very interesting, I'm not clear why it's relevant to tax policy changes of any type. For all the years beyond the 1940s, it just points out that everyone has to file a tax return.

  2. Actually, I think it reflects the fact that during and after WWII, women were more likely to work, so many households filed two returns. This explains why the graph shoots up in 1941, when men went off to fight and women started turning out war materiel in the factories.

  3. Just because someone files a return dosnt mean they are paying taxes. The problem isnt that we cant get people to comply with the law, its that the law allows too many people to avoid paying.


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