U.S. Tax Laws (In chronological order with brief descriptions..)
The Revenue Act of 1862 was passed by Congress to help fund the Civil War. The Act was signed into law by President Abraham Lincoln, introducing the first progressive rate income tax to the country. This was near the beginning of the Gilded Age.
The Revenue Act of 1913 - The Tariff Act imposed the federal income tax following the ratification of the Sixteenth Amendment. It was signed into law by President Woodrow Wilson on October 3, 1913. Less than 1% of the population paid federal income tax at the time. The act was applicable to incomes for 1913, 1914, and 1915. From 1913 to 1921 capital gains were taxed as ordinary income..
The Revenue Act of 1916 and War Revenue Act of 1917 - The Income Tax Act of 1916 compelled employers to withhold federal income taxes from workers' paychecks and pay them directly to the government on the workers' behalf. The top bracket on income above $2 million was raised from 15% to 67%. The Act also instituted the federal estate tax. An excess profits tax was also introduced. The entry of the United States into World War I greatly increased the need for revenue.
Revenue Act of 1918 - The top rate was hiked to 77% to income above $1,000,000. Even in 1918 only 5% of the population paid federal income taxes (up from 1% in 1913), and yet the income tax funded one-third of the cost of World War I.
The Revenue Act of 1921 (near the end of the Gilded Age) was the first Republican tax reduction following their landslide victory in the 1920 federal elections. The new Secretary of the Treasury Andrew Mellon argued that significant tax reduction was necessary in order to spur economic expansion and restore prosperity. Mellon obtained repeal of the wartime excess profits tax. The top marginal rate on individuals fell from 73 to 58 percent by 1922, but preferential treatment for capital gains was introduced at a rate of 12.5 percent (for assets held at least two years). Mellon had hoped for more significant tax reduction. In 1921 a rate of 10 percent was levied on the net income of corporations and 12.5 percent thereafter. In 1926 it was raised to 13.5 percent, but in 1928 it was lowered to 12 percent.
The Revenue Act of 1932 raised tax rates across the board, with the rate on top incomes rising from 25 percent to 63 percent. The estate tax was doubled and corporate taxes were raised to from 12 to 13.75 percent. It was signed into law by Republican President Herbert Hoover.
The Revenue Act of 1934 raised individual income tax rates marginally on higher incomes. The top individual income tax rate remained at 63 percent. It remained at 13.75 on corporations. The Act was signed into law by Democrat President Franklin D. Roosevelt. From 1934 to 1941, taxpayers could exclude percentages of capital gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.
The Revenue Act of 1935
raised taxes on higher income levels, gifts, estates and corporations, by
introducing the Wealth
Tax. It was a new graduated tax that took up to 75 percent of the highest
incomes in taxes, starting at incomes above $50,000. Capital gains: 31.5% max
rate. It was signed into law by President Franklin D. Roosevelt to generate
needed funds for the projects of his Second New Deal. The 1935 Act also
was popularly known at the time as the "Soak the Rich" tax. Many
wealthy people used loopholes in the existing tax code to evade these taxes, and
the Revenue Act of 1937 cracked down on this by revising tax laws and
The Revenue Act of 1936 established a surtax on corporations on "undistributed profits", i.e. profits not paid out in dividends: 27% max rate. Corporations: 15% max rate (later 19%). Capital gains: 39% max rate.
The Revenue Act of 1940 increased individual income tax rates, increased corporate tax rates to 33% (later top rate increased to 35%), and temporarily increased most excise tax rates to 30-50%. The crisis of World War II led Congress to pass four excess profits tax statutes between 1940 and 1943. After the war in 1945 Congress repealed the tax, effective 1 January 1946.
The Revenue Act of 1942
increased individual income tax rates, increased corporate tax rates to 40% max.
The excess profits tax was replaced with a flat 90 % rate. Beginning in
1942, taxpayers could exclude 50 percent of capital
gains on assets held at least six months or elect a 25 percent alternative
tax rate if their ordinary tax rate exceeded 50 percent.
The Revenue Act of 1943 increased federal excise taxes on, among other things, alcohol, jewelry, and telephones - and raised the excess profits tax rate from 90 % to 95 %.
The Current Tax Payment Act of 1943 re-introduced the concept of tax withholding in the United States. (Tax withholding had been introduced in the Tariff Act of 1913 but repealed by the Income Tax Act of 1916.) The act was signed into law by President Franklin Delano Roosevelt.
The Revenue Act of 1945 after World War II repealed the excess profits tax, reduced individual income tax rates (the top rate fell from 94 percent to 86.45 percent), and reduced corporate tax rates (the top rate dropped from 40 percent to 38 percent). Democrat President Harry S. Truman.
The Revenue Act of 1950 increased the top corporate rate from 38 percent to 45 percent. This act also introduced the concept of Unrelated Business Income Tax. The Korean War induced Congress to re-impose an excess profits tax, effective from July 1950 to December 1953. The tax rate was 30 percent of excess profits with the top corporate tax rate rising to 47%.
Revised Internal Revenue Code of 1954
- The Federal income tax on individuals, the 1954 Code imposed a progressive tax
with 24 income brackets applying to tax rates ranging from 20% to 91%.
Republican President Dwight D. Eisenhower 1952.
The Revenue Act of 1962 established a 7% investment tax credit and required information reporting to the government for interest and dividend payments. JFK.
The Revenue Act of 1964 - Reduced top marginal rate from 91% to 70%, reduced corporate tax rate from 52% to 48%, phased-in acceleration of corporate estimated tax payments (through 1970). Democrat President Lyndon Johnson.
The Revenue and Expenditure Control Act of 1968 created a temporary 10 percent income tax surcharge on both individuals and corporations through June 30, 1969. LBJ.
NOTE: Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts.
The Tax Reform Act of 1969 - The largest impact of the act was the creation of the Alternative Minimum Tax, which was intended to tax high income earners otherwise exempt from income taxes through various exemptions and deductions. The act lowered the maximum tax rate on earned income from 70% to 50%, but taxed long-term capital gains up to $50,000 taxed at a 25% "alternative" capital gains tax rate. The maximum tax rate above $50,000 is increased from 25 percent to 29.5 percent in 1970, 32.5 percent in 1971, and 35 percent in 1972 and later years. The alternative tax rate on corporate long-term capital gains income is increased to 28 percent in 1970 and 30 percent in 1971 and later years. Republican President Richard Nixon
The Revenue Act of 1971 helped establish the system of presidential public funding used in the United States. The Revenue Act also placed limits on campaign spending by Presidential nominees who receive public money and a ban on all private contributions to them. Beginning with the 1973 tax year, individual taxpayers were able to designate $1 to be applied to the Presidential Election Campaign Fund.
The Tax Reform Act of 1976 - The act increased the long term capital gains holding period from 6 months to 1 year. Republican President Gerald Ford.
The Revenue Act of 1978 - Reduced individual income taxes (widening tax brackets and reducing the number of tax rates), reducing corporate tax rates (the top rate falling from 48 percent to 46 percent), increasing the capital gains exclusion from 50 percent to 60 percent (effectively reducing the rate of taxation on realized capital gains to 28%), and repealing the non-business exemption for state and local gasoline taxes. Democrat President Jimmy Carter.
* In 1980, the United States enacted the Crude Oil Windfall Profit Tax Act . The Act was intended to recoup the revenue earned by oil producers as a result of the sharp increase in oil prices brought about by the OPEC oil embargo. Democrat President Jimmy Carter.
NOTE: Under Ronald Reagan. the top rates dropped from 70% to 28%
The Economic Recovery Tax Act of 1981 phased-in a 23% cut in individual tax rates over 3 years; top rates dropped from 70% to 50%, reduced estate taxes for the wealthy, and reduced capital gains rates from 28 percent to a maximum of 20 percent. This act slashed estate taxes and trimmed taxes paid by business corporations shorted the U.S. Treasury by $150 billion over a five year period. Republican President Ronald Reagan.
The Tax Equity and Fiscal Responsibility Act of 1982 (Pub.L. 97-248), also known as TEFRA, was a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before, and instituted 10% withholding on dividends and interest paid to individuals. Republican President Ronald Reagan.
Over a quarter century ago, in 1984, the Washington, D.C.- based Citizens for Tax Justice released its first in-depth report on how much America’s top profitable corporations were actually paying in taxes.
America’s top companies, this initial study found, were paying only 14.1 percent of their profits in taxes, less than a third of the corporate tax rate then in effect.
The Tax Reform Act of 1986 - The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15%. Capital gains rates were 15%/28%/33%/28%. The "bubble rate" of 33% raised the 15% rate to 28% for higher-income taxpayers. As a result, for taxpayers after a certain income level, this provided a flat tax of 28% (up from 20% in 1981). Republican President Ronald Reagan.
* On August 23, 1988, amid low oil prices, the Crude Oil Windfall Profit Tax Act was repealed when President Ronald Reagan signed P.L. 100-418, The Omnibus Trade and Competitiveness Act of 1988.
Omnibus Budget Reconciliation Act of 1990 - It increased income taxes by creating a new 31 percent individual income tax rate, but capped the capital gains rate at 28 percent. Personal exemptions were temporarily phased out through 1995. The tax limit cap on Medicare taxes was raised from a $53,400 income to $125,000 in income. Republican President George H. W. Bush
Omnibus Budget Reconciliation Act of 1993 - Created 36 percent and 39.6 income tax rates for individuals in the top 1.2% of the wage earners, created a 35 percent income tax rate for corporations, and the cap on Medicare taxes was repealed. Democrat President Bill Clinton.
The Taxpayer Relief Act of 1997 - The top capital gains rate fell from 28% to 20%. The 15% bracket was lowered to 10%. The act exempted from taxation the profits on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. This is for residences that were lived in for at least 2 years over the last 5. The estate tax exemption was to increase gradually to $1 million by the year 2006. Democrat President Bill Clinton.
Internal Revenue Service Restructuring and Reform Act of 1998 - The Act changed the holding period for long-term capital gain treatment from eighteen months to twelve months, effective for tax years that begin after December 31, 1997. The new lower rates for 18-month and five-year assets *capital gains) were adopted. Democrat President Bill Clinton.
The Economic Growth and Tax Relief Reconciliation Act of 2001 was a sweeping piece of tax legislation in the United States by Republican President George W. Bush for a $1.35 trillion tax cut program. It is commonly known as one of the two "Bush tax cuts". The Act made significant changes in several areas of the US Internal Revenue Code, including income tax rates, estate and gift tax exclusions. The changes were so large and numerous that many books and analysis papers were published regarding the changes and how to best take advantage of them. All the 2001 tax cuts were set to expire at the end of 2010 when Congress extended them.
The capital gains tax on qualified gains of property or stock held for five years was reduced from 10% to 8%. The Act reduced the rates of individual income taxes:
* the 15% bracket's lower threshold was indexed to the new 10% bracket
* the 28% bracket would be lowered to 25% by 2006.
* the 31% bracket would be lowered to 28% by 2006
* the 36% bracket would be lowered to 33% by 2006
* the 39.6% bracket would be lowered to 35% by 2006
Jobs and Growth Tax Relief Reconciliation Act of 2003 (Phase II of the Bush tax cuts) The capital gains tax decreased from rates of 8%, 10%, and 20% to 5% and 15%. Capital gains taxes remain at the regular income tax rate for property held less than one year. Taxes on "qualified dividends" were reduced to the capital gains levels. "Qualified dividends" includes most income from foreign corporations, real estate investment trusts and bank "dividends" that are nominally interest. Republican President George W. Bush
Tax Increase Prevention and Reconciliation Act of 2005 - The two most notable pieces of the bill are the extension of the reduced tax rates on capital gains and dividends and extension of the alternative minimum tax (AMT) tax reduction. Under current law, long-term capital gains and dividend income are taxed at a maximum rate of 15 percent through 2008. For taxpayers in the 10 and 15 percent tax brackets, the tax rate is 5 percent through 2007 and zero in 2008. The Conference Report extends the rates effective in 2008 through 2010. Without action, these rates would have increased after 2008. Republican President George W. Bush
Economic Stimulus Act of 2008 - Working stiffs got a $300 rebate. Republican President George W. Bush
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 - A two-year extension of the Bush tax cuts for the rich in exchange for extending unemployment benefits for the poor. (Also known as :the Obama Compromise")
~ The Historical Capital Gains Tax Rates ~
(Below) Click photo to enlarge
(Below) Click photo to enlarge