The US has federal tax brackets, which have varied over time, with the highest rate going from 7% in 1913 to 92% post-WWII. The constitutionality of income tax was challenged in 1895, but the 16th amendment ratified in 1913 made modern taxation possible. Tax rates are not comparable over time due to factors such as tax deductions and lobbying for tax breaks.
All modern industrialized nations tax the income of their citizens. Most vary their tax rates based on how much income is taxed. In the United States, these rate variations are codified, enforced by the Internal Revenue Service (IRS) and are commonly known as federal tax brackets.
The constitutional responsibility to raise revenue for the operation of the United States government rests with the United States Congress, and they have the responsibility to establish federal tax brackets. Prior to 1895, the United States Congress collected income taxes with federal tax brackets somewhat similar to modern practice. The constitutionality of the law was challenged in a case titled Pollock v. Farmers’ Loan Trust. In 1895, the United States Supreme Court held that the constitution forbids that particular approach to taxation and all tax brackets were removed from consideration. The sixteenth amendment to the constitution was ratified by the states in 1913, making possible the modern approach to taxation, including the use of federal tax brackets.
The highest US federal tax bracket has ranged from a 7% tax rate, applied to income over $500,000 United States Dollars (USD) in 1913, to a 92% rate applied to income over $400,000 USD in the post-World War II era. By 2011, the highest federal tax bracket had been reduced to a rate of 35%, applicable to income above $379,150 USD. According to the US Bureau of Labor Statistics, $500,000 USD in 1913 had the same purchasing power as more than $10,700,000 USD in 2009.
United States tax rates are not comparable over time due to many factors, including when it comes to tax deductions. There were very few tax deductions allowed in the early years of United States tax law, although the personal exemption deduction was set at an amount that could support a household for a full year. The practice of using high levels of federal taxes to pay for the costs incurred by the government in World War II spawned a new industry: lobbying for tax breaks for various corporate interests. These tax breaks, which became so-called tax shelters, made it possible for him, even in 1988, to earn over $1 million dollars a year and pay almost no income tax. Many of the tax shelters from that era are no longer found in the US tax code, a situation enthusiastically supported by most economists who believe that tax shelters result in a misallocation of resources.
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