This post is part of a long-term project I’ve been working on regarding the history of marriage in the tax code.
As I finish sections of the research paper I’m working on, I’ll post them here. This is a big project, one that will likely take years, literally, to finish, so I can’t guarantee when the next post on this topic will appear.
In Part 1, I talked briefly about how taxes worked back in 1913. In this part, I want to dive a little deeper.
The tax brackets were broad from 1913 through 1916. For example, a tax rate of 1% applied to taxable income of $0-$20,000. Adjusted for inflation, a taxpayer could have income of nearly $465,000 and still be in the 1% range of the tax bracket.
The rate increased to 2% on income between $20,001-$50,000. The top rate was 7% and applied to taxpayers with taxable income of more than $500,000 (the modern-day equivalent of $11.6 million).
Dual-income married couples had little reason to file separately, because the vast majority of them fell in the 1% range of the tax bracket.
John and Jane are a married couple. John has taxable income of $10,000; Jane has taxable income of $5,000. In 1913, their tax-filing options were: file a joint return showing $15,000 of taxable income, or file separate returns. Either way, they would arrive at the same amount of tax owed:
- $10,000 x .01 =$100 tax; $5,000 x .01 = $50 tax; Total tax $150
- $15,000 x .01 = $150 total tax
In 1913, 97.6% of married couples filed joint returns (out of 278,835 tax returns filed by married couples in 1913, 272,153 were joint returns [or returns of one-income couples]; 6,682 were separate returns). Source: a study by a certain “Miss Coyle” in a Treasury Department staff memo. Ms. Coyle’s complete memo can be found at this link: http://taxhistory.tax.org/Civilization/Documents/marriage/hst28695/28695-1.htm
Not only were the tax brackets broad, but many Americans were exempt from owing taxes because of generous exemption amounts. The exemption amounts were $3,000 for a single person or $4,000 for married couples (the equivalent of about $70,000 and $93,000 in modern-day dollars). A person with income below those amounts owed no tax and did not need to file a tax return.
Big Changes on the Horizon
America entered World War I in 1917. Wars take money. Congress changed the tax code with the Revenue Act of 1917.
Exemption amounts were slashed. The simple tax bracket of 1913 was replaced with a more progressive bracket with 21 marginal rates (yes, 21!) ranging from 2% to 67%.
Millions of people were drawn into the tax code, and taxes became more of a burden.
This ties into our discussion of marriage in the tax code.
We’ll dive deeper into the 1917 changes in Part 3.