Back in 2014 and into 2015, I posted a multi-part series of posts about the history of marriage in the tax code. In 2016 I was asked to condense that series into a CPE presentation. Here are excerpts from that presentation. This series of posts will cover a lot of the same ground as was covered three years ago, but hopefully with a little bit fresher perspective.
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It didn’t take long for Congress to add complexity to the income tax system that seemed so simple when it was first implemented in 1913.
As referenced earlier, the income tax of 1913 was straightforward: one tax bracket, no filing statuses, and large exemption amounts. Only 2% of households even had to file a tax return. This is how things remained through 1916.
But then the United States entered World War I. The Revenue Act of 1917 was passed in an effort to raise money for the war effort.
The old exemption amounts of $3,000 for unmarried people and $4,000 for a married couple (the equivalent of approximately $73,000 and $97,000 in today’s dollars) were reduced to $1,000 for unmarried people and $2,000 for a married couple or for a single person raising children. Taxpayers were also entitled to an exemption of $200 per dependent.
For a single person with no children, this means (in today’s dollars) the exemption amount dropped from $73,000 to $19,000. For married couples, the exemption amount (in today’s dollars) dropped from $97,000 to about $38,000.
Suddenly the tentacles of taxation touched more people — millions were drawn into the tax system.
The Tax Analysts “Tax History Project” website explains:
When returns for 1918 began to arrive, those from 1916 had not been audited, let alone ones from 1917. The number of returns filed in 1918 was five times greater than the number from 1917. Subsequent increases only added to the burden. All told, the number of returns increased more than 1,000 percent between 1916 and 1921.
In 1916, only 437,036 tax returns were filed. In 1917, 1,832,132 tax returns were filed. By 1920, 7,259,944 tax returns were filed.
The tax brackets also became less friendly. In 1917, the lowest tax rate within the tax bracket was increased to 2% on the first $2,000 of taxable income. This was just the first change; by 1919 the lowest rate was set at 4% on the first $4,000 of taxable income.
The original 1913 tax brackets ranged from 1% to 7%. The new tax brackets had a range of 4% to 73% — there were a total of 56 brackets. The 1919 brackets are published in all their glory on the chart below.
| 1919 Tax Brackets | ||
| Taxable Income (1919 Dollars) | Tax Rate | Taxable Income (2016 Dollars) |
| $0 – $4,000 | 4.0% | $1 – $55,493 |
| $4,000 – $5,000 | 8.0% | $55,493 – $69,366 |
| $5,000 – $6,000 | 9.0% | $69,366 – $83,239 |
| $6,000 – $8,000 | 10.0% | $83,239 – $110,986 |
| $8,000 – $10,000 | 11.0% | $110,986 – $138,732 |
| $10,000 – $12,000 | 12.0% | $128,732 – $166,479 |
| $12,000 – $14,000 | 13.0% | $166,479 – $194,226 |
| $14,000 – $16,000 | 14.0% | $194,226 – $221,972 |
| $16,000 – $18,000 | 15.0% | $221,972 – $249,719 |
| $18,000 – $20,000 | 16.0% | $249,719 – $277,465 |
| $20,000 – $22,000 | 17.0% | $277,465 – $305,212 |
| $22,000 – $24,000 | 18.0% | $305,212 – $332,958 |
| $24,000 – $26,000 | 19.0% | $332,958 – $360,705 |
| $26,000 – $28,000 | 20.0% | $360,705 – $388,451 |
| $28,000 – $30,000 | 21.0% | $388,451 – $416,198 |
| $30,000 – $32,000 | 22.0% | $416,198 – $443,944 |
| $32,000 – $34,000 | 23.0% | $443,944 – $471,691 |
| $34,000 – $36,000 | 24,0% | $471,691 – $499,437 |
| $36,000 – $38,000 | 25.0% | $499,437 – $527,184 |
| $38,000 – $40,000 | 26.0% | $528,184 – $554,930 |
| $40,000 – $42,000 | 27.0% | $554,930 – $582,677 |
| $42,000 – $44,000 | 28.0% | $582,677 – $610,423 |
| $44,000 – $46,000 | 29.0% | $619,423 – $638,170 |
| $46,000 – $48,000 | 30.0% | $638,170 – $665,916 |
| $48,000 – $50,000 | 31.0% | $665,916 – $693,663 |
| $50,000 – $52,000 | 32.0% | $693,663 – $721,409 |
| $52,000 – $54,000 | 33.0% | $721,409 – $749,156 |
| $54,000 – $56,000 | 34.0% | $749,156 – $776,902 |
| $56,000 – $58,000 | 35.0% | $776,902 – $804,649 |
| $58,000 – $60,000 | 36.0% | $804,649 -$832,295 |
| $60,000 – $62,000 | 37.0% | $832,295 – $860,142 |
| $62,000 – $64,000 | 38.0% | $860,142 – $887,888 |
| $64,000 – $66,000 | 39.0% | $887,888 – $915,635 |
| $66,000 – $68,000 | 40.0% | $915,635 – $943,381 |
| $68,000 – $70,000 | 41.0% | $943,381 – $971,128 |
| $70,000 – $72,000 | 42.0% | $971,128 – $998,874 |
| $72,000 – $74,000 | 43.0% | $998,874 – $1,026,621 |
| $74,000 – $76,000 | 44.0% | $1,026,021 – $1,054,367 |
| $76,000 – $78,000 | 45.0% | $1,054,367 – $1,082,114 |
| $78,000 – $80,000 | 46.0% | $1,082,114 – $1,109,860 |
| $80,000 – $82,000 | 47.0% | $1,109,860 – $1,137,607 |
| $82,000 – $84,000 | 48.0% | $1,137,607 – $1,165,353 |
| $84,000 – $86,000 | 49.0% | $1,165,353 – $1,193,100 |
| $86,000 – $88,000 | 50.0% | $1,193,100 – $1,220,846 |
| $88,000 – $90,000 | 51.0% | $1,220,846 – $1,248,593 |
| $90,000 – $92,000 | 52.0% | $1,248,593 – $1,276,339 |
| $92,000 – $94,000 | 53.0% | $1,276,339 – $1,204,086 |
| $94,000 – $96,000 | 54.0% | $1,204,086 – $1,331,832 |
| $96,000 – $98,000 | 55.0% | $1,331,832 – $1,359,579 |
| $98,000 – $100,000 | 56.0% | $1,359,579 – $1,387,325 |
| $100,000 – $150,000 | 60.0% | $1,387,325 – $2,080,988 |
| $150,000 – $200,000 | 64.0% | $2,080,988 – $2,774,650 |
| $200,000 – $300,000 | 68.0% | $2,774,650 – $4,161,975 |
| $300,000 – $500,000 | 71.0% | $4,161,975 – $6,936,625 |
| $500,000 – $1,000,000 | 72.0% | $6,936,625 – $13,873,250 |
| $1,000,000 + | 73.0% | $13,873,250 + |
One thing that did not change during this period was filing statuses – there were still no filing statuses and there was still just one tax bracket that applied to everyone. Married couples received no preferential treatment.
But just as in 1913, most married couples continued to file joint tax returns. Indeed, the percentage of joint returns filed in 1920 was actually slightly higher that the percentage of joint returns filed in 1913 (98.0% in 1920; 97.6% in 1913). By 1923, the percentage of joint returns had decreased (to 96.4%) but joint returns were still the overwhelming choice for most married couples.
In Part 4, we’ll examine why joint returns were so common, and look at a few examples using 1920 tax brackets.