Anger is High but Tax Rates Aren't

No one enjoys taxes but a look at IRS tables makes you wonder what people really are complaining about.

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I am an equal opportunity tax basher. Watching Democrats and Republicans claim any mantle of fiscal responsibility is like viewing a two-man race whose contestants are running backwards to the starting line. How can you declare anyone a winner when they've never been in the race?

Still, it is scary to see people at Tea Party rallies and other meetings rant on about intolerable levels of taxation from Washington. First, the facts don't support that position. Second, we will need to figure out a way to raise taxes, not lower them, if we're going to make any serious dent in our horrendous budget deficits.

[See U.S. News's list of the Best Mutual Funds for 2010.] Our current fiscal spectacle is of more than passing interest to older Americans. It used to be that we spoke about the three-legged stool of retirement -- a pension, Social Security, and personal savings. Now, we talk about the three-legged chamber pot of our fiscal demise -- Medicare, Medicaid, and Social Security. Maintaining benefits in these programs is crucial to the well-being of older citizens. I believe that achieving this feat while cutting taxes is impossible.

According to a recent assessment by the Urban Institute-Brookings Institution Tax Policy Center, a typical family of four will pay 4.6 percent of its income in federal income taxes this year -- the second-lowest percentage during the past 50 years. Typical households, according to Congressional Budget Office data, had a total federal tax bill of 14.2 percent of their income in 2006, the second-lowest in 30 years. Total federal taxes include income, Social Security, and Medicare taxes.

Now, I know that Brookings is on the liberal side of the spectrum, so please let me know if you think there are better measures out there of our tax burden. For example, I'm pretty sure that state income and sales taxes have been going up, and wouldn't be surprised if our total tax hit doesn't look as good as it does at the federal level.

Another way of looking at federal taxes is at the actual tax brackets governing payment rates. Fresh from removing the annual displays of April 15 tax-hate graffiti and effigies, the stalwart folks at the Internal Revenue Service have provided me a history of tax rates dating to 1913. That's the ignominious year when the federal income tax was created. Don't miss that 100th anniversary in a few years, folks -- it's sure to qualify with Guinness as the smallest celebration in history.

In those early years, it was hard to find many folks who paid a lot of taxes. The top federal tax rate was 7 percent. The personal exemption was $3,000 -- a big number in today's dollars. Over the years, that personal exemption went as low as $500 in the mid-1940s ($1,000 for a married couple) and has moved steadily higher to adjust for inflation. For 2010 tax returns due next April, the personal exemption is now $3,650 ($7300 for couples).

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Here, going back nearly 100 years are the lowest federal tax rate and its income ceiling, and the highest bracket and its income floor. Only years when a change occur are listed. Year     Lowest   Income   Highest   Income
              Rate         Below       Rate       Above
                %                $               %              $

1913       1.0       20,000         7.0        500,000
1916       2.0       20,000       15.0      2,000,000
1917       2.0        2,000        67.0      2,000,000
1918       6.0        4,000        77.0      1,000,000
1919       4.0        4,000        73.0      1,000,000
1922       4.0        4,000        58.0        200,000
1923       3.0        4,000        43.5        200,000
1924       1.5        4,000        46.0        500,000
1925       1.1        4,000        25.0        100,000
1929       0.4        4,000        24.0        100,000

1930       1.1        4,000        25.0        100,000
1932       4.0        4,000        63.0      1,000,000
1936       4.0        4,000        79.0      5,000,000
1940       4.4        4,000        81.1      5,000,000
1941     10.0        2,000        81.0      5,000,000
1942     19.0        2,000        88.0        200,000
1944     23.0        2,000        94.0        200.000
1946     19.0        2,000        86.5        200,000
1948     16.6        4,000        82.1        400,000
1950     17.4        4,000        84.4        400,000

1951     20.4        4,000        91.0        400,000
1952     22.2        4,000        92.0        400,000
1954     20.0        4,000        91.0        400,000
1964     16.0        1,000        77.0        400,000
1965     14.0        1,000        70.0        200,000
1968     14.0        1,000        75.3        200,000
1969     14.0        1,000        77.0        200,000
1970     14.0        1,000        71.8        200,000
1971     14.0        1,000        70.0        200,000
1977     14.0        3,200        70.0        203,200

1979     14.0        3,400        70.0        215,400
1981     13.8        3,400        69.1        215,400
1982     12.0        3,400        50.0         85,600
1983     11.0        3,400        50.0        109,400
1984     11.0        3,400        50.0        162,400
1985     11.0        3,540        50.0        169,020
1986     11.0        3,670        50.0        175,250
1987     11.0        3,000        38.5         90,000
1988     15.0       29,750        28.0         29,750
1989     15.0       30,950        28.0         30,950

1990     15.0       32,450        28.0         32,450
1991     15.0       34,000        31.0         82,150
1992     15.0       35,800        31.0         86.500
1993     15.0       36,900        39.6         89,150
1994     15.0       38,000        39.6        250,000
1995     15.0       39,000        39.6        256,500
1996     15.0       40,100        39.6        263,750
1997     15.0       41,200        39.6        271,050
1998     15.0       42,350        39.6        278,450
1999     15.0       43,050        39.6        283,150

2000     15.0       43,850        39.6        288,350
2001     10.0       12,000        39.1        297,350
2002     10.0       12,000        38.6        307,050
2003     10.0       12.000        38.6        311,950
2004     10.0       14,300        35.0        319,100
2005     10.0       14,600        35.0        326,450
2006     10.0       15,100        35.0        336,550
2007     10.0       15,650        35.0        349,700
2008     10.0       16,050        35.0        357,700
2009     10.0       16,700        35.0        372,950
2010     10.0       16,750        35.0        373,650

It won't surprise you that the IRS version of this table is overrun with footnotes. You should check them out before making any firm conclusions about income-tax trends. There certainly are lots of ways to spin these numbers when you factor in inflation, tax deductions, other adjustments to taxable income, and an analysis of the tax rates in between the bottom and top brackets. But one way I can't spin them is to say they portray any kind of increasing vise on taxpayers. They don't.

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