Sunday, November 09, 2008

10X Increase in Lowest Tax Rate in Early 1930s

A previous CD post showed the highest marginal income tax rates during the Great Depression, which more than tripled from 25% to 79% between the early 1930s and 1936. The chart above shows the increases in the lowest marginal tax bracket between 1929 and 1940, which for all years applied to taxable income between $0 and $4,000. Starting from .375% in 1929, the lowest rate tripled to 1.125% in 1930, and then increased again by more than 3.5 times to 4% in 1932, for a total increase of more than 10 times.

In dollars, the income taxes payable on $4,000 of income increased from $15 to $160 between 1929 and 1932, a 10.667 time increase. In today's dollars that would be like a tax increase of more than $2,315, from $240 in 1929 to $2,555 in 1932, on income in today's dollars of about $64,000 (using the BLS Inflation Calculator here).

The increase in the lowest individual income tax rate from 1.125% in 1931 to 4% in 1932 would be equivalent to a $1,837 annual increase in today's dollars for someone reporting $4,000 of income in 1932 (equivalent to $64,000 today), from $718 in 1931 to $2,555 in 1932, whopping 255% tax increase in just one year! Even for someone reporting taxable income of only $1,000 in 1932 (equivalent to $16,000 today), the increase in tax liability would have been 255% in just one year.


At 11/09/2008 4:53 PM, Anonymous Anonymous said...

Hate to burst another of your balloons. It seems that I have nominated myself to be your prick for the weekend.

According to Saez (Table AO), only 8% of total tax units paid income tax in 1929.

By imputation, one needed to be at the 92nd percentile of income or higher to pay any income taxes in The Great Depression.

At 11/09/2008 6:35 PM, Anonymous Anonymous said...

A follow-up Carpe Diem. Pricking is contagious.

You missed a rudimentary element in your analysis conflating 1929 with 2008. It's the personal exemption.

The married couple with 1 dependent (I'm sure birth rates were much higher back on the farm in yesteryear) in 1929 with an income of $4,000 had a personal exemption of $3900.

The married couple with 1 dependent in 2008 with an income of $64,000 would have a (your BLS inflation calculator) personal exemption of $62,000.

Therefore, de minimus 2008 income taxes.

Do you have a $62,000 personal exemption?

I know, I know...if you had the time to perform appropriate analysis.

Well at least I know that you ultimately read the IRS article that you initially proferred. Because you didn't on your first passby.

At 11/09/2008 6:53 PM, Anonymous Anonymous said...

One of the things then is gold was the worlds currency not just a piece of paper which could be printed at will and even after 4/5/33 when Roosevelt stole the peoples gold and used inflation and a war to bing an end to the depression the US was on a quasi gold standard until Nixon closed the gold window on 8/15/71 which had held government spending in check.
Funny things happened after that.

That game is just about over. Deficits do matter and it's only a mater of time before the US does an Iceland.


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