The US Income Tax Started at 1 Percent in 1913 and Reached 94 Percent in 1944. Here Is What Changed.
On February 3, 1913, the Sixteenth Amendment to the US Constitution was ratified, granting Congress the permanent power to levy an income tax without apportioning it among the states by population. It was the culmination of a four-year political struggle following the Supreme Court's 1895 ruling in Pollock v. Farmers' Loan and Trust Co., which had struck down an earlier income tax attempt as unconstitutional. The amendment passed on a coalition of Democrats and progressive Republicans who argued that a tax on income was fairer than the existing system of tariffs, which fell heaviest on people who bought imported goods rather than on those with the highest earnings.
The Revenue Act of 1913 imposed a base rate of 1 percent on net income above $3,000 for a single filer, a threshold that represented more than a year's wages for most workers at the time. The graduated surtax ran from 1 percent on income above $20,000 up to a maximum of 7 percent on income above $500,000. Because of these generous exemptions, fewer than 1 percent of the US population owed any income tax in the first year. The progressive rate structure existed from the beginning. The rates were low enough to be nearly symbolic.
That changed quickly, and the arc of US tax rates over the following century tells a story about war finance, economic policy, and the difference between headline rates and actual tax burden.
World Wars and Peak Rates
World War I required enormous and immediate federal revenue. The Revenue Act of 1917 raised the top rate to 67 percent on income above $2 million. By 1918, the top marginal rate had climbed to 77 percent on income above $1 million. The war spending pushed rates to levels that would have been politically unimaginable five years earlier.
Rates fell through the 1920s economic expansion under Treasury Secretary Andrew Mellon, who argued that high marginal rates encouraged wealthy taxpayers to shift income into tax-exempt securities and reduce taxable transactions, producing less actual revenue than lower rates would. The top marginal rate fell from 73 percent in 1921 to 25 percent by 1925. Revenue in absolute dollars did not collapse during this period, partly because economic growth expanded the tax base.
The Great Depression reversed this trajectory. The Revenue Act of 1932, signed during the Hoover administration as a deficit-reduction measure during an economic crisis, raised the top rate back to 63 percent. Franklin Roosevelt's administration pushed it to 79 percent in 1936, then to 88 percent in 1942 as World War II spending began. The peak rate, 94 percent on income above $200,000 (approximately $3.4 million in 2024 dollars), was reached in 1944. Congress retained rates above 90 percent through 1963, when the Kennedy administration's Revenue Act of 1964, signed under Lyndon Johnson after Kennedy's assassination, reduced the top rate to 70 percent.
The Tax Reform Act of 1986, passed under Ronald Reagan and largely designed by Treasury economists, dramatically restructured the system: reducing the top rate from 50 percent to 28 percent while eliminating many deductions and closing shelters. The act collapsed 15 tax brackets into 2. Subsequent administrations adjusted rates incrementally. Today's federal top marginal rate is 37 percent on taxable income above approximately $609,350 for a single filer as of 2024.
What Marginal Rates Mean and What People Get Wrong
The concept most frequently misunderstood about the US income tax is the distinction between marginal rates and effective rates. The US uses a progressive bracket system where each tax rate applies only to the income within that bracket, not to total income.
For 2024, the federal brackets for a single filer are approximately: 10 percent on income from $0 to $11,600; 12 percent on $11,601 to $47,150; 22 percent on $47,151 to $100,525; 24 percent on $100,526 to $191,950; 32 percent on $191,951 to $243,725; 35 percent on $243,726 to $609,350; and 37 percent on income above $609,350.
A single filer earning $60,000 does not pay 22 percent on all $60,000. They pay 10 percent on the first $11,600 ($1,160), 12 percent on income from $11,601 to $47,150 ($4,266), and 22 percent on income from $47,151 to $60,000 ($2,827). Total federal tax: $8,253. Effective rate: 13.75 percent. The 22 percent marginal rate describes only what happens to the last dollars earned, not to the total.
This distinction matters when evaluating the impact of earning additional income. Someone in the 22 percent bracket considering freelance work that would add $10,000 in taxable income keeps $7,800 of it after federal tax. Someone incorrectly calculating 22 percent of their entire income would dramatically overestimate their tax burden and might make different decisions as a result.
Standard Deduction and Why Most Filers Use It
The amount of income subject to tax is not gross income. Taxpayers may reduce their taxable income by either taking the standard deduction or itemizing deductions. The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, which for 2024 is $14,600 for single filers and $29,200 for married filing jointly. As a result of this increase, the share of taxpayers who itemize fell from approximately 30 percent before 2017 to below 10 percent after.
Itemized deductions that exceed the standard deduction include state and local taxes (capped at $10,000 since 2017), mortgage interest, charitable contributions, and certain medical expenses exceeding 7.5 percent of adjusted gross income. For a single filer paying $8,000 in property taxes and $12,000 in mortgage interest, total itemizable deductions of $20,000 exceed the $14,600 standard deduction by $5,400, making itemizing more advantageous.
The standard deduction applies before calculating the bracket-based tax. A single filer with $60,000 in gross income who takes the standard deduction has taxable income of $60,000 - $14,600 = $45,400. Their tax is then calculated on $45,400 rather than $60,000, reducing the total federal tax from $8,253 to approximately $5,060.
Conclusion
Federal income tax is one component of total tax liability for most workers. FICA taxes, covering Social Security and Medicare, add 7.65 percent on earned income up to the Social Security wage base ($168,600 in 2024) and 1.45 percent on all income above that. Self-employed workers pay both the employee and employer share (15.3 percent) on net self-employment income.
State income taxes vary dramatically. California's top marginal rate is 13.3 percent. Oregon's is 9.9 percent. Texas, Florida, Nevada, Washington, and a few other states impose no income tax at all. A worker earning $100,000 in California faces a combined federal, state, and FICA burden approaching 35 to 40 percent of gross income at the margin. The same worker in Texas faces federal and FICA taxes only, reducing combined marginal burden by roughly 8 to 10 percentage points.
A tax calculator that applies the correct federal brackets, accounts for the standard deduction, and incorporates FICA gives a reasonably accurate picture of federal tax liability for straightforward W-2 income situations. State tax, additional investment income, business deductions, and above-the-line deductions for retirement contributions require additional inputs to model accurately. The ToolHQ tax calculator handles the federal income and FICA calculation for US filers and displays both marginal and effective rates side by side.
Frequently Asked Questions
What is the difference between marginal tax rate and effective tax rate?
The marginal rate is the rate applied to the top slice of income. The effective rate is the total tax paid divided by total income. The effective rate is always lower because lower brackets apply to most of the income.
When did the US federal income tax begin?
The modern income tax began with the 16th Amendment ratified on February 3, 1913, followed by the Revenue Act of 1913. An earlier income tax during the Civil War was later struck down by the Supreme Court in 1895.
What was the highest US income tax rate ever?
The highest top marginal rate was 94 percent in 1944, applied to income above $200,000. The top rate remained above 90 percent through the early 1960s before beginning to decline.