Congress re-adopted the income tax in 1916, levying a 1% tax on net personal incomes above $3,000, with a 6%
surtax on incomes above $500,000. By 1918, the top rate of the income tax was increased to 77% (on income over $1,000,000) to finance
World War I. The top marginal tax rate was reduced to 58% in 1922, to 25% in 1925, and finally to 24% in 1929. In 1932 the top marginal tax rate was increased to 63% during the
Great Depression and steadily increased.
During World War II, Congress introduced payroll withholding and quarterly tax payments. In pursuit of equality (rather than revenue) President
Franklin D. Roosevelt proposed a 100% tax on all incomes over $25,000.
[30][31] When Congress did not enact that proposal, Roosevelt issued an executive order attempting to achieve a similar result through a salary cap on certain salaries in connection with contracts between the private sector and the federal government.
[32][33][34] For tax years 1944 through 1951, the highest marginal tax rate for individuals was 91%, increasing to 92% for 1952 and 1953, and reverting to 91% for tax years 1954 through 1963.
For the 1964 tax year, the top marginal tax rate for individuals was lowered to 77%, and then to 70% for tax years 1965 through 1981.
Reagan undid 40% of his 1981 tax cut, in 1983 he hiked gas and payroll taxes, and in 1984 he raised tax revenue by closing loopholes for businesses.
[38] According to historian and domestic policy adviser Bruce Bartlett, Reagan's 12 tax increases over the course of his presidency took back half of the 1981 tax cut.
[39]
For tax year 1987, the highest marginal tax rate was 38.5% for individuals.
[40] It was lowered to 28% in revenue neutral fashion, eliminating many loopholes and shelters, along with in corporate taxes, (with a 33% "bubble rate") for tax years 1988 through 1990.
[41][42] Ultimately, the combination of base broadening and rate reduction raised revenue equal to about 4% of existing tax revenue
[43]
For the 1991 and 1992 tax years, the top marginal rate was increased to 31% in a budget deal President
George H. W. Bush made with the Congress.
[44] In 1993 the
Clinton administration proposed and the Congress accepted (with no Republican support) an increase in the top marginal rate to 39.6% for the 1993 tax year, where it remained through tax year 2000.
[45]
In 2001, President
George W. Bush proposed and the Congress accepted an eventual lowering of the top marginal rate to 35%. However, this was done in stages: with a highest marginal rate of 39.1% for 2001, then 38.6% for 2002 and finally 35% for years 2003 through 2010.
[46] This measure had a
sunset provision and was scheduled to expire for the 2011 tax year, when rates would have returned to those adopted during the Clinton years unless Congress changed the law;
[47] Congress did so by passing the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed by President Barack Obama on December 17, 2010.