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US Income Tax History

A Century of The Federal Income Tax

The federal income tax is the handmaiden of big government. Before the income tax was created in 1913 the federal government collected three percent of GDP in taxes. A century later, with the assistance of its sister the payroll FICA tax, it collects between 15 and 20 percent of GDP.

Chart 3.31: Federal Income Taxes in 20th Century

The federal income tax was passed by Congress in the Revenue Act of 1913, just in time to contribute to the funding of World War I. Total income tax receipts from the personal income tax and the corporate income tax reached over 4.5 percent of GDP in 1920 and 1921. But Congress cut tax rates during the 1920s and revenue from the income taxes amounted to a little over 2.0 percent of GDP until the collapse of the Great Depression; income tax revenue was a little over 1.5 percent of GDP in 1933.

Income tax revenue recovered to 2.5 percent of GDP in the late 1930s and then soared in World War II to as much as 15 percent of GDP in 1944-45 as Congress lowered the income threshold to capture income tax from ordinary wage-earners. Income tax collections declined rapidly after World War II with the corporate income tax collections declining fastest.

Taxes were increased to fight the Korean War, and personal income tax collections have remained at about 7 to 8 percent of GDP ever since, except during the 1990s boom. However corporate income tax collections have declined consistently over the years, from 5.9 percent of GDP in 1952 to around 2 percent in the mid 2000s. The financial meltdown of 2008 reduced corporate income tax collections in half to 1 percent of GDP.

In the economic recovery since the Great Recession, personal income tax revenues reached 8.6 percent of GDP in 2015 and are budgeted to reach 9.6 percent GDP in 2020. Corporate income tax collections reached 1.9 percent of GDP in 2015, and are budgeted to hit 2.6 percent GDP by 2020.

Income Tax and the Top One Percent

Since the mid-1980s the top one percent of income tax filers has paid an increasing share of federal income tax, except during recessions.

Chart 3.32: The Top One Percent’s Share
of Federal Income Tax

The top one percent of income tax filers has seen its income increase from 11.3 percent to 22.8 percent of income reported to the IRS in the period from 1986 to 2007. But the share of federal income tax paid has increased from 25.8 percent of all individual income taxes in 1986 to a 40.1 percent share of the total in 2007.

When recessions hit, the rich earn less income and pay a smaller share of taxes. The income of the richest 1 percent dipped from 20.8 percent of reported income in 2000 to 17.5 percent in 2001, while their federal income tax payments dipped from 37.4 percent in 2000 to 33.4 percent in the recession year of 2002. In the Great Recession of 2007-09, the top one percent share of income fell from 22.8 percent to 17.1 percent of reported income. Their income tax share fell from 40.1 percent to 36.5 percent. See SOI Tax Stats - Individual Income Tax Rates and Tax Shares, SOI Bulletin article–Individual Income Tax Rates and Tax Shares Table 5 for 1986-2009 and Table 1 for 2001-2014.


The Poor Pay Less

In good times and bad, the poor report less income and pay less federal income tax.

Chart 3.33: The Bottom Half’s Share
of Federal Income Tax

The lower half of income tax filers have reported a smaller and smaller share of income over the period 1986 to 2007. In 1986 they reported 16.7 percent of income reported to the IRS on their federal income tax forms; by 2007 this had shrunk to 12.2 percent. Income tax share declined by over 50 percent, from 6.5 percent share of total federal personal income tax paid in 1986 to 3.1 percent share of tax paid in 2007.

In the Great Recession of 2007-09 the share of federal income tax paid by the lower half has continued to decline. Income of the lower half declined to 7.40 percent of GDP in 2009 and federal income tax share declined to 2.25 percent of total collections.

See also here for more information on federal income tax rates and federal income tax shares.


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Revenue Data Sources

Revenue data is from official government sources.

Gross Domestic Product data comes from US Bureau of Economic Analysis and

Detailed table of revenue data sources here.

Federal revenue data begins in 1792.

State and local revenue data begins in 1890.

State and local revenue data for individual states begins in 1957.

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Next Data Update

> Federal Budget FY18

> data update schedule.

Data Sources for 2017:

GDP, GO: GDP, GO Sources
Federal: Fed. Budget: Hist. Tables 2.1, 2.4, 2.5, 7.1
State and Local: State and Local Gov. Finances
'Guesstimated' by projecting the latest change in reported revenue forward to future years

> data sources for other years
> data update schedule.

FY18 Budget Blueprint Released

On March 16, 2018 the Trump administration issued a Budget Blueprint outlining proposed changes to "discretionary" spending for Fiscal Year 2018. The following table shows the major changes to Budget Authority in excess of $2 billion per agency.

AgencyFY18 Change
in $ billion
Health and
Human Services
State and Intl Aid-10.9

Because usgovernmentspending spending data is based on Historical Table 3.2, it shows spending by function rather than by agency. Until Table 3.2 is published in the final version of the FY18 budget we cannot exactly predict how the Table 3.2 numbers will change at the subfunction level.

But we have applied the Budget Blueprint budget authority changes into the budgeted FY18 outlays by guessing the application of agency level changes to subfunction changes to give a rough feeling of what the Trump changes look like. You can check out what is going on here or here.

The numbers will change when the final FY18 federal budget numbers come out.

Tax links

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