Historical Tax Rates in Comparison with Today

Jan 03, 2013 | by Franck Cushner, CFP®

Historical Tax Rates -  Historical Note

With the focus having primarily been on top income earners with the “fiscal cliff” debate, many wondered how the average earner would be affected.

The average earner nationwide is recognized by the U.S. Census Bureau via median household income, which is reported on a regular basis.

When comparing tax rates for the median income, we need to account for inflation over the years so that tax rates can be compared on an “apple to apple” basis.  The accompanying chart illustrates what the tax rates have been over the past ten decades, using the median household income as of 2011 of $50,054. The Census Bureau uses historical inflation rates over the past decades to best illustrate how tax rates have affected the median income earner.

Tax rates changed tremendously for the median income earner as the country started to transition from an economy in depression to an economy in a new growth environment. As incomes increased, so did tax rates, since the U.S. Government was still in need of vital tax revenue to offset the effects of the depression years.

Since the 1940’s, the average tax rate for the median household income has been fairly constant (when measured on an inflation adjusted basis).

Fiscal policy has changed and evolved with more complex tax codes over the decades, yet the tax rate for those with median income has been about the same.

 

Sources:         U.S. Census Bureau, Tax Foundation

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