Did you know that in 2011 the tax rates will change? Yep, they are on their way up folks. The bottom rate will become 15%, followed by 28%, 31% 36%, with the highest rate being 39.6%. Our highest tax rate is almost 40%! This made me wonder if in the history of American tax rates has it ever been higher? You bet it has. In 1944 & 1945 the highest tax rate was 94% on income over $200,000. When you compare that to the 39.6% bracket on income over $357,000 in 2011 in doesn’t seem so bad. 1944 & 1945 were not just freak years with income tax rates in the 90%, almost 20 years transpired before the rates dropped to the 70s and it wasn’t until 1987 that the rates dropped to below 50%.
I don’t know if you have noticed or not but our country is in serious debt and it would be my expectation that tax rates are going to have to increase in order to finance the debt. After all that is how the first income tax in 1862 was started. The Civil War had been a financial drain on our country, so Abraham Lincoln enacted an income tax of 3% for income between $600 and $10,000. Those who made more than $10,000 paid 5%. A few years later after it had raised the necessary money the income tax disappeared, only to appear again in 1913 and has been going strong ever since. Occasionally there is talk of going to a flat tax system. I am not sure but I think those in the lower end of the tax bracket receiving the earned income tax credit would be shocked to suddenly have to pay tax. And of course over half the nation thinks only the wealthy should be taxed. Regardless of who you think should have to pay the flat tax or even what the flat tax rate is, there would have to be some kind of plan to transition the taxpayers from a graduated system to a flat tax. The simplified tax code all ready tops out at more than 16,000 pages I can only imagine how many pages of code it would take to transition to a flat tax system. If I haven’t all ready retired when this happens you can bet your bottom dollar that the year of transition will be the year I retire. You won’t need me any more for a flat tax system and I don’t need the headache of trying to decipher code transitioning me out of a job!
So let’s try and greet the increase in tax rates in 2011 with some happiness. I still have a job and there is not a 90% income tax bracket!