Taxes!! Pt. 1

…a little bit of history…

This month marks 100 years of income tax in the United States.  Naturally, this means that anti-taxers are out in force.  The other day I stumbled across this little nugget on the troll heaven that is Facebook and I just had to respond.

tax chart

Oh let me count the ways where this is inaccurate.  First of all, you cannot make adequate comparisons of societies a century apart.  Lots of things happen in 100 years.  It is actually no different than comparing 2013 to 1313…doesn’t work. You can look at the big picture and see trends over time, but you cannot compare the numbers directly.

Some things that were different about the world in 1913:  Passenger air travel is still primarily by zeppelins. While Ford introduced his Model-T in 1909 the moving assembly line would not come out until December of 1913, prompting a manufacturing boom.  These early engines ran on gas, kerosene, and ethanol.  Oil based engines would come later but big oil wouldn’t exist until the 1930’s.  The Romanov’s still ruled Russia.  Women couldn’t vote.  There had yet to be a world war.  Stainless steel wouldn’t be invented until August of 1913. Alaska and Hawaii were not states and Puerto Ricans were not US citizens. Those are just some of the ways that life was different in 1913.

It is worth pointing out that while none of this really has much, if anything, to do with actual taxes and economies the graphic does give a lot of numbers.  However there are quite a few it fails to mention.  First of all, ,the grand total for world trade in 1913 was 38 billion or in today’s dollars that would be 881 billion.  In 2011, it was 18.2 trillion.  Also, the population of the United States was 97 million.  Today it is 314 million.  These are some pretty important numbers to have if you want to compare tax rates and economies.  This is especially true if you want to compare tax revenues.

See, if you want to compare revenues you need more comparative data. The graphic claims that total tax revenues in 1913 were 16.6 billion in today’s dollars and that tax revenues were 2.7 trillion in 2013.  But that is if you compare the actual numbers without regards to population.  We have over three times as many people in this country than we did 100 years ago.  So that 16.6 should actually be multiplied by three to account for the increase in population making the correct number closer to 50 billion. Still, pretty big difference right?  Not so fast. A few more numbers are missing from this graphic.

In 1913, approximately 5% of the population paid taxes; in 2011 it was 56%.  So not only did the population increase three times over in the last hundred years but the percentage of Americans taxed went up 51%.  That’s 10 times the amount of the population paying income taxes making the actual number closer to 500 billion.  Not to mention the fact that the top rate of 7% was paid by exactly .05% of the population while today the top rate is paid by 2% of the population. But tax revenue was not the only thing to increase.  In 1913, the GDP was 600 billion in today’s dollars.  Currently, it is at 15.09 trillion—big difference.

So, why was it that only 5% of Americans paid income tax in 1913?  Well, this is where deductions kick in.  It was a simple deduction in 1913 of $3000 for single people and $4000 for families.  This essentially meant that no one who made less than $4000 paid taxes.  The average income in 1913 was $900.  So it goes to follow that the majority of the population was exempt from paying income tax.   Counting for inflation, this means the average income was $20,872.18 and no one making less than 93K paid any income tax at all

What happened? Why are more people paying at lower incomes now than in 1913?  This is where the hundred years of history kicks in and all the stuff I mentioned before becomes relevant.  As cars, planes, and assembly lines took off, manufacturing increased.  This provided a higher need for steel, oil, and workers.  This led to not only a boost in the economy but a big boost in worker pay as well. However this is not the only thing that happened.

In history, 1917 was a huge year.  First, let us start with Russia.  This was the year of the Bolshevik Revolution.  The year the Romanov family was slaughtered and Lenin took control of Russia.   This is hugely important because these events would lead directly to the Cold War.  This is also the year the United States would enter into an unprecedented conflict…World War I.  The events of 1917 would not only change the United States but would have far reaching impact on the world at large.

Another big year would be 1929.  The October crash and following Great Depression would have a tremendous impact on our economy and our tax code.  The 1930’s would see an implementation of public policy, supported by taxes, to ensure that Americans would be taken care of in times of crisis.  Roosevelt’s New Deal would have a huge impact, not just on our economy, but on our civilization as a whole.  The 1940’s would see yet another world war but this time the US would discover just how profitable war could be.  The 1950’s would not only see a huge economic and manufacturing boom, but would also give us the highway system…which is supported by taxes.  By the end of this decade we would also gain two new states.

Yes, the tax rates are higher now than they were 100 years ago, ,but we also have a larger country, bigger population, and a global economy that did not exist 100 years ago.  This is why you cannot adequately compare the two years.  Time has called the world to change and we must change with it.

Behind the Scenes

For those of you who like my writing I must tell you that I do not do this alone.  Like every writer I have a great editor.  I am blessed to have such a good friend as an editor.  She keeps me on target, and helps to narrow my focus.  She is also the reason I have any grammar at all! Without her this would be nothing but a place of semi-coherent ramblings.  So if anyone actually reads this thing, please give a shout out to my friend and editor for all her hard work.  Thanks again, dear.  I really couldn’t do this without you!