FLB Capital Management, LLC
Registered Investment Advisors
Tax Planning
Don't Let Taxes Break the Bank
Tax law, like almost all laws, continually changes as lawmakers try to make it fairer, finance pet projects, use it to stimulate, or stiffle, sectors of the economy, or just want to raise revenue.
In 1913, the States ratified the 16th Amendment, instituting the federal income tax. At that time the top tax bracket was 7 percent on all income over $500,000 ($11 million in today’s dollars)
By 1918, in order to finance U.S. participation in World War One, the top tax bracket had jumped to 77 percent.
After the war, the top tax bracket dropped to 25 percent from 1925 through 1931.
In 1932, to combat the Great Depression the top tax bracket jumped to 63 percent.
In 1944, in order to finance U.S. participation in War World Two. the top tax bracket jumped to 94 percent on all income over $200,000 ($2.5 million in today’s dollars).
Over the next three decades, the top tax bracket never dropped below 70 percent.
The Economic Recovery Tax Act of 1981 slashed the highest rate from 70 to 50 percent.
The Tax Reform Act of 1986, dropped top tax bracket to 28 percent for beginning in 1988. In 1986, lawmakers claimed that they would never have to raise the 28 percent top rate.
The 28 percent top rate promise lasted three years before it was broken.
During the 1990s, the top rate jumped to 39.6 percent.
The Economic Growth and Tax Relief and Reconciliation Act of 2001 dropped the top tax bracket to 35 percent in 2003
The American Taxpayer Relief Act of 2012 increased the top tax bracket to 39.6 percent. Additonally, the Affordable Care Act added 3.8 percent on to this making the top tax braket 43.4 percent.
The Tax Cuts and Jobs Act of 2017 lowered the top tax bracket to 37 percent for tax years beginning in 2018. The additional 3.8 percent is still applicable, making the maximum federal income tax rate 40.8 percent.
Why is all this important?
Because it shows that tax law is always changing and you must pay close attention to how the changes affect your family bank.