By D. Eric Schansberg, Ph.D.
Despite establishing a blue ribbon commission, Gov. Beshear’s administration failed to make any progress in reforming Kentucky’s antiquated and burdensome tax code during this year’s General Assembly.
But Kentucky is not the only place where tax reform is needed. It’s badly needed on the federal level, as well.
This year marks the 100th anniversary of the federal income tax, which was implemented as the 16th Amendment to the Constitution in February 1913 during the final days of William Howard Taft’s administration.
It granted Congress “the power to lay and collect taxes on incomes, from whatever sources derived.” It was unprecedented and marked the first change to the U.S. Constitution since 1870.
At its inception, only 15 percent of households paid any income taxes at all, and they were grouped into one of only seven tax brackets; the highest marginal rate was 7 percent for incomes exceeding $500,000 (about $10 million in today’s dollars).
The number of brackets increased dramatically during World War I. Though the threshold to reach the top rates rose to $1 million (about $16 million today), the top marginal tax rate rose dramatically to 77 percent. By the 1920s, marginal tax rates decreased four times – bottoming out at 24 percent – but with a much lower threshold of $100,000.
The Great Depression saw government increase income taxes four times with a rate of 79 percent for the top bracket.