November 1, 1959

The Federal Individual Income Tax: Revising the Rate and Bracket Structure

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Project Note No. 44

Executive Summary This is the fourth in a series of Tax Foundation studies reviewing major areas of Federal taxation. The first, Federal Excise Taxes, was published in 1956; the second, Are High Surtax Rates Worthwhile, in 1957; and the third, Reexamining the Federal Corporation Income Tax, in 1958.

The present study is an examination of the rate and bracket structure of the individual income tax. That structure needs revision in order to reduce inequities, to minimize distorting effects on economic decisions, and to promote economic growth. With the exception of income splitting there has been no essential change in the basic characteristics of the rate and bracket structure since 1942. In the meantime, inflation has substantially changed the real impact of the tax. Moreover, economic conditions have markedly changed since then, as have the objectives of public policy.

Although many specific features of the tax law have been revised since World War II, and there has been one complete revision of the details of the Internal Revenue Code (1954), there has not been until 1959 an attempt at an overall reexamination and revision of the general features of the Federal revenue system. The general tax revision hearings being conducted in 1959 by the House Committee on Ways and Means may lead to such a general revision. The recent highlighting of our scientific and industrial race with Russia should provide an added stimulus to tax reform for the promotion of economic growth as well as to improve the equity of the tax system. The revisions in the income tax structure suggested in the present study are aimed at these objectives.

The basic research and drafting of this study was done by or under the direction of George Bishop, Senior Researcher. Grateful acknowledgment is made to the corporation tax executives and others, both in government and academic circles, who read drafts of this study and made many helpful suggestions.