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

2 min readBy: TF Staff

Download Project Note No. 44, Part 2 Download Project Note No. 44, Part 1

Executive Summary This is the fourth in a series of TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation studies reviewing major areas of Federal taxation. The first, Federal Excise Taxes, was published in 1956; the second, Are High SurtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. 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 taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. . 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, inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. 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.