by Martin Armstrong, Armstrong Economics:
People are often cheering class warfare for they fail to understand by imposing a billionaires tax in California on UNREALIZED gains of 5%, will necessitate dumping stock to raise cash to pay the tax. Those companies will be in shock and specs will jump in front and sell those companies knowing that massive liquidation will follow. Yet additionally, it will require EVERYONE to file to state under penalty of perjury that you are not a billionaire. The third disaster is they always get such taxes through promising a minimal tax rate. Then, at anytime in the future, they can just raise the rate whenever they need money. When the US Income Tax was installed, the rate on the hated rich was just 1%. That was minimal.
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We can see that proposed 1% reach 77% for World War I and the 94% for World War II. The Democrats have shut down the government over Trump’s tax cuts and the top rate is 37%. But worse still, the play with the definitions to get more money.
They also have constantly changed the top tax rate. During World War II it stood at $5 million. Then it came down to $250,000. But it got worse. When the modern income tax was established by the 16th Amendment in 1913, it taxed individuals on their own income. There was no concept of a joint return for married couples.
The First Major Shift from individual to household income came with the introduction of the Joint Return (1948). This is the most significant change that moved the system toward considering household resources. If the husband was in a high income tax bracket, his wife, with even just a part-time job was now taxed at his rate. Many began to see this as a major reason there were stay-at-home-moms for it did not pay to get a simple job to stay busy.
Prior to 1948, they assumed passive income from investments could be shared with each spouse filing separately, reporting only their own income. This created a major disparity because residents of community property states (where income is legally considered jointly owned) could split income between two returns, lowering their total tax bill compared to identical-income couples in common-law property states. This drove the Democrats delirious. OMG, they could beat us out of some money.
Revenue Act of 1948 was intended to resolve this inequity or loophole and also to provide a benefit to married couples is how they sold the idea. Congress created the joint return. This allowed a married couple to combine their incomes, be taxed on the total, but use a tax schedule with brackets exactly twice as wide as those for a single individual. This is known as income splitting. It effectively created a “household” tax unit for married couples, though it was still an option (they could still file separately).
Consolidation of the “Household” Concept (Post-1948)
The 1948 law established married couples as a tax unit. Subsequent changes refined how different household structures are treated:
1969: The “marriage penalty” emerged. To address the fact that two single individuals could sometimes pay less tax than a married couple with the same combined income, Congress created a new tax schedule for single filers that was less favorable than half the married brackets. This formally established different tax treatments for different household/filing statuses (Single, Married Filing Jointly, Married Filing Separately, and later Head of Household).
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