In 1913 when the average Joe made about $800 a year, the first income tax under the 16th Amendment didn't worry him because he didn't pay it and probably thought he never would. The personal exemption for a married couple in the original tax code was $4,000.
Today that $4,000 personal exemption adjusted for inflation using the Consumer Price Index amounts to about $100,000.
Even in 2016 that kind of income is made by fewer than 10% of individual wage earners. Under the original income tax of 1913, 90% today wouldn't have to worry about paying the dreaded income tax either.
Is there a way to return to this golden age of taxation?
I'm here to tell you that I think so, and I say that as a conservative. We could easily simplify the tax code by returning to the status quo which prevailed before the First World War, pay all the bills, abolish Social Security and Medicare taxes, the corporate income tax and all the other little irritating taxes and reduce income inequality in the process. We'd also save a lot of time and money wasted in complying with the tax code's myriad baroque features.
Here's the math.
In 2016 according to the Bureau of Economic Analysis personal income in the United States was $15.9287 trillion.
Social Security's Office of the Chief Actuary tells us that in 2016 there were 163.5 million individual wage earners. If you exempt the first $100,000 of everybody's individual wage income in 2016, including from the rich, you're talking about $6.213 trillion of individual wage income which would be tax-free.
That leaves $9.7157 trillion of personal income left in 2016 to tax, to pay all the bills.
According to The Tax Policy Center, the bills were the total estimated federal outlays of $3.9513 trillion in 2016.
So, the tax is 40.67% (9.7157 X .4067 = 3.9513) on all personal income in excess of $100,000 a year, no itemized deductions, no credits of any kind (this is where they all came from in the first place, because the rich pissed, moaned and complained and bribed the politicians to carve out privileges for them to escape paying).
The rich, all 14.9 million of them, will still have $7.2544 trillion to play with ($1.49 trillion from their first $100K tax-free, just like everybody else, and $5.7644 trillion left over after taxes from the income in excess of $100K).
The rest of us, 148.6 million, won't pay any federal income tax, Social Security or Medicare tax, gasoline tax, or any other kind of federal tax on our $4.723 trillion. The only taxes we'll have to pay will be State and Local Income Taxes, property taxes, sales taxes and the like. Of course rich people will have to pay those too, but that's a problem for all of us and for a different level of politics.
I summarize:
$15.9287 trillion personal income 2016 (BEA)
- 3.9513 trillion federal taxes, all from those making $100,000+ per year @40.67%
- 7.2544 trillion left over for the 14.9 million making $100,000+ per year (top 10%)
- 4.7230 trillion left over for the 148.6 million making less than $100,000 per year (bottom 90%)
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And the budget balances.
