The original personal exemption from the income tax was $3,000 in 1913. The equivalent of that in September 2025 is $97,440.
For married filing jointly the personal exemption was $4,000 in 1913. The equivalent of that in September 2025 is $129,920.
This
personal exemption, which Trump eliminated in 2018, should be
reinstated, and indexed to inflation in this way from here on out, and
this income should be entirely federal-tax-free, except of course for Social
Security taxes, Medicare taxes, and state and local taxes.
About 83% of individual wage earners made $97k or less in 2023.
That's what actual populist taxation would look like.
Remember,
the roughly top 20% would not pay taxes on their first $97k either, so they
would be just like everybody else in respect of basic income. If they
can't live on that, then neither can we.
Standard
deductions and/or itemized deductions for the top 20% are for the
debates over the rates they should pay progressively, and should be a moot point for
the majority because the majority wouldn't be paying federal taxes
anyway.
Corporate
income taxes and capital gains taxes muddy these waters, but those
taxes were originally placed on Wall Street fat cats at a time when
farmers all across this land faced punitive taxes on property which the Wall Streeters did not. Corporate income and capital gains taxes were meant to address that inequity.
The
income tax was subsequently added, on the rich obviously, in part
because those other taxes didn't really work to address the inequity. But
now we have this Rube Goldberg machine of taxation which Trump has
merely tweaked again but is not fundamentally reformed.
The fact is that today we still have horrible tax inequity where some income is more equal than others, with much lower tax rates on capital gains held more than one year.
This
overwhelmingly benefits the top 20% by wealth, who own about 90% of the stock
market's value*. The owners of this wealth routinely take their income
from this source, not from W-2 income, but they are taxed at much lower
long term capital gains tax rates of 0%, 15%, and 20%.
* the top 20% of households as measured by income own about 87% of directly-held equities
-- Michael Hiltzik, here
Let's
compare a person's taxes on next year's income of $97,000 under the Big
Ugly Bill's ordinary income tax rates versus the capital gains tax
rates.
Starting in 2026, a single filer will get a standard deduction of
$16,100. If he makes $97,000 next year in ordinary income, his taxable income will be
$80,900 and his federal income tax will be $12,510 ($5,800 plus 22% of the amount over $50,400). The effective tax rate
is 12.89% on $97,000.
The
same filer without W-2 income but with $97,000 of long term capital
gains income instead comes out way ahead. His taxable income is the same
because his standard deduction is the same: $80,900. However, on the
first $49,450 of taxable income he pays 0% capital gains tax because he
held it longer than one year. The remaining $31,450 is taxed at just
15%, which is $4,717.50. The effective tax rate is 4.86%, not 12.89%!
That's 62% lower.
If we treated all income from every source the same way and taxed accordingly, the playing field would be more level.
If the people are taxed at ordinary income tax rates, arguably all entities should be. Corporations are people, they tell us, so there should be no story ever again about a profitable
company escaping federal taxation in this country.
But Tesla and Meta, for example, paid
no tax in 2023. About 25% of companies don't on average.
As
for individuals, the data about how many escape taxation is harder to come by, but an estimated 90,000
households making $200k or more in 2022 escaped taxation legally, and about
3,200 individuals making $1 million or more paid no federal tax.
There is nothing populist about a system which treats the income of rich people worthy of a privilege the income of the rest of us is not.
