This graph traces the marginal tax rate for five income thresholds. The background bars show the share of federal revenues derived from the individual income tax. The pre-1942 income tax relied heavily on high earners (rates on those earning less than $50,000 never rose above 8 percent). The Revenue Act of 1942 broadened the base, introduced tax-withholding from paychecks, and raised rates across the board–transforming the income tax (in order to pay for World War II) into a major source of federal revenue. For most of the postwar era, the marginal rate on high earners was in the 70-90 percent range–dropping to less than half that in the 1980s and now sitting at 35 percent.
*Willie Sutton was the Depression-era bank robber who, when asked why he robbed banks, replied: “Because that’s where the money is.”
