In 1920s, marginal tax rates were significantly reduced, with the top rate falling from wartime highs to 25% by 1925 under policies championed by Treasury Secretary Andrew Mellon. However, as the Great Depression deepened in the 1930s, tax policies shifted under FDR, and marginal tax rates increased. In 1932, Congress raised taxes from 25% to 63% on the top earners. The Tax policies of the 20’s and 30’s were really a Yin and Yang opposite with the Roaring 20’s declining tax rates, and the Depression Era 30’s dramatic tax hikes.
Significance:
- Post War tax rates were reduced significantly, but not back to Pre War levels (Pre War 7%, Post War 25%)
- Rates sharply increased again to 63% for Top Earners at the advent of the Great Depression
- Treasury Secretary Andrew Mellon favored reduced tax rates in order to stimulate economy.
- Rates declined throughout the 1920’s
- Revenue Act of 1921: Reduced the top marginal rate from 73% to 58% for 1922-1923.
- Revenue Act of 1924: Further reduced the top marginal rate to 46%.
- Revenue Act of 1926: This was the most significant cut of the decade, lowering the top marginal rate to just 25% on incomes over $100,000. This rate remained in effect for the rest of the decade.
- Revenue Act of 1928: Maintained the top rate at 25%.
- Rates increased dramatically in the 1930’s
- Revenue Act of 1932: Raised the top marginal income tax rate from 25% to 63% on incomes over $1 million. This was the largest peacetime tax increase in U.S. history at the time.
- Revenue Act of 1935 (The “Wealth Tax” or “Soak the Rich” Act): It increased the top marginal income tax rate to 79% on annual incomes over $5 million.
- Revenue Act of 1937: Closed loopholes and increase Revenue generation efficacy
