For most of U.S. history, tariffs were Congress’s domain and primarily a way to raise revenue. Article I of the Constitution assigns taxing and tariff powers to Congress, and for half our countries history Tariffs were the Federal government’s main revenue source. Over the 20th century, however, Congress frustrated by the slow, politicized nature of tariff-making began delegating authority to the Executive branch so trade policy could be negotiated dynamically. On Wednesday (11/5/25) the Supreme Court began the review of President Trump’s recent tariff program and the review will test how far that delegation can stretch, especially when tariffs evolve from a revenue instrument to a lever of commerce, national security, and geopolitical bargaining (e.g., fentanyl control or strategic tech limits). [1][2]
Evolving roles of Congress and the White House
Tariffs were the exclusive domain of Congress, composing long schedules with changes occurring over years. The shift the Executive office has occurred progressively and deliberately beginning with the 1934 Reciprocal Trade Agreements Act (RTAA), which let presidents cut or raise tariffs up to 50% (relative to Smoot-Hawley) through executive agreements which proved faster than treaties and more adaptable than statute. The RTAA embedded reciprocity and helped create multi lateral concessions via the General Agreement on Tariffs and Trade (GATT’s) most-favored-nation (MFN) principle, allowing negotiated tariff cuts with one partner to benefit all. This was a conscious design choice: move from static tariff schedules set by statute to a nimble bargaining architecture led by the Executive. [3][4][5]
Congress later layered additional delegations: Section 232 of the 1962 Trade Expansion Act (national security tariffs), Section 201 and 301 of the 1974 Trade Act (safeguards and unfair trade responses), and in 1977 the International Emergency Economic Powers Act (IEEPA), which broadly authorizes the President to regulate economic transactions during national emergencies involving foreign threats. In parallel, the GATT/WTO framework entrenched MFN and reciprocity, reinforcing executive-driven negotiating cycles rather than fixed tariff lawmaking. [6][7]
Courts have mostly OK’d Delegation
Historically, the Court has upheld substantial tariff delegations when Congress set intelligible principles and clear predicates. In Federal Energy Administration v. Algonquin SNG (1976), the Court approved presidential license fees on oil under Section 232, reading the statute as giving the President flexibility to “adjust” imports for national security once the Executive met specific preconditions. Earlier, Field v. Clark (1892) sustained conditional delegation tied to foreign tariff behavior. These cases held decades of deference by the court in trade and delegation by Congress to the Executive branch. [8][9]
The Trump era revived litigation, first around 2018 steel/aluminum actions under Section 232. Challenges like American Institute for International Steel failed; the Supreme Court denied cert, leaving Algonquin intact and the Federal Circuit generally supportive of 232 flexibility, including derivative-product tariffs. [10][11][12]
However, 2025 represents a different question: Can IEEPA (which never mentions “tariffs”) support sweeping, near-global import duties justified by emergency findings (including fentanyl and broader economic security)? The Court’s November 5, 2025 oral argument signaled skepticism from both conservative and liberal justices about reading IEEPA to authorize what looks like taxation, a traditional legislative power. Several justices pressed whether the major questions doctrine which requires explicit congressional authorization for issues of “major national significance” and consequential policy. [13][14][15][16]
That skepticism follows a procedural path: in August 2025, the Federal Circuit affirmed that IEEPA’s grant to “regulate” foreign economic transactions does not stretch to an open-ended tariff regime; the government petitioned for swift Supreme Court reversal. The present case thus squarely tees up whether “regulation” under IEEPA can include customs duties and—if so—whether that would violate the nondelegation principle absent tighter statutory limits. [17][18] (Federal Circuit Court)
From Revenue to Leverage: how purpose may shape the ruling
There is debate if Tariffs are a tax, see our article on Are Tariffs a Tax? Regardless of your opinion on if Tariffs are Taxes, in the SCOTUS review purpose matters. Clearly overtime the role of Tariffs has evolved: began as revenue; then a protection mechanism, to a tool for reciprocity, and to promote global trade. Now, modern presidents often wield them as leverage for Geopolitical positions beyond economics including reducing Fentanyl and putting checks on bad actors like Russia and North Korea, and checking China economically and militarily. Trump’s 2025 program explicitly ties duties to strategic aims: deterring fentanyl flows, reshoring supply chains, and countering adversaries’ economic-military statecraft. In that framing, tariffs function like sanctions, an area where IEEPA routinely operates. The government’s brief argues the measures are regulatory, not fiscal, and thus within IEEPA’s text and tradition. Challengers reply that once the Executive imposes broad, durable duties at the border, it is taxing without Congress. [19][20]
How might the Court sort this?
A narrow IEEPA reading (most likely): The justices could hold that IEEPA authorizes blocking, freezing, licensing, and transaction bans, but not generalized ad valorem tariffs. That would push the Executive back to Section 232 or 301 (which carry process predicates and narrower aims) and preserve Algonquin’s logic while limiting emergency-based tariff programs. Expect heavy reliance on major-questions reasoning (clear statement needed for tax-like powers). [21][8]
A middle path: The Court could permit targeted, time-limited IEEPA tariffs tightly tethered to a specific emergency (e.g., proven fentanyl-related supply chains) and subject to renewal findings closer to sanctions than revenue measures. That would salvage some executive agility while preventing “tariffs-as-tax” by proclamation. [13][19]
A broad approval (least likely given argument): If the Court buys the sanctions analogy fully, it could uphold IEEPA tariffs as “regulation” of import transactions during a declared emergency. Even then, expect a warning against permanent, economy-wide tariff policies without Congress. [13][14]
Interaction with Delegated Statutes
Whatever happens on IEEPA, the Court can reaffirm that Congress remains the constitutional principal in tariff policy and has provided other, more tailored routes. Section 232 remains viable post-Algonquin, though courts have policed timing and scope. Section 301 and 201 remain on the books with procedural guardrails. The question is whether emergencies allow the President to substitute IEEPA for those statutes. A restrictive reading would push the Executive branch back toward statutorily channeled tools – still dynamic, but with predicates that mirror congressional intent. [10][11][6]
How the Tariff Timeline fits
The Tax Project’s Historical Tariff timeline highlights the long arc: from tariffs as revenue (pre-16th Amendment) to tariffs as policy levers intertwined with MFN reciprocity, national security, and global bargaining. The current case is a stress test of that arc: can the delegation designed for emergencies displace the structured delegations of prior statutes and history built for trade bargaining? The Court’s skepticism may suggests corrective guidance: preserve executive agility where Congress outlined (Section 232/301), but require Congress, not emergencies, to authorize tax-like tariffs writ large at least within the major questions doctrine. That outcome would realign tariffs with their statutory channels without stripping the President of short-run leverage for discrete geopolitical threats, and the tactical implementation of negotiating parameters. [2][3][6]
Citations
[1] Brookings Institution, “Why does the executive branch have so much power over tariffs?” Jan 15, 2025. (Brookings) [2] CRS, “Presidential 2025 Tariff Actions: Timeline and Status,” Sept 16, 2025. (Congress.gov) [3] U.S. State Dept. Office of the Historian, “Reciprocal Trade Agreements Act (1934).” (Office of the Historian) [4] House of Representatives History, “The Reciprocal Trade Agreement Act of 1934.” (History, Art & Archives) [5] Irwin, “From Smoot-Hawley to Reciprocal Trade Agreements,” NBER chapter. (NBER) [6] CRS, “Presidential Authority to Address Tariff Barriers in Trade Agreements,” Sept 19, 2025. (Congress.gov) [7] USITC, “The Rise and Fall of the Most-Favored-Nation Clause.” (USITC) [8] Federal Energy Administration v. Algonquin SNG, 426 U.S. 548 (1976). (Justia Law) [9] Field v. Clark, 143 U.S. 649 (1892). (Justia Law) [10] SCOTUSblog, “American Institute for International Steel v. United States” (cert. denied, 2020). (SCOTUSblog) [11] CAFC, PrimeSource Building Products v. United States, opinion (Feb 7, 2023). (Federal Circuit Court) [12] CAFC, American Institute for International Steel summary/opinions (2020); see also CIT Slip Op. 19-37. (Federal Circuit Court) [13] POLITICO, “Justices appear skeptical of Trump’s broad tariffs,” Nov 5, 2025. (Politico) [14] The Guardian, “US Supreme Court justices express skepticism over legality of Trump tariffs,” Nov 4, 2025. (The Guardian) [15] ABC News, “Supreme Court hears Trump tariffs case,” Nov 5, 2025. (ABC News) [16] AP analysis, “A major question for the Supreme Court: Will it treat Trump as it did Biden?” Nov 4, 2025. (AP News) [17] CAFC, V.O.S. Selections, Inc. v. Trump, opinion (Aug 29, 2025). (Federal Circuit Court) [18] Washington Post, “Trump officials ask Supreme Court to quickly allow sweeping tariffs,” Sept 4, 2025. (The Washington Post) [19] U.S. Solicitor General, Opening Brief in Gov’t v. V.O.S. Selections (IEEPA tariffs), No. 24-1287 (Sept 2025). (Supreme Court) [20] New York Post, “Supreme Court’s conservative justices pummel Trump admin on tariffs,” Nov 5, 2025. (New York Post)
The history of Tariffs is a history of the United States from early trade done by local British and Colonial import/exporters to the uniform standards of the Tariff Act of 1789 introduced by James Madison and advocated and implemented by Alexander Hamilton that became the primary revenue source for the young nation. From Congressional lists and schedules updated every 5-6 years by Congress to the dynamically negotiated agreements done by the Executive branch we have today. From an instrument of revenue to a tool for international trade, geopolitical power, and protection of National interests, Tariffs have been used throughout US History. From the disastrous effects of the Smoot-Hawley act to the triumphs of Post World War II Bretton Woods frameworks leading to our current Global Trade.
The First Congress establishes tariff duties as the primary federal revenue source. Congress sets detailed product-specific rates, leading to centralized customs collection at major ports.Significance
Major source of Revenue for United States
Establishes Congressional Authority over Tariffs
First attempt to standardize and provide uniformity to Tariffs across Colonies
Tariff Act of 1828 – a.k.a. Tariff of Abominations – Protective tariffs aimed at Northern industries cause tensions increasing cost of living in the South, leading to the Nullification Crisis when Vice President John Calhoun anonymously penned the Nullification Doctrine which emphasized a state’s right to reject federal laws within its borders and questioned the constitutionality of taxing imports without the explicit goal of raising revenue. Congress still sets rates but political conflicts highlight tariff complexity.
Significance
Establishes use of Tariffs as a Protectionism mechanism to protect domestic industry.
Establishes Congressional Authority over Tariffs
Created Political tension between the winners and losers of any Tariff policy.
The McKinley Tariff Act of 1890 was a high protective tariff raising rates on many imports. Congress remains central in setting rates, with protectionism as a goal. Introduces role of Executive Branch.
Significance
Introduced the concept of reciprocity, lowering tariffs if other country lowered theirs
Introduced role of Executive Branch to manage reciprocity agreements
Wilson-Gorman Tariff Act of 1894 attempts reduction of rates on imported goods and introduces a federal income tax. The income tax is struck down by the Supreme Court until it was re introduced after the passage of the 16th Amendment in 1913, reinforcing tariffs role as major revenue in early America.
Significance
Reduced tariffs on imported goods, reflecting a shift towards lower tariffs
Introduced the concept of Income taxes to offset lower tariff revenue
Contributed to the debate on protectionism vs. free trade, impacting economic policy and government revenue sources.
Creation of the U.S. Tariff Commission: A bipartisan body established to advise Congress with expertise, marking increasing professionalization in tariff policy.
Significance
Predecessor to the US International Trade Commission (USITC)
Led by Frank Taussig, Harvard Professor
Created as part of the Revenue Act of 1916 which introduced Income Taxes
Replaced ad hoc lobby driven policies with analytic and scientific studies and recommendations
Smoot-Hawley Tariff Act – further high tariff rates designed to help farmers exacerbate international trade tensions and the Great Depression. Congressional tariff-setting continues but criticism grows.
Significance
Started Global Trade War – caused retaliatory tariffs and significantly reduced International trade
Considered to contribute to worsening the Great Depression
Global trade levels dropped roughly 2/3rds from 1929 to 1934
Reciprocal Trade Agreements Act (RTAA): Congress delegates authority to the president to negotiate bilateral trade agreements and adjust tariffs within limits dynamically. Beginning of executive role in tariff management.
Significance
Congressional delegation of bilateral trade agreements to the Executive Branch
Allowed President to negotiate +/- 50% of existing Smoot-Hawley Tariff rates
Set Reciprocity as fundamental to negotiating Tariffs that US tariff cuts only if US got a cut in return
Moved Tariffs from Congressional lists to Executive bargaining
Unconditional Multi Lateral Most Favored Nation (MFN) clauses – if you cut Tariff X every country gets the best rate – default multi lateral
GATT (General Agreement on Tariffs and Trade) created a post World War II pact that set the rules for non-discriminatory, tariff-based trade among market economies.
Significance
Locked in Most Favored Nation non-discrimination (Article I): any tariff cut for one member extends to all.
Created bound tariff schedules (Article II), making cuts durable and harder to reverse.
Ran multilateral “rounds” that progressively lowered global tariffs.
Established early dispute settlement norms and a rules-based trading system.
Laid the institutional foundation for the World Trade Organization (WTO)
IEEPA (International Emergency Economic Powers Act) a 1977 U.S. law that lets the President, after declaring a national emergency tied to a foreign threat, block property and restrict transactions to protect national security, foreign policy, or the economy.
Significance
Requires the President to declare a national emergency about a foreign threat.
Allows assets to be frozen and block or allow specific transactions (through OFAC).
Common used for sanctions to limit trade and finance with certain countries, people, or sectors.
Executive branch must report to Congress, and courts can review.
Modern Trump tariffs: The Executive branch imposes broad tariffs using delegated authority and emergency powers to negotiate reciprocal deals. The deals create leverage for US interests, and represent a shift from multilateral deals to US first agreements.
Significance
Broad Tariffs as a negotiating tool in the strong Executive model of negotiation
Goal to reset trade expectations with partners where free trade is reciprocal
Used in geopolitical great power check to limit economic and military threat of potentially hostile peers
Leveraging Emergency Powers (IEEPA) to act on non trade and economic interests like Border Security, and Fentanyl enforcement.
The “Debasement Trade” is a prominent investment strategy in current finance, defined by the systematic movement of capital out of assets denominated by sovereign promises, such as fiat currencies and traditional fixed-income securities, and into assets characterized by verifiable, finite supply, often referred to as “hard assets” [1]. This strategy is fundamentally a defensive measure, designed to preserve the real value of wealth against the risk of the currency’s diminishing purchasing power, which results from accelerating national debt and large/rapid monetary expansion [2]. The shift reflects a growing, fundamental loss of confidence in the long-term fiscal solvency of major economies, especially the United States, whose currency serves as the global reserve.
I. Historical Context: Debasement as a Sovereign Tool
The act of currency debasement, the reduction of a currency’s intrinsic value without altering its face value, has been a recurring fiscal strategy throughout history. While the methods have evolved, the economic rationale remains consistent: to increase the effective money supply to meet government financial needs, typically to fund large expenditures or manage mounting debts [3].
Physical Debasement: The Precedent
In the ancient and medieval worlds, debasement was a physical process. The Roman Empire offers a classic example, where successive emperors reduced the silver content of the denarius over several centuries [4]. By substituting precious metals with cheaper base alloys, the government could mint a greater volume of currency from the same reserves, allowing the Treasury to stretch its resources for state expenses. This practice, however, led directly to rising prices (inflation) as merchants recognized the coin’s diminished intrinsic worth.
Another significant example occurred in 16th-century England under King Henry VIII, a period often cited as the “Great Debasement” [5]. To finance ongoing conflicts, the silver purity of English coinage was drastically reduced (From over 90% to as low as 25%). This act, while providing short-term funding for the Crown, destabilized domestic and international trade, leading to public mistrust and prompting the widespread hoarding of older, purer coins—an economic phenomenon later formalized as Gresham’s Law (“bad money drives out good”) [5].
The Structural Shift to Fiat Debasement
The transition to a fiat monetary system fundamentally redefined debasement. Following President Nixon’s 1971 decision to suspend the convertibility of the U.S. dollar into gold, the global financial system moved entirely away from the commodity-backed anchors of the Bretton Woods agreement [6] (See our Article on Bretton Woods). In this modern context, debasement is not about physical manipulation but about administrative action: the unconstrained expansion of the money supply through central bank policy. The erosion of a currency’s value is now primarily a function of excessive issuance relative to underlying economic productivity [7].
US M2 Money Supply
Figure 1 Source: Federal Reserve
II. The Conditions of the Modern Debasement Trade
The current period is characterized by macroeconomic conditions that have accelerated investor concern and institutionalized the Debasement Trade as a key portfolio consideration.
The Scale of Sovereign Indebtedness
The primary catalyst is the unprecedented scale of the U.S. National Debt, which is over $37 trillion [8]. Unlike previous debt cycles, the current trajectory is sustained by structural spending (23 consecutive years with deficit, last 5 $trillion+), regardless of the political party in power [9]. This fiscal reality presents governments with a limited set of options: implement politically unpalatable spending cuts or tax hikes, or employ the politically more palatable solution of allowing the currency’s value to decline.
The Debasement Trade is predicated on the rational assumption that policymakers will inevitably choose the latter, utilizing monetary tools to reduce the real burden of the debt and its service costs [1]. Through inflation, the real value of the debt owed to bondholders is effectively diminished over time, a process often described as “financial repression.”
Investor Flight to Scarcity
The response from institutional investors has been explicit. Citadel CEO Ken Griffin has been a vocal proponent of this thesis, characterizing the current market environment as a “debasement trade” [10]. Griffin notes a tangible shift in capital, with investors seeking to “de-dollarize” and “de-risk their portfolios vis-a-vis US sovereign risk” by accumulating non-fiat assets [10].
This trend is observable through market data:
Currency Depreciation: The U.S. dollar index (DXY) has experienced significant periods of sharp depreciation against major currencies and, more dramatically, against hard assets like gold [11].
Reserve Diversification: Globally, the dollar’s share as the primary reserve currency held by central banks has been steadily declining, reaching multi-decade lows [12]. This signals a structural move by foreign governments to reduce reliance on the U.S. dollar, further supporting the debasement thesis [13].
US Dollar Valuation
Figure 2 Source: Federal Reserve
III. Monetary Policy, QE, and Hyper-Liquidity
The mechanics of modern debasement are inextricably linked to central bank interventions, specifically Quantitative Easing (QE).
Quantitative Easing and Money Supply Growth
QE, a policy initiated following the 2008 Financial Crisis and dramatically expanded during the 2020 COVID pandemic response, involves the central bank (the Federal Reserve) creating new electronic money to purchase vast amounts of government and mortgage bonds [14]. This injects large amounts of money (hyper-liquidity) into the financial system, resulting in an exponential, historically unprecedented surge in the M2 money supply (See Figure 1) [14].
This expansion is the engine of modern debasement. When the volume of money in circulation grows at a pace far exceeding the underlying growth in the economy’s productive capacity, the result is an inevitable loss of the currency’s value [15].
Inflation as the Mechanism of Debasement
The consequence of this imbalance is widespread inflation, which acts as the functional manifestation of currency debasement. Inflation is not merely a rise in prices but a measurable loss of the currency’s ability to retain its value [15]. Some consider this type of inflation a hidden tax (See our Article on Is Inflation a Stealth Tax?). Data confirms this erosion: significant cumulative price increases over recent five-year periods have fundamentally lowered the purchasing power of the dollar [10].
The Debasement Trade views inflation as structural rather than temporary—a direct result of governments financing massive deficits through the printing press, effectively taxing the population through reduced purchasing power rather than legislative mandate.
US Inflation
Figure 3 Source: Federal Reserve
IV. Political Debate and the Precedent of the Plaza Accord
The current anxiety surrounding debasement is focused on specific policy discussions within Washington concerning the intentional manipulation of the dollar’s value.
The Deliberate Devaluation Thesis
Certain U.S. economic advisors, notably within the Trump administration, have argued that the dollar’s status as the world’s reserve currency creates a structural “overvaluation” that persistently harms U.S. trade competitiveness [16]. Proponents of this view suggest that managing a controlled depreciation of the dollar is a necessary measure to correct global trade imbalances and support domestic manufacturing [16].
This thesis has led to policy suggestions, sometimes grouped conceptually under the name “Mar-a-Lago Accord.” These suggestions include strategies such as utilizing tariffs to adjust global currency levels or even taxing foreign holders of U.S. Treasury debt [16]. Such discussions signal a willingness by policymakers to consider actions to achieve fiscal and trade goals, even at the expense of currency stability (Inflation).
Purpose: The Plaza Accord was a multilateral agreement signed by the G5 nations (France, West Germany, Japan, the United Kingdom, and the United States) [17]. Its specific goal was to engineer an orderly depreciation of the U.S. dollar against the Japanese yen and German Deutsche Mark. At the time, the U.S. dollar was considered significantly overvalued due to high U.S. interest rates and robust capital inflows, which led to a massive U.S. trade deficit [18].
Mechanism: The participating nations agreed to coordinate currency market interventions, specifically selling U.S. dollars, to achieve the desired depreciation [18].
Outcome and Relevance: The Accord successfully achieved its short-term goal, weakening the dollar significantly [18]. However, it ultimately failed to deliver long-lasting correction to the underlying U.S. trade imbalances because the structural domestic factors—namely, low private savings and high government borrowing—remained unaddressed [19].
The historical parallel is crucial: while a new “accord” might temporarily achieve a devaluation target, the Debasement Trade argument suggests that without fundamental fiscal discipline, any managed decline will merely lead to renewed instability and require further monetary interventions.
The Official Stance
Despite the policy discussions, U.S. Treasury Secretary Scott Bessent has publicly distinguished between short-term currency fluctuations and long-term policy [20]. He maintains that the core of the U.S. “strong dollar policy” is to take long-term steps to ensure the dollar remains the world’s reserve currency, focusing on U.S. economic growth and stability, rather than obsessing over the exchange rate [20]. This distinction is intended to reassure global markets that the U.S. is not actively pursuing the dollar’s demise, even if domestic fiscal and monetary choices suggest otherwise.
V. Implications for Citizens and the Move to Hard Assets
The consequences of currency debasement are most keenly felt by the average citizen, whose financial well being may depend on the dollar’s stability. This is especially true after the post COVID rapid inflation period felt by most Americans who are now keenly aware of the negative impacts of inflation.
Inflationary Wealth Transfer
Debasement operates as a stealthy wealth transfer mechanism [21].
Erosion of Fixed Income: Citizens holding dollar-denominated assets, such as savings accounts, fixed pensions, and bonds, see the real value of their wealth diminish steadily [7]. This is especially punitive for retirees and those on fixed incomes.
Asset Price Distortion: While nominal asset prices (stocks, real estate) reach record highs in dollar terms, this surge is often an illusion. When these assets are measured against hard assets like Gold or Bitcoin, the appreciation is significantly tempered, reflecting the currency’s dilution rather than pure economic growth [22].
This disparity: those who are asset-rich (owners of real estate, commodities, or equities) are protected, while the working class and cash holders are negatively effected as their wages and savings buy less in real terms.
The Embrace of Hard Assets
The Debasement Trade is the strategic answer to this inflationary trap. Investors are choosing assets defined by their scarcity:
Gold (Traditional Hedge): Gold has served as a reliable store of value and inflationary hedge for millennia, its value enduring precisely because it cannot be created by a central bank [23]. Surges in the gold prices directly reflect the decline in the dollar’s relative value [12].
Bitcoin (Digital Scarcity): Bitcoin has been increasingly adopted as a contemporary hard asset [1]. Its maximum supply of 21 million coins is secured by cryptography and network consensus, rendering it immune to sovereign fiscal or monetary manipulation [2]. Its inclusion in the Debasement Trade reflects a redefinition of “hard money,” moving beyond the physical limitations of precious metals to the mathematical certainty of code [22]. The dramatic appreciation of Bitcoin is viewed by many investors not as a speculative frenzy, but as a rational re-pricing of mathematical scarcity relative to infinitely expanding fiat currency [1].
USD vs Hard Assets
Figure 4 Source: TradeView
VI. Conclusion: A Structural Shift
The Debasement Trade is more than a momentary market tactic; it is a structural investment shift reflecting deep seated concerns over fiscal integrity of the world’s leading economies. Driven by high and persistent debt accumulation, coupled with the unconstrained power of central banks to expand the money supply through QE, the trade represents a fundamental shift in investor trust, from faith in government promises to reliance on the verifiable scarcity of hard assets. As long as the structural imbalance between monetary creation and productive capacity persists, the strategic movement toward assets like gold and Bitcoin will continue to be a defining feature of the global financial landscape.
Webull (syndicated from Bloomberg/Benzinga). (2025, July 3). U.S. Treasury Secretary Bessent refuted claims that the recent depreciation of the U.S. dollar would affect its status as the world’s major currency. https://www.webull.com/news/13098149616067584 (Webull)
The United States finds itself at a critical juncture, facing a national debt of unprecedented scale in peacetime. As of early 2025, the total national debt exceeds $36.2 trillion, with the debt-to-GDP ratio hovering around 124%, a level last consistently seen only in the immediate aftermath of World War II [1, 2]. This towering figure casts a long shadow over the nation’s economic future, raising urgent questions about its sustainability and the path forward. While the U.S. has a history of managing significant debt burdens, the current challenge is distinct in its magnitude and the underlying structural imbalances driving it. As in the old adage “When you’re in a hole, first step is to stop digging” – there is gaining recognition of the scope and scale of the challenge. Understanding the perils of this high debt and the various strategies available for its reduction is crucial for navigating America’s fiscal future.
The Current Debt Landscape and its Dangers
The current debt level is not merely a number; it represents a fundamental imbalance between federal spending and revenue. Projections indicate that, without significant policy changes, federal debt held by the public could rise to 156% of GDP by 2055 and 206% by 2075 [3]. This trajectory is driven primarily by increasing outlays on major entitlement programs like Social Security and Medicare, coupled with surging net interest costs and a revenue stream that isn’t keeping pace with expenditures [3].
The dangers associated with such high and rising national debt are multifaceted and can have profound impacts on the economy and the lives of ordinary Americans:
Slow Economic Growth: High government borrowing can “crowd out” private investment. When the government demands a large share of available capital, it can drive up interest rates, making it more expensive for businesses to borrow and invest in job creation, innovation, and expansion. This ultimately dampens long-term economic growth and reduces wages [3, 4]. Studies have indicated a statistically significant negative relationship between high federal debt and economic growth [4].
Inflation and Devaluation of the Dollar: While not a direct cause-and-effect relationship, persistently large deficits financed by money creation can increase the money supply without a corresponding increase in goods and services, leading to inflationary pressures. Inflation erodes purchasing power, diminishing the value of savings and making everyday goods and services more expensive for households [4, 5]. In extreme scenarios, a loss of confidence in the dollar due to fiscal instability could lead to its devaluation, further exacerbating inflation and reducing America’s global standing [4].
Higher Interest Rates: A growing national debt means the government must borrow more, increasing demand for loanable funds. This puts upward pressure on interest rates, not just for the government but also for consumers and businesses. Higher interest rates translate to more expensive mortgages, car loans, and business credit, further dampening economic activity [3, 4].
Higher Debt Service Crowding Out Other Spending: As the debt grows and interest rates rise, a larger portion of the federal budget must be allocated simply to pay interest on the existing debt. In 2024, the U.S. spent $1.1 trillion on interest, nearly doubling from five years prior, surpassing spending on national defense [6]. This rapidly increasing debt service limits the government’s flexibility to invest in crucial areas like infrastructure, education, research and development, and national security, which are vital for future prosperity [3, 4].
Risk of a Fiscal Crisis: Perhaps the most severe, albeit less predictable, danger is the risk of a fiscal crisis. This occurs when investors lose confidence in the government’s ability or willingness to manage its debt, leading to an abrupt increase in interest rates, a collapse in bond prices, and widespread economic disruption. Such a crisis could jeopardize the dollar’s status as the world’s reserve currency, making it exceedingly difficult for the federal government to borrow and fulfill its essential functions [4].
Historical Paths Out of Debt: Lessons from the Past
Despite the daunting nature of the current debt, the United States has successfully reduced significant debt burdens at various points in its history. These periods offer valuable, albeit not perfectly transferable, lessons.
Period
Initial Debt-to-GDP (Approx.)
Final Debt-to-GDP (Approx.)
Key Strategies Employed
Post-Revolutionary War (late 1700s – early 1800s) [7]
Significant, but variable
Reduced substantially
Fiscal consolidation, establishment of federal credit, tariffs, land sales.
Post-War of 1812 (1815-1835) [7]
~16% (1815)
0% (1835)
Sustained budget surpluses, significant land sales, spending cuts, strong political will to eliminate debt.
Post-Civil War (1865-early 1900s) [7]
~31% (1865)
~3% (early 1900s)
Economic growth, deflation, consistent budget surpluses, relatively frugal government spending.
Post-World War II (1946-1974) [7, 8]
117.5% (1946)
~23% (1974)
Rapid economic growth, primary budget surpluses, “surprise” inflation, financial repression (low-interest rate policies by the Federal Reserve).
The most relevant historical parallel to today’s situation is the post-World War II era, where the debt-to-GDP ratio was even higher than it is currently. While significant economic growth played a role, it was complemented by other factors like sustained budget surpluses, unexpected inflation, and periods of financial repression [8].
Ways Out of Debt, US Options
Reducing the U.S. national debt to a manageable amount (Roughly 20%-50% of GDP) would require a combination of difficult and politically challenging measures. Here are eight potential strategies:
1. Increase Taxes
How it would work: This involves directly increasing government revenue. Various approaches could be employed:
Raising Income Tax Rates: Both individual and corporate income tax rates could be increased. For individuals, this could mean higher marginal rates across income brackets or specifically for high-income earners. For corporations, reversing some recent tax cuts would increase federal revenue.
Implementing a Value-Added Tax (VAT): A VAT is a consumption tax levied at each stage of production and distribution. Many developed countries use VATs, and a broad-based VAT in the U.S. could generate substantial revenue [9].
New Payroll Taxes: Expanding the base of earnings subject to Social Security taxes or increasing the payroll tax rate could bolster these critical programs and contribute to overall revenue.
Eliminating or Limiting Deductions: Reducing tax breaks, such as itemized deductions or certain tax preferences, broadens the tax base and increases effective tax rates for many taxpayers [9].
“Sin Taxes” or Carbon Taxes: Taxes on goods like tobacco, alcohol, or carbon emissions could provide revenue while potentially discouraging certain activities.
Challenges: Tax increases are often politically unpopular and can face strong opposition from various interest groups and taxpayers concerned about their impact on economic growth and personal income.
2. Lower Spending (Austerity)
How it would work: This involves reducing government expenditures across the board.
Mandatory Spending Reform: The largest portions of the U.S. budget are mandatory programs, primarily Social Security, Medicare, and Medicaid. Reforms could include adjusting eligibility ages, altering benefit formulas, or establishing caps on federal funding for these programs. Given the aging population, these reforms are often cited as critical for long-term fiscal sustainability [3, 9].
Discretionary Spending Cuts: This category includes defense spending, education, infrastructure, scientific research, and other government operations. Reductions could involve limiting new projects, cutting personnel, or reducing funding for specific agencies. For example, options include reducing the Department of Defense budget or cutting funding for international affairs programs [9].
Improving Efficiency and Reducing Waste: Efforts to streamline government operations, reduce improper payments, and combat fraud and abuse can contribute to savings, though often not on the scale required to significantly impact the overall debt.
Challenges: Spending cuts, especially to popular entitlement programs or critical services, are intensely debated and politically difficult due to their direct impact on citizens and various sectors of the economy.
3. Economic Growth
How it would work: Rather than directly cutting spending or raising taxes, this strategy focuses on growing the economy faster than the debt. As Gross Domestic Product (GDP) expands, the debt-to-GDP ratio naturally decreases, and a larger economic pie generates more tax revenue even with existing tax rates.
Investing in Productivity: Government investments in infrastructure (roads, bridges, broadband), education, and research and development (R&D) can boost long-term productivity and innovation.
Pro-Business Policies: Policies that foster a favorable environment for businesses, such as regulatory reform, reduced bureaucratic hurdles, and incentives for private investment, can spur economic activity.
Trade Liberalization: Expanding trade opportunities can lead to increased exports, economic growth, and job creation.
Challenges: While desirable, relying solely on economic growth is often insufficient, especially with very high debt levels. Sustained high growth rates are difficult to achieve and maintain, and the benefits can take time to materialize. The post-WWII debt reduction showed that growth alone wasn’t enough; it required accompanying fiscal surpluses and other factors [8].
4. Inflation (Devalue Dollar)
How it would work: This involves allowing or actively encouraging a higher rate of inflation. Inflation erodes the real value of existing debt, particularly fixed-rate debt, because the government repays creditors with dollars that are worth less in real terms. Many consider this an indirect tax as it is a willful means of devaluing dollar and reducing the buying power of citizens savings. However, this maybe more palatable to politicians as they don’t have to be blamed for raising taxes.
Monetary Policy: While central banks primarily target price stability, a more permissive stance towards inflation, or even policies that actively increase the money supply, could lead to higher inflation.
Fiscal Stimulus: Large, debt-financed fiscal stimulus without corresponding increases in productive capacity can also fuel inflation.
Challenges: This is a risky strategy. While it can reduce the real burden of debt, it comes at a significant cost:
Erosion of Purchasing Power: Inflation acts as a “stealth tax,” diminishing the value of citizens’ savings, wages, and fixed incomes. A high likelihood of creating economic strife.
Uncertainty and Instability: High and volatile inflation creates economic uncertainty, discouraging investment and long-term planning.
Loss of Confidence: Persistent high inflation can undermine confidence in the national currency, potentially leading to capital flight and a loss of the dollar’s global reserve status.
Higher Future Borrowing Costs: Lenders will demand higher interest rates to compensate for anticipated inflation, making future government borrowing more expensive. Attempts to inflate away debt are rarely a sustainable solution for a major economy [5].
5. Asset Sales
How it would work: The government could sell off federal assets to generate one-time revenue that could be used to pay down the national debt.
Real Estate: This could include selling underutilized federal buildings, land, or other real property. While the federal government owns a vast amount of property (e.g., millions of acres of land and thousands of buildings), the revenue generated from selling these assets, while significant, is often a small fraction of the total national debt [10].
Natural Resource Rights: Selling drilling rights for oil and gas, or mining rights on federal lands, could also generate revenue. Estimates suggest that recoverable energy resources on federal property could be valued in the trillions of dollars, potentially making a more substantial contribution [10].
Government-Owned Enterprises: While less common in the U.S. than in some other countries, the privatization of certain government-owned entities could also generate funds.
Challenges: Asset sales face considerable political opposition, often from those who believe public assets should remain publicly owned. Furthermore, a large-scale “fire sale” could depress market values, limiting the actual revenue generated. The revenue from such sales, while not negligible, would likely only make a dent in the current scale of the U.S. debt [10].
6. Modern Monetary Theory (MMT)
How it would work: MMT fundamentally redefines the role of government debt. Proponents argue that a sovereign government, as the issuer of its own currency, is not financially constrained in the same way a household or business is. It can “print” money to finance any spending it deems necessary, as long as there are available real resources (labor, materials) to employ.
Direct Money Creation: Instead of borrowing, the government would directly create new money to fund public spending, such as infrastructure projects, universal healthcare, or a job guarantee.
Inflation as the Only Constraint: Under MMT, the only true limit to government spending is inflation. If spending leads to an overheating economy and rising prices, then taxes would be used to reduce demand and cool the economy, rather than to fund spending itself.
Challenges: MMT is highly controversial among mainstream economists. Critics warn that:
High Inflation Risk: The theory’s premise of “unlimited” money creation, even with the caveat of inflation control, is seen as inherently risky and prone to leading to rampant, uncontrollable inflation. Historical examples of countries that resorted to large-scale money printing often experienced hyperinflation and economic collapse [5, 9, 13, 14, 15].
Loss of Dollar’s Status: Abandoning fiscal restraint and traditional debt management could severely undermine international confidence in the U.S. dollar, jeopardizing its critical role as the global reserve currency [9].
Political Discipline: MMT requires immense political discipline to raise taxes or cut spending at the precise moment inflation becomes a problem, which is challenging in a democratic system.
7. Default/Restructure
How it would work: These are extreme measures typically only considered by countries in severe financial distress.
Default: An outright refusal by the government to pay its debt obligations. This would involve simply not making interest or principal payments on outstanding bonds.
Restructuring: Negotiating new terms with creditors. This could involve extending repayment periods, reducing interest rates, or even accepting a haircut (a reduction in the principal amount owed).
Challenges: For a major economy like the U.S., which issues the world’s reserve currency and has a deeply integrated financial system, the consequences of default or even a forced restructuring would be catastrophic:
Loss of Creditworthiness: The U.S. would immediately lose its standing as a reliable borrower, making it extremely difficult and expensive to borrow in the future.
Financial Market Chaos: It would trigger a global financial crisis, as U.S. Treasury bonds are a cornerstone of the international financial system. Banks, pension funds, and investors worldwide hold vast amounts of U.S. debt, and a default would cause massive losses.
Economic Collapse: Domestic interest rates would skyrocket, the dollar would likely plummet, and the economy would plunge into a deep recession or depression.
Geopolitical Impact: The U.S.’s global influence would be severely diminished.
Given these dire consequences, default or forced restructuring is widely considered an unthinkable and non-viable option for the United States [11].
8. Nationalizing Resource Revenue
How it would work: This strategy involves the government taking greater control over valuable natural resources, directly collecting and utilizing the revenue generated from their extraction for public coffers, rather than primarily through taxes or royalties on private companies. A prominent example discussed in popular discourse, notably by Kevin O’Leary (“Mr. Wonderful”), suggests tapping into oil fields, such as those in Alaska, and nationalizing the revenue generated to pay down the national debt [16].
Direct Control and Revenue Collection: Instead of leasing drilling rights or collecting royalties from private companies, the government could directly own and operate extraction facilities, with all profits flowing to the Treasury.
Dedicated Debt Reduction Fund: Revenue generated from these nationalized resources could be specifically earmarked for debt reduction, similar to how some countries use sovereign wealth funds.
Challenges: This approach faces significant hurdles and criticisms:
Political Feasibility and Opposition: Nationalization of industries, particularly major ones like oil and gas, is a radical shift in U.S. economic policy and would face immense political and legal opposition. It would likely require significant compensation to existing private leaseholders and companies, potentially offsetting much of the initial revenue benefit.
Operational Expertise and Efficiency: Running complex industries like oil extraction effectively requires specialized expertise, capital investment, and efficient management, which critics argue governments often lack compared to private entities.
Market Dynamics and Volatility: Oil prices are highly volatile. Relying heavily on oil revenue for debt reduction would expose the national budget to significant swings based on global energy markets.
Environmental Concerns: Increased extraction, even under government control, could conflict with environmental goals and climate change mitigation efforts.
Limited Impact on Total Debt: While a large sum, the current annual revenue from federal oil and gas leases (around $8.5 billion in FY2023) is a tiny fraction of the over $36 trillion national debt [17, 18]. Even if all potential revenue were nationalized, it would take a very long time to make a substantial dent in the debt, especially considering the ongoing annual deficits.
Our Way Out
The path to significantly reducing the U.S. national debt is not simple, nor is there a single magic bullet. Another old adage, “It’s easy to get into something (debt), but it’s hard to get out.” History shows that debt reduction often involves a combination of strategies, with each period having its unique mix of choices and mechanisms. The post-World War II success was a rare alignment of rapid economic growth, sustained primary surpluses, and unexpected inflation. Today, the challenge is amplified by the sheer scale of the debt and the political difficulty of implementing the necessary fiscal adjustments.
Historically, the duration of significant debt reduction efforts has varied, but they are not short or easy. For instance, the dramatic decline in the debt-to-GDP ratio after World War II took nearly three decades (from 1946 to 1974) to reach its low point [8]. The period after the War of 1812, leading to the complete elimination of debt by 1835, spanned roughly 20 years [7]. These examples suggest that, even with concerted effort, significant and sustainable debt reduction is typically a multi-decade endeavor, requiring consistent policy choices across several administrations and legislative cycles on the order of a generation.
Achieving a substantial reduction, particularly to an ambitious 20-50% debt-to-GDP ratio, will almost certainly require a strong will and bipartisan commitment to a multifaceted approach. This would likely include:
Targeted spending cuts, especially to slow the growth of mandatory programs.
Strategic revenue enhancements, potentially including a broadening of the tax base.
Policies that consistently foster strong and sustainable economic growth.
These efforts are particularly critical in periods of a “shrinking credit cycle.” A shrinking credit cycle typically refers to a phase in the economic cycle characterized by:
Tightening Lending Standards: Banks and other lenders become more cautious, making it harder for businesses and consumers to access credit.
Reduced Availability of Capital: Less capital flows into the economy for investment.
Higher Borrowing Costs: Even for those who can get credit, interest rates tend to be higher.
Slower Economic Growth or Recession: As borrowing and investment decline, economic activity slows, leading to reduced corporate profits, job losses, and lower consumer spending [12].
Increased Defaults: Businesses and individuals struggle to repay existing debts, leading to higher default rates.
In such an environment, the challenges of debt reduction are exacerbated. Government tax revenues decline due to slower economic activity, while demand for social safety net programs (like unemployment benefits) often increases. This creates a painful squeeze on public finances, making it even harder to cut spending or rely on growth to improve the debt-to-GDP ratio. The current fiscal situation, with high debt and rising interest rates, means the U.S. is particularly vulnerable to the negative impacts of any future shrinking credit cycle, underscoring the urgency of proactive fiscal reforms.
Beyond economic considerations, debt discipline is a moral imperative for the well-being of future generations. Each dollar borrowed today represents a claim on future economic output and income, effectively shifting the burden of repayment to those who have yet to earn it. A nation that consistently lives beyond its means risks handing down a legacy of diminished economic opportunity, higher taxes, reduced public services, and greater financial instability to our children and grandchildren. Responsible fiscal stewardship ensures that future generations inherit a strong economy with the flexibility to address unforeseen challenges and invest in their own prosperity, rather than being perpetually constrained by the choices of the past. The journey out of the current debt levels will demand difficult choices and a sustained commitment to fiscal responsibility. The journey out of the current debt levels will demand difficult choices and a sustained commitment to fiscal responsibility.
[17] Congressional Research Service. (2025, April 23). Revenues and Disbursements from Oil and Natural Gas Leases on Onshore Federal Lands. Retrieved from https://www.congress.gov/crs-product/R46537
The concept of a Marginal Tax Rate, where different portions of income are taxed at varying percentages, is a relatively new implementation in American tax history. For much of the United States early existence, the Federal government largely avoided direct taxation on individual income, instead relying heavily on tariffs and excise duties to fund its operations. In fact, more years have past without income taxes than with income taxes. However, relying on Foreign trade for steady revenue proved challenging, and many argued that Tariffs were a tax that added to the price of consumer goods that was born disproportionately by the working class.
Shifting to Income Taxes
The large expenses of the Civil War necessitated a dramatic shift, introducing the nation’s first income tax from the Revenue Act of 1861, albeit without robust collection mechanisms, which was corrected in the Revenue act of 1862 with the introduction of the Commissioner of Internal Revenue, the predecessor to the Internal Revenue Service (IRS). Following its repeal, direct income taxation was dormant until the 16th Amendment in 1913, which paved the way for a permanent Federal income tax and the graduated progressive tax brackets we have today.
Income Taxes effect everyone
Both the rates and the number of Tax Brackets would fluctuate wildly throughout the 20th century, peaking at astounding heights during World War II to finance the monumental war effort, before gradually descending to the more varied and numerous tiers we recognize in today’s tax code. While the top marginal tax rates (MTR) get all the billing we often overlook the major shift of taxes from External (Tariffs) to Internal (Direct Income Taxes) and the responsibility placed on all citizens as a result.
Its also important to note that despite the sensationally high top marginal tax rates during the World War II era 1940’s and 50’s being in the 90% range the highest income earners during this period research has shown that their effective tax rate for was only 16.9% after all their exemptions, deductions, and write offs – not much different than today.[1] So while the tax tables show what income levels are taxed at, unfortunately they do not show how much of an individuals income is exposed to that rate even if their gross income qualifies them for higher rate brackets and hence understanding the tax burden for each income group is much harder to understand from looking at the Marginal Tax Brackets and Rates by themselves.
The number of tax brackets, from a high of 56 to a low of 2, also shows great variation in the thinking and the rates at which various income groups are levied. As you can see from the variations in both the number of tax brackets (Figure 2), and the variation in the rates (Figure 1) themselves US Tax Policy is an evolving canvas. Over each time period the canvas is colored by legislators perfecting the tax code, the political whims of the period, external events, and geopolitical unrest all while trying to maintain a steady, predictable, fiscally sound, fair, and balanced system to support our Government.
Figure 1 Top Marginal Tax Rate by YearFigure 2 Tax Brackets by Year
The following is the history of the Marginal Tax Rate, and the events and context for how and why they changed over time.
Since the nations founding, the government had survived on a number of different revenue streams, mostly Tariffs, but not taxes on individual incomes. However, the government implemented an income tax to support the Civil War. The Revenue Act of 1861 introduced the first federal income tax, levying a flat 3% tax on incomes exceeding $800 annually ($29,073 in 2025 dollars).
Significance:
First Income tax to individuals in United States with passing of Revenue Act of 1861
Issued as a Flat Tax (everyone pays the same rate) with only one Tax Bracket
The Tax applied to all individuals with Income from all sources included in the tax
First of many Tax increases to support War time spending
The Revenue Act of 1862 updated the Revenue Act of 1861 with the goal of increasing government revenue, in large part to support the Civil War expenses. It also addressed a major weakness in the Revenue Act of 1861, no enforcement. The acts revenue fell far short of expectations because of the lack of enforcement and with the new act a collection mechanism in the form of the Commissioner of Internal Revenue was created. It also created the first Progressive Tax with different rates based on peoples ability to pay by Income level, later to be struck down as unconstitutional before the passing of the 16th Amendment in 1913. It created 3 tax brackets:
Income
Tax
2025 Dollars
$0-$600
0%
$ 18,998
$600-$10,000
3%
$ 316,633
> $10,000
5%
Significance:
First Progressive Income tax to individuals in United States with passing of Revenue Act of 1862
Created a Commissioner of Internal Revenue, predecessor of the Internal Revenue Service (IRS)
Progressive Tax implemented would later be ruled unconstitutional until the passing of the 16th amendment in 1913
The Wilson Gorman Tariff Act implemented, amongst others, a income tax on property. The Farmer’s Loan & Trust Company notified its clients that in compliance with the law they would pay the taxes on their clients behalf and notify the government of its clients liabilities. Charles Pollock, of Massachusetts, sued Farmer’s Loan & Trust and lost in lower court, but prevailed in the Supreme Court. The court ruled that tax on income from property was a direct tax and as a direct taxes were required to be levied in proportion to the states’ population or they were not legal.
Significance:
Declared direct taxation without apportionment to the states based on population was unconstitutional
Prevented Progressive Taxation and hence any income tax that was not a flat rate limiting the income tax to one bracket.
Limited income taxes to essentially flat taxes until the ratification of the 16th Amendment in 1913.
Prior to 1913 the majority of taxes were collected via Tariffs, and some Excise taxes. Several groups, including the Populist (aka People’s) Party, the Socialist Labor Party, and Democrat Party advocated for a graduated tax rate believing that Tariffs were disproportionately impacting the working class and that a graduated tax rate could shift the burden to wealthier businessmen. The 16th Amendment was passed by Congress in 1909, and ratified in 1913, the 16th amendment established a Federal Income Tax. The Amendment was ratified by 42 states with exception to Florida, Connecticut, Pennsylvania, Rhode Island, Utah, and Virginia. The Amendment allowed Congress to levy an income tax without apportioning it among the states on the basis of population making it legal to have the Progressive Tax system we have today. It was passed by Congress in response to the 1895 case of Pollock v. Farmers’ Loan & Trust Co.
Significance:
First legal Progressive Tax system, took an Constitutional Amendment by Congress and ratified by the states to enact
Allowed for taxation without apportionment, meaning taxes could be levied at different rates not according to population which in essence was a flat tax.
Supported by a number of parties including Socialist Labor Party, Democrat Party, Populist Party
Shifted the primary revenue source for Federal Revenue from Tariffs on other countries to Income Tax on American Citizens
Somewhat counter intuitively, the income tax at the beginning was generally well received. It was championed by Democrats with only one Republican voting for the 1913 Revenue act. However, it was supported by Populists and Progressives including William Jennings Bryan and later Theodore Roosevelt. It was seen by the vast majority of Americans as a Fairness issue with the wealthy paying their fair share.
Significance:
Less than 1% of population actually paid any income taxes
For vast majority of Americans it had no impact
Shift from regressive taxation on tariffs and excises
Seen as a Progressive tax mainly on the wealthy
Marginal Tax Rate 1% over $3,000 ($97,000 in 2025), and $4,000 ($129,000 in 2025) for married couples. The top marginal tax rate was 7% for incomes above $500,000 ($16.15M in 2025 dollars)
During World War I, Congress passed the 1916 Revenue Act, and then the War Revenue Act of 1917. The top marginal income tax rate jumped dramatically from 15% in 1916 to 67% in 1917 to 77% in 1918.
Significance:
Significant increase in Income Tax rates in order to fund the war.
Massive expansion in the Federal Governments taxation power
Rates continued to escalate during the War
Revenue went from $ in 1917 to $3.6 Billion in 1918.
Increased the Governments knowledge of private financial affairs
Paved way for Modern tax system, replacing Tariffs and Excise with Income as the top source of revenue
Introduction of Corporate Excess Profit tax
Marginal Tax Rates increased, limits were lowered, exemptions reduced, and Progressive nature all increased dramatically
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
This period was characterized by massive tax increases and deficits to pay for the immense expenses and resources required for World War II. The Revenue Act of 1940 was a major piece of U.S. tax legislation. The Revenue Actwas signed into law by President Franklin D. Roosevelt and it was designed to increase federal revenue in light of growing defense expenditures. The top marginal income tax rate hit 94% in 1944–1945.
Significance:
Dramatic and massive increase in Tax Revenue and Marginal Tax Rates
Highest National Debt to GDP ratio to data, dramatically higher than any other period, only rivaled by our current National Debt
Corporate Marginal Tax Rates increased to 19%, and 33% over $25,000
The Revenue Act of 1940 base individual Income Rate was 4% with a Surtax added with the top combined Marginal Tax Rate of 79%
The Top Marginal Tax rates in 1944-1945 hit 94% for Income over $200,000 ($3.6 Million in 2025)
The 60’s began the period of Post War Tax Policy, and the start of a downward trend in the Top Marginal Tax Rate. At the start of the 1960s, the top marginal tax rate stood at 91%. This rate applied to the highest incomes and was justified as a tool for redistributive justice and National security financing. However, the Revenue Act of 1964, part of President Lyndon B. Johnson’s implementation of President John F. Kennedy’s economic agenda, reduced the top rate to 70% and started the slow decline of the Top Marginal Tax Rate.
Significance:
Revenue Act of 1964, also known as the Tax Reduction Act, cut Marginal Tax Rates 20% across the board.
The Top Marginal Tax Rate dropped from 91% to 70% over a 3 year period from 1963 to 1965
Top Marginal Tax Rate of 70% for Income over $200,000 ( $2 Million in 2025)
Lyndon Johnson was able to continue to champion and push through John F Kennedy’s Economic agenda after his assassination.
Throughout the 1970s, the top marginal rate was at 70% but inflation eroded the real value of income thresholds due to the lack of indexation for inflation. This phenomenon is known as “bracket creep” Congress enacted minor reforms, but there was no major reduction in the top marginal rate that occurred during that decade. The Tax Reform Act of 1976 adjusted deductions while the top marginal tax rate remained at 70%.
Significance:
High inflation pushed wages up and introduced the concept of Bracket Creep pushing people into higher Marginal Tax Brackets
While the Top Marginal Tax Rate was lower than its World War II peaks, it was still a significant 70%
The 70’s saw a proliferation of uses of Tax Shelters by Wealthy and Corporations
The Tax Reform Act of 1976 sought to close Tax Loopholes, and expand the Alternative Minimum Tax (AMT)
The Reagan Era saw a large reduction in tax rates, a continuation of post World War II trends, and a significant jump in Federal Revenue by the end of his first term. The Economic Recovery Tax Act of 1981 began a phased reduction of the top rate from 70% to 50%. The Tax Reform Act of 1986 cut the top rate further from 50% to 28% while dramatically reducing the number of brackets and simplifying the tax code.
Significance:
Top Marginal Tax rates dropped from 70% to 28% during this period.
Reduction and simplification of rates from 34 Tax Brackets in 1978 to just 2 in 1989 at 15% and 28% for incomes over $30,950 ($79,820 in 2025)
This period reduction saw in Volker Era period of high interest rates from a peak of 21% in 1980 to ~9-12% in the Reagan’s first term
Inflation peaked in 1980 at 14.8%
The period saw a increase in Cold War Era spending, and deficit increases
The 1990’s maintained the relatively low Marginal Tax Rates with slight increases by two Presidents. President George H. W. Bush signed the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990) in 1990 raising the Top Marginal Tax Rate from 28% to 31% . In 1993, President Bill Clinton increased it further from 31% to 39.6% for high-income earners through the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), aiming to reduce the deficit and to increase fairness.
Significance:
Gradual increases in the Marginal Tax Rates in both the OBRA 1990 and OBRA 1993 Acts from 28% to 39.6%
The Obama administration allowed the Bush-era tax cuts to expire for top earners as part of the American Taxpayer Relief Act of 2012. Beginning in 2013, the Top Marginal Income Tax Rate reverted to 39.6% for individuals earning over $400,000 and couples earning over $450,000.
Significance:
Majority of early 2000’s Bush Tax cuts set to expire in “Fiscal Cliff” with expirations in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
The American Tax Payer Relief Act of 2012 (ATRA) extended many Bush Tax cuts while letting some expire avoiding the full effects of the Fiscal Cliff.
The ATRA significantly increased the AMT exemption amounts and indexed them for inflation
Top Marginal Tax Rate increased from 35% to 39.6% for incomes over $400,000 ($557,000 in 2025)
Despite significant financial events from the 2008 Great Recession, those were mostly handled through credits and not reductions in Marginal Tax Rates
The Tax Cuts and Jobs Act (TCJA) of 2017 can be seen as a major overhaul of the U.S. tax code, signed by President Donald Trump. It lowered the corporate tax rate from 35% to 21% in addition to reducing individual income tax rates across most brackets. The Tax Cuts and Jobs Act (TCJA) lowered the top marginal rate from 39.6% to 37%. It also raised the thresholds for higher tax brackets.
Significance:
Trump’s Tax Cuts and Jobs Act (TCJA) lowered the Top Marginal Tax Rate from 39.6% to 37% for Income above $600,000 ($763,000 in 2025)
TCJA eliminated the Affordable Care Act’s Individual Mandates tax penalty
TCJA kept the bottom bracket the same at 10%, lowered the rest of the brackets, kept the 35% bracket the same, and lowered the Top Marginal Tax Bracket to 37%
Major reduction to the Corporate tax rate from 35% to 21%
Moved indexes from CPI to Chained CPI, in essence a slow tax increase allowing Bracket Creep over time
Limited State and Local Tax (SALT) deductions to $10,000 a move largely impacting high income states
Tax Project Institute is a fiscally sponsored project of MarinLink, a California non-profit corporation exempt from federal tax under section 501(c)(3) of the Internal Revenue Service #20-0879422.
