Economics becomes a science · 1770s–1920s
1913
The US income tax
The 16th Amendment allows a federal income tax, with rates from 1% to 7%.
After the 16th Amendment was ratified in 1913, Congress passed an income tax with a 1% rate and extra rates on higher incomes, reaching 7% on income over $500,000. Each rate applied only to income within its band.
💡 Why it made sense then
The government wanted revenue that rose with ability to pay, rather than relying on tariffs that fell on everyone's purchases.
Ideas it gave us
- 🧮 Tax bracket
A tax bracket is a range of income taxed at one rate. Under a progressive system each rate applies only to the income inside its bracket, so moving into a higher bracket never lowers your take-home pay.
Practise with $10,000 in play money
Free. No real money involved.