In the financial planning world, we hear a lot of different pitches for different products and strategies. I often have heard it said that tax rates have gone down substantially with the highest marginal tax rate often cited. Confession. While, I currently may have some clients in the ‘one percent’, most of my clients are not in the highest tax bracket. They tend to be people who are doing above average to the top five percent. The thought crossed my mind, wouldn’t it be far more useful to be able to draw up what tax history has been for those demographics? Hence, what you are about to see.
Marginal tax rates have by and large gone down over time since 1971 for all household incomes, with the median household income looking to potentially be subject to a 50% marginal income tax rate in 1971 and a 15% marginal income tax rate in 2011.
Whether this downward trend will continue is uncertain. An interesting study would be to determine what a stereotypical two child household would have paid after standard deductions at the various times in history. Based on the data I gathered relating to inflation adjusted household income from the U.S. Census Bureau and marginal tax rate data from Tax Foundation with historical data spot checked from IRS 1040 forms.
If the 70s or 80s come back into fashion as it relates to taxes, those who had decided to invest inside of a Roth IRA today, will most likely be thanking themselves in the future.