The Civil War had many regrettable elements, the massive bloodshed chief among them.  Atlanta burned, Andersonville became a horrible chapter in our nation’s history, Lincoln suspended habeud corpus, people were willing to die and kill in order to preserve a way of life that was said to necessitate the worst forms of human bondage.  A lot of ugly stuff.

You can add a federal income tax to the list.  Under Honest Abe, the United States of America passed its first federal income tax legislation in 1861 in an effort to fund the war.  After the war’s conclusion, it was repealed.

In 1894, the federal government tried to implement a national flat tax, but the Supreme Court ruled the act unconstitutional, because it wasn’t levied in a manner proportionate to the number of citizens in each individual state.  The 16th Amendment to the Constititution provided legislators with the room necessary to impose an income tax as of 1913.

That didn’t herald a return to the flat tax plan, though.  The United States opted to engage in a progressive income tax approach that involved the use of tax brackets.  The rate one paid in taxes on his or her earnings was based upon the marginal rates outlined in the annually-released tax brackets.  That’s still how we’re operating, too.

The number of brackets has changed over the years.  We’ve had nearly twenty and in 2009 we were down to six.  The marginal rates encapsulated in those brackets have changed over time, too.

Tax brackets have set rates as low as 1% in the past.  That honor goes to the initial 1913 scheme.  It was shortlived, though.  By 1916, the lowest rate had doubled to 2%.  Today, the lowest tax bracket is pegged at 10%.

Now people love to gripe about how much they’re paying in taxes these days, but no one has much room to moan when they compare their situation to the big earners during World War II.  While today’s top-end bracket sits at 35% (which is definitely NOT a small sum), World War II years featured a marginal rate that went as high as–get this–94%.

War years have a tendency to boost the numbers on those federal tax brackets.  During the first World War–and remember that was only a few years after the income tax came into being.–the numbers topped out at 77%.

To put all of this in the right context, though, it’s important to understand something that escapes a lot of people.  We use marginal tax rates.  That means that the tax bracket applies only to your “last dollar earned”, as they say.  It doesn’t mean that every buck you earned gets taxed at that same rate.  Those folks who were making big bucks during World War II weren’t sending 94% of all their income to Uncle Sam.  That rate was only for the portion in excess of the upper limit for the previous bracket all the way down the line.

If you don’t really understand the way marginal rates work and are more interested in the effective tax rate you pay than you are on any individual number on federal bracket, I strongly recommend that you take a look at this page from Howstuffworks that does a good job outlining exactly how we use tax brackets in the U.S.

When you take a broad, historical look at federal tax brackets, you find one thing that’s really surprising–inconsistency.  You’d think that the percentages would just slowly but surely move up and up over the years, but they haven’t  we’ve seen large increases and massive reversals throughout history.  Check out this chart to see what I mean.