The Revenue Act of 1918, 40 Stat. 1057, raised income tax

Income tax

An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

 rates once again

War Revenue Act of 1917

The United States War Revenue Act of 1917 greatly increased federal income tax rates while simultaneously lowering exemptions.The 2% bracket had previously applied to income below $20,000. That amount was lowered to $2,000...

. The bottom tax bracket

Tax bracket

Tax brackets are the divisions at which tax rates change in a progressive tax system . Essentially, they are the cutoff values for taxable income — income past a certain point will be taxed at a higher rate.-Example:Imagine that there are three tax brackets: 10%, 20%, and 30%...

 was expanded but raised from 2% to 6%.

The act simplified the tax structure created by the 1917 act

War Revenue Act of 1917

The United States War Revenue Act of 1917 greatly increased federal income tax rates while simultaneously lowering exemptions.The 2% bracket had previously applied to income below $20,000. That amount was lowered to $2,000...

. Instead of applying a "like normal tax" and a "like additional tax" to the 1916 act

Revenue Act of 1916

The United States Revenue Act of 1916, raised the lowest income tax rate from 1 % to 2 % and raised the top rate to 15 % on taxpayers with incomes above $2 million...

 normal tax and additional tax it created a single tax structure with a Normal Tax and a Surtax.

The top rate was hiked to 77%, and applied to income above $1,000,000. The top rate of the War Revenue Act of 1917

War Revenue Act of 1917

The United States War Revenue Act of 1917 greatly increased federal income tax rates while simultaneously lowering exemptions.The 2% bracket had previously applied to income below $20,000. That amount was lowered to $2,000...

 had taxed all income above $2,000,000 at a 67% rate.

The act was applicable to incomes for 1918. For 1919 and 1920 the top normal tax rate was reduced from 12 percent to 8%. This reduced the top marginal tax rate that combined normal tax and surtax from 77% to 73%.

Even in 1918, only 5% of the population paid federal income tax

Income tax

An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

es (up from 1% in 1913), and yet the income tax funded one-third of the cost of World War I.

Income Tax for Individuals

A Normal Tax and a Surtax were levied against the net income of individuals as shown in the following table.

Revenue Act of 1918 Income Tax on Individuals
Net Income (dollars)	Normal Rate for 1918 (percent)	Normal Rate for 1919, 1920 (percent)	Surtax Rate (percent)	Combined Rate for 1918 (percent)	Combined Rate for 1919, 1920 (percent)
0	6	4	0	6	4
4,000	12	8	0	12	8
5,000	12	8	1	13	9
6,000	12	8	2	14	10
8,000	12	8	3	15	11
10,000	12	8	4	16	12
12,000	12	8	5	17	13
14,000	12	8	6	18	14
16,000	12	8	7	19	15
18,000	12	8	8	20	16
20,000	12	8	9	21	17
22,000	12	8	10	22	18
24,000	12	8	11	23	19
26,000	12	8	12	24	20
28,000	12	8	13	25	21
30,000	12	8	14	26	22
32,000	12	8	15	27	23
34,000	12	8	16	28	24
36,000	12	8	17	29	25
38,000	12	8	18	30	26
40,000	12	8	19	31	27
42,000	12	8	20	32	28
44,000	12	8	21	33	29
46,000	12	8	22	34	30
48,000	12	8	23	35	31
50,000	12	8	24	36	32
52,000	12	8	25	37	33
54,000	12	8	26	38	34
56,000	12	8	27	39	35
58,000	12	8	28	40	36
60,000	12	8	29	41	37
62,000	12	8	30	42	38
64,000	12	8	31	43	39
66,000	12	8	32	44	40
68,000	12	8	33	45	41
70,000	12	8	34	46	42
72,000	12	8	35	47	43
74,000	12	8	36	48	44
76,000	12	8	37	49	45
78,000	12	8	38	50	46
80,000	12	8	39	51	47
82,000	12	8	40	52	48
84,000	12	8	41	53	49
86,000	12	8	42	54	50
88,000	12	8	43	55	51
90,000	12	8	44	56	52
92,000	12	8	45	57	53
94,000	12	8	46	58	54
96,000	12	8	47	59	55
98,000	12	8	48	60	56
100,000	12	8	52	64	60
150,000	12	8	56	68	64
200,000	12	8	60	72	68
300,000	12	8	63	75	71
500,000	12	8	64	76	72
1,000,000	12	8	65	77	73

• Exemption of $1,000 for single filers and $2,000 for married couples and head of family; $200 exemption for each dependent under 18.

Inflation-adjusted numbers

Corrected for inflation by CPI:

1918 dollars	2005 dollars
$1,000,000	$12,933,775
$2,000,000	$25,867,550