Last night at the meeting of The Villages Homeowners Association they had a speaker from the AARP Tax Preparation Service. The service here is the largest in the U.S. with dozens of Villages residents trained by the IRS as tax preparers who have already prepared tax returns for over 6,000 Villages residents with the "heart" of tax season still before us.

What was most interesting in the presentation were the statistics presented by the speaker, to which I've added some from my own research...

• The federal income tax was created in 1913 as the result of the 16th Amendment to the Constitution. The Amendment is pretty simple saying, "The Congress shall have the power to lay and collect taxes on incomes, without apportionment among the several states, and without regard to any census or enumeration." Forty-two of the then forty-eight states ratified the Amendment. Three states rejected it and three more never bothered to conduc an election to vote on the proposal.

• The Congress immediately enacted a table of income tax rates. The top rate, for those earning over $500,000, was 7%.

• In 1917, the Congress revised the tax table, increasing the top marginal rate to 67%. This was done as the expenses of World War I mounted.

• Congress bumped the top rate up again in 1917 to 77%. The threshold income to which this tax would apply was cut in half at the same time. Presumably WWI needed even more tax revenue to finance the costs.

• Between 1925 and 1931, the rate was dropped to 25%, but the threshold income to which that rate would apply was also dropped dramatically from the original $2 million in 1913 to $1 million in 1917 and down to only $100,000 by 1925. While the marginal rate was lowered, the highest income earners were actually contributing a greater proportion of tax revenues.

• In 1932, presumably because the effect of the Great Depression, the marginal rate for top earners was increased to 63%.

• In 1936, as the economy was improving modestly and many of the expenses of FDR's New Deal were paid for, Congress took actions that reduced the tax burden borne by the wealthiest Americns. They increased the top marginal rate to 79%. But along with the increase in rate, they raised the income threshold to which it would apply from $1 million to $5 million per year. That combination of rate and threshold remained in place until 1939.

• In 1940-41 the top marginal rate was increased to 81%, with a $2 million income threshold.

• In 1942-43 the top marginal rate was increased to 88%, but the income threshold for the top rate was reduced dramatically, to $200,000. Then in 1944-45 the rate was increased to 94%. These changes were deemed necessary to pay for World War II.

• From 1946 until 1950, the marginal rate hovered between 83-88%, but the threshold income was increased from $200,000 to $400,000. This relatively high taxation was necessary to pay for the conversion of the economy from wartime to peacetime.

• From 1951 thru 1963 the threshold income remained at $400,000 and the top marginal rate was 91%. For the rich, this eight-year period may represent the greatest tax burden in the country's history.

• From 1964 thru 1981, the threshold for the top bracket was again dropped to $200,000, but the top maginal rate hovered between 70-77%.

• Between 1982 and 1990, the top marginal rate was reduced to as low as 28%. But the threshold to which that rate would apply was dramatically dropped, to as low as only $30-32,000 in the last few years of that period. This combination of rate and income threshold reductions may actually have been a tax increase for the wealthiest Americans.

• From 1993 until 2000 the top marginal rate was 39.6%, but the Congress gradually increased the income threshold of the top bracket from $87,000 to $289,000, in essence a modest tax decrease for the wealthy.

• Then between 2001 and 2003, the top marginal rate was decreased from 39% to 35% while the income threshold increased modestly from about $289,000 to $310,000. The top rate has reamined at 35% since then.

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So what do these statistics tell us, other than the fact that Congress has historically changed both the marginal tax rates as well as the threshold incomes to which they would apply quite frequently?

The statistics suggest that the Congress has tended to modify its taxation based on the economic needs of the government at the time, whether it was to finance wars, to react to recessions or depressions, or to fund major public works projects. But the whole philosophy of financing our government appears to have changed beginning in the early 1990's. We appear to have changed from paying for government expenses currently and minimizing federal debt to an approach of being insensitive to the creation of federal deficits and financing those deficits with borrowed money. That worked well during peaceful times of strong economic growth, but has proven inadequate during times of war and recession. The Congress did not make many adjustments to either the marginal rates or the threshold income amounts in the last decade or so, choosing to finance the government's needs, even as deficits increased, by authorizing increased federal debt or by using fiscal tools such as interest rate and money supply manipulation by the Federal Reserve to try to grow the economy and resultant tax revenues. At this point in 2009, it's obvious that the financing strategies of the last decade have failed.

So what do all these statistics foretell? I guess it's hard to really determine the answer to that politically-charged question. But one thing seems readily apparent--those that are accusing the current administration and Congress of "redistributing income" have awfully short memories as to what federal taxation has been in the past.

I suppose another thing that is equally apparent is that something needs to be done to reduce national debt and annual spending deficits. Spending reductions are one way, of course. But there's a lot of room on the increased taxation side before we ever get anywhere close to what taxes have been in the past. Of course, either cutting spending or increasing taxes becomes far more difficult in this period of deep economic stress. But if the U.S. is not able to continue to substantially increase it's borrowing at reasonable interest rates, both cost-cutting as well as increased taxation may well be the only solution.