A History of Tax Reform, 1969 to 2025

A few threads run through all of it. The top tax rate was 70% when this timeline begins and is 37% today, and the bottom rate went from 14% to 10%. Social Security benefits were untaxed until 1984. The IRA, the 401(k), the Roth IRA, the child tax credit and the home-sale exclusion were each created by one of these laws. And the minimum tax of 1969, written to catch 155 wealthy people who paid nothing, grew into an alternative minimum tax that reached millions before 2017 cut it back.

1969: Tax Reform Act of 1969

In January 1969 the outgoing Treasury Secretary told Congress that 155 Americans with incomes over $200,000 had paid no federal income tax at all for 1966. The result, signed by President Nixon on December 30, 1969, was the largest rewrite of the income tax since the Second World War.

It began with a 10% minimum tax on “preference” items such as the untaxed half of capital gains, the ancestor of today’s alternative minimum tax. A larger standard deduction and exemption took families below the poverty line off the rolls. The minimum tax mattered most in the long run: designed for a few hundred people, it reached four million returns by 2010, most of them families with several children in high-tax states who had never heard of a tax shelter.

1974 to 1978: the IRA and the 401(k)

The Employee Retirement Income Security Act of 1974 was a pension law. Almost as an afterthought it created the Individual Retirement Account: a worker with no company pension could put aside up to $1,500 a year, deduct it, and let it grow untaxed. The limit is $7,000 today.

Buried in the Revenue Act of 1978 was a new paragraph (k) added to section 401, allowing an employee to set aside part of his pay before tax. Nobody noticed. The first large plans opened in January 1982. Fifty years on, the 401(k) holds more retirement money than any other kind of account.

1981: Economic Recovery Tax Act

By 1980 inflation had been pushing wage earners into higher brackets for a decade without any real increase in income, “bracket creep,” and the top rate on investment income was 70%. The Kemp-Roth bill, signed by President Reagan on August 13, 1981, was the largest rate cut in the history of the income tax: 23% over three years, with the top rate dropping from 70% to 50% all at once on January 1, 1982.

Indexing from 1985 meant brackets, the exemption and the standard deduction would rise with inflation each year; of everything in the law this lasted longest, and bracket creep has not come back. The annual gift exclusion went from $3,000 to $10,000, the base of today’s $19,000.

1982 to 1984: TEFRA, and Social Security becomes taxable

The 1981 cuts and the 1981–82 recession pushed the deficit sharply higher, and two years running Congress trimmed what 1981 had promised. TEFRA in 1982 merged the minimum taxes into a single AMT and created backup withholding, still the rule today at 24%. DEFRA in 1984 required a log for cars and computers used for both business and personal purposes; every mileage log kept since then traces to this law.

In between, the Social Security trust fund was months from being unable to pay full benefits, and a commission chaired by Alan Greenspan produced a rescue both parties enacted in 1983. Until 1984, benefits were simply not income. Now up to 50% became taxable when “provisional income,” adjusted gross income plus tax-exempt interest plus half the benefits, exceeded $25,000 single or $32,000 for a couple. The thresholds were deliberately not indexed. At enactment one retiree in ten paid tax on benefits; today roughly half do, at the same figures written in 1983 (see how Social Security is taxed).

1986: Tax Reform Act of 1986

By the mid-1980s the income tax had fourteen brackets, a top rate of 50%, and a shelter industry built on paper losses from real estate, cattle and oil. The bill nearly died twice before Senate Finance chairman Bob Packwood drafted a far simpler version and brought his committee to a 20–0 vote.

Two rates, 15% and 28%, replaced fourteen. The passive loss rules meant rental losses could no longer offset wages, except for $25,000 for an owner who actively participates, phasing out between $100,000 and $150,000 of income, figures that have never changed. The deduction for consumer interest ended. Social Security numbers were required for dependents; seven million of them disappeared the next year. The two-bracket structure lasted four years, but the base-broadening stayed, and every reform since has been argued in its terms.

1990 and 1993: the budget acts

Both were deficit-reduction laws passed by the narrowest of margins. The 1990 act, which meant setting aside a presidential pledge of no new taxes, added a 31% bracket, capped capital gains at 28%, and introduced PEP and Pease, two hidden rate increases for incomes over roughly $100,000 that lasted in one form or another until 2025.

The 1993 act, passed on the Vice President’s tie-breaking vote, added 36% and 39.6% brackets, retroactive to January 1. Up to 85% of Social Security benefits became taxable above $34,000 single or $44,000 joint, thresholds that again were never indexed. The Medicare wage cap was removed, so from 1994 the 2.9% tax applies to every dollar of wages and self-employment income, the rule behind every discussion of S corporation salaries since.

1997: Taxpayer Relief Act

Part of a bipartisan agreement to balance the budget by 2002, this bill passed the House 389–43 and the Senate 92–8. It is the source of four provisions nearly every family uses: the Roth IRA, with no deduction going in and tax-free withdrawals after five years and age 59½ (see Roth IRAs); the child tax credit, $400 per child for 1998 and $2,200 today; the home-sale exclusion of $250,000 of gain, $500,000 for a couple, at dollar amounts never changed since; and the 20% capital gains rate with 25% on real estate depreciation and 28% on collectibles.

The following year, after televised hearings on IRS collection practices, the IRS Restructuring and Reform Act of 1998 gave an ordinary taxpayer, for the first time, a set of rights the IRS had to observe before taking a paycheck or a bank account, among them broader innocent spouse relief and the right to a hearing before a levy.

2001 to 2012: the Bush tax cuts and the fiscal cliff

By 2000 the budget was projecting surpluses of several trillion dollars, and the 2001 act returned a large share through rate cuts. Because the bill moved under budget reconciliation it could not lose revenue beyond ten years, so every provision was written to expire after 2010. Rates fell to 25/28/33/35%, a new 10% bracket arrived as checks of up to $600, the child credit went to $1,000, and the 2003 act put a 15% rate on long-term gains and, for the first time, on qualified dividends.

After the 2010 election everything was extended two years. Then the extension, a payroll tax holiday, the annual AMT patch and automatic spending cuts all came due on the same night, the “fiscal cliff.” The compromise passed on New Year’s Day 2013: the rates were made permanent below $400,000 single and $450,000 joint, the estate exemption was fixed at $5 million indexed, and the AMT exemption was indexed for good. For twelve years nobody could say what the rates would be two years out, a problem the 2017 law repeated.

2010: Affordable Care Act

The Affordable Care Act was a health insurance law, but it put a new credit, two new taxes and a new form on the individual return. The premium tax credit, from 2014, goes to anyone buying Marketplace insurance with income between the poverty line and four times it, usually paid in advance; at tax time the advance is reconciled on Form 8962, and if income came in higher than estimated, part of it is paid back. The enhancement that removed the four-times-poverty cliff expired at the end of 2025 (see Marketplace insurance).

The 3.8% net investment income tax, from 2013, reaches interest, dividends, gains and rents for taxpayers with income over $200,000 single or $250,000 joint, and the 0.9% additional Medicare tax reaches wages above the same lines. Neither threshold has ever been indexed, so a level that was high income in 2010 is reached today by two professionals selling a rental (see the tax code for high earners).

2015: PATH Act

For about ten years Congress had let dozens of popular provisions expire every December 31 and then revived them, retroactively, the following year. In December 2015 Congress and the Obama administration made the most-used ones permanent.

Section 179 was fixed at $500,000, indexed, instead of falling back to $25,000. The American Opportunity Credit, the sales tax deduction, the teacher deduction and qualified charitable distributions from IRAs for people 70½ and older all became permanent (see RMDs and QCDs). Refunds on returns claiming the earned income credit or additional child credit cannot go out before February 15.

2017: Tax Cuts and Jobs Act

The United States had the highest statutory corporate rate in the developed world, 35%. The bill, signed December 22, 2017, cut it to a permanent flat 21%; to fit the reconciliation rule, the individual changes were written to expire after 2025, the same device used in 2001. Seven brackets ran from 10% to 37%, the standard deduction nearly doubled to $12,000 single and $24,000 joint, the personal exemption went to zero, the child credit doubled to $2,000, and state and local taxes were capped at $10,000. Before 2018 about 30% of returns itemized; after, about 10% (see itemized vs. standard).

The AMT nearly disappeared for the middle class and the estate exemption doubled to $11.18 million. Owners of pass-through businesses got a 20% qualified business income deduction, phased out for specified service businesses such as health, law and accounting (see the QBI deduction).

2019 to 2022: SECURE, CARES, the pandemic and SECURE 2.0

None of these five laws was a tax reform in the 1986 or 2017 sense, but together they changed more returns than most reforms do. The SECURE Act of 2019 moved required minimum distributions from 70½ to 72 and ended the stretch IRA: most non-spouse heirs must now empty an inherited IRA within ten years (see inherited IRAs). The CARES Act of 2020 sent stimulus payments and created the Paycheck Protection Program and the employee retention credit. The American Rescue Plan of 2021 added, for one year only, a child credit of $3,600 and $3,000 paid half in monthly deposits.

The Inflation Reduction Act of 2022 created clean vehicle credits of up to $7,500 and home energy credits of 30% for solar, all cut short by the 2025 law (see the energy credits that ended). SECURE 2.0 moved RMDs to 73 for people born 1951 to 1959 and 75 for those born in 1960 or later, and required Roth catch-up contributions from 2026 for employees who earned more than $145,000 the prior year.

2025: One Big Beautiful Bill Act

The 2017 individual provisions were due to expire on December 31, 2025. The bill passed both chambers by the narrowest margins and was signed July 4, 2025. Unlike 2017, most of the core provisions were made permanent: the 10% to 37% brackets, a standard deduction of $16,100 single and $32,200 joint for 2026, a child credit of $2,200, the $15 million estate exemption, and the 20% business deduction. The SALT cap rose to $40,000, phasing down above $500,000 of income and reverting to $10,000 in 2030 (see the SALT cap).

New and temporary for 2025 through 2028: deductions of up to $25,000 of tips and $12,500 ($25,000 joint) of overtime premium pay, up to $10,000 of interest on a new U.S.-assembled car, and $6,000 for each taxpayer 65 and older. That last one is the provision described as “no tax on Social Security”; it does not change how benefits are taxed. A $1,000 ($2,000 joint) charitable deduction for non-itemizers arrived, the third time the idea has been enacted. The clean vehicle credits ended for vehicles acquired after September 30, 2025 and the home energy credits for property placed in service after December 31, 2025.

The rates, in one table

Statutory rates on ordinary income; the effective rate anyone paid depended on exemptions, deductions and credits that changed just as often.