No. of Recommendations: 8
I started doing tax return yesterday, so became aware of the new form Schedule 1a I'd need to file.
The extra $6k deduction is leading to about another $600 in refunded
amount. Part of it was phased out, but this will be different for
everybody.
Nobody likes paying taxes, myself included. But my effective
Federal tax rate is ending up being less than 11%. I arrive at this
number by dividing the amount of tax I end up paying by the AGI on
line 15 ( I think, don't have the form in front of me ).
I am fully aware that there are a lot of other taxes we pay, we got the Trump-Tariff-tax, sales tax, property tax, gas tax, etc. But
Americans are delusional if they think the Federal Government is
overtaxing them.
No. of Recommendations: 6
Back "in the day" I remember my effective federal/state/local (after deductions) pushing well above 40%, so I asked an AI (Perplexity) to compare the federal rates of 1984 to the current onmes:
Today's US federal income tax rates (for tax year 2026, applicable to 2025 income) follow a 7-bracket progressive system topping at 37%, a sharp reduction from 1984's 15-bracket structure that reached 50%. Fewer brackets and wider ranges now mean lower effective rates for most, with inflation adjustments expanding thresholds annually.
Bracket Comparison (Single Filers)
Rate 1984 Thresholds (approx.)..2026 Thresholds
10-11% $0–$3,540....................$0–$12,400
12-16% $3,541–$11,240..........$12,401–$50,400
18-26% $11,241–$24,460........$50,401–$105,700 (22%)
30-38% $24,461–$43,190.......$105,701–$201,775 (24%)
42% $43,191–$57,550.......$201,776–$256,225 (32%)
48% $57,551–$85,130.......$256,226–$640,600 (35%)
50% Over $85,130..............Over $640,601 (37%)
Key Changes
Rates dropped post-1986 Tax Reform Act, simplifying from 15 brackets in 1984 to 7 today, with top marginal rate falling from 50% to 37%. Standard deductions rose significantly (e.g., $2,300 single in 1984 vs. ~$16,100 in 2026), reducing taxable income for many.
But then I remembered to adjust the 1984 rates for inflation:
Adjusting 1984 tax brackets to 2026 dollars using CPI inflation (multiplier ≈3.12x, from 103.9 to 324.1) reveals much narrower bands back then, with higher rates kicking in at lower real income levels. Today's wider brackets and lower top rate (37% vs. 50%) result in lower marginal taxes for equivalent purchasing power.
Inflation-Adjusted Comparison (Single Filers, 2026 Dollars)...2026 Thresholds
Marginal Rate 1984 Adjusted Thresholds
11% $0–$11,043............................$0–$12,400 (10%)
15% $11,044–$35,063 -
18-28% $35,064–$134,733 (various).......$12,401–$50,400 (12%)
33-38% $134,734–$265,567...............$50,401–$105,700 (22%)
42% $265,568–$560,000 (est.).......$105,701–$201,775 (24%)
44-45% $560,001–$850,000 (est.).......$201,776–$256,225 (32%)
48-50% Over $850,000..................$256,226–$640,600 (35%); Over $640,601 (37%)
Main Insights
Inflation-adjusted, 1984's top 50% rate hit at ~$266,000 (today's dollars), vs. today's 37% at $641,000+. More brackets in 1984 created "bracket creep" without inflation indexing until 1985; post-1986 reforms simplified and cut rates substantially
The US federal budget deficit was $175.3 billion in fiscal year 1984 (ending Sept. 30), amid Reagan-era spending and tax cuts. For FY 2025 (most recent full year, ending Sept. 30, 2025), it totaled approximately $1.78 trillion, down slightly from $1.82 trillion in FY 2024 due to tariff revenues and spending restraint.
As a comparison:
European countries' personal income tax systems are mostly progressive, with top marginal rates averaging 38.5% across 35 nations (43.4% for OECD members) in 2026. Rates vary widely: 10% in Bulgaria/Romania to 60.5% in Denmark, often including social security contributions.
Top Marginal Rates (2026)
Country/Region Top Rate Notes
Denmark 60.5% Highest; new bracket over €375k
France 55.4% Among EU's big 5
Austria, Belgium, Portugal, Spain, Sweden >50% Northwestern high-tax cluster
While I can likely (haven't done my taxes yet) complain that I'm unlikely to get any of the deductions Steve mentioned and my gross income is likely going to be far less than I was making in 1984, even the top rate today is relatively benign in comparison. When you add to the European income tax rates, the effects of double-digit VAT taxes, it is clear that, compared to more of our peers, US taxes are very low (probably accounting for our high deficit). Everyone loves to complain that their taxes are too high, but, in reality, the US tax rate is too low to support the current expenses of our federal government. I'll leave it to each reader to draw their own oppinion as how to best address this paradoxical situation.
Jeff
No. of Recommendations: 1
Jeff, great post, appreciated seeing those 1984 tax rates compared to 2026.
American taxpayers have been bombarded with rhetoric across all spectrums about how overburdened they are in regard to tax rates. It is wildly false, at least as far as the Fed tax rates. But the propaganda has been embraced by the majority, so politicians of all stripes are terrified of the personal consequences of raising rates. ( I am ignoring the fact that tariffs are a tax we are all currently paying, we will surely continue to pay higher prices even if tariffs are eliminated, I have a near zero belief that businesses will cut prices if/when tariffs are removed )
Are Americans prepared for Governmental services being slashed?
Are we prepared for attacks/clawbacks on SS and Medicare?
The under 65 crowd that has to buy healthcare in the marketplace
is feeling those attacks/clawbacks in 2026.
The over 65 crowd better damn well expect the same is coming to them.
The last years/decade(s) of our lives are going to be quite interesting, lol.
American adults got some growing up to do.
No. of Recommendations: 0
Jeff, excellent analysis. But you forgot to include (maybe you aren't aware of since you don't prepare your own taxes) the additional tax on investment income.
A 3.8% Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts with high income, specifically targeting net investment income when modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). It applies to the lesser of net investment income or the amount by which MAGI exceeds the threshold. The 3.8% tax applies to interest, dividends, capital gains, rental/royalty income, and non-qualified passive business income. The NIIT doesn't apply to earned income.
Also add in IRMAA, the surcharge on Medicare premiums.
Wendy
No. of Recommendations: 0
Actually, WendyBG was correct - I was not aware of that nuance.
That said, for the same order of magnitude of income (though, admittedly, this year was all investment/interest and significant capital gains) and assuming NYS/NYC tax stayed the same (if anything, it would have increased), in 1984, my net effective income tax rate for combined federal, state and city tax was about 46%. This year it was 33% (Fed:24%, local:9%). Still an ugly number, but significantly lower than it used to be.
Jeff
