The Revenue Act of 1935, 49 Stat. 1014 (Aug. 30, 1935), raised federal income tax on higher income levels, by introducing the "Wealth Tax".[1] It was a progressive tax that took up to 75 percent of the highest incomes (over $1 million per year).[2] The Congress separately also passed new taxes that were regressive, especially the Social Security tax.
It was signed into law by President Franklin D. Roosevelt over strong opposition from business, the rich, and conservatives from both parties. The 1935 Act also was popularly known at the time as the "Soak the Rich" tax.[3] To solve the problem of tax evasion through loopholes, the Revenue Act of 1937 revised tax laws and regulations to increase the efficacy of the tax.[2]
Congress estimated that annual revenue would be increased by approximately $250 million when the new law took effect.[4]
Predicted annual revenue increase (in millions)
Liberal historian Paul Conkin concluded that the 1935 tax law in which the graduated rates were first imposed on corporations, “neither soaked the rich, penalized bigness, nor significantly helped balance the budget.”[5] Nevertheless, angry critics complained that it was like the camel's nose under the tent, creating a precedent that would soon grow rapidly in magnitude.[6]