The Revenue Act of 1935, (August 30, 1935), raised federal income tax on higher income levels by introducing the "Wealth Tax". It was a progressive tax that took up to 75 percent of the highest incomes (over $1 million per year). However, during the same period, Congress also passed the Social Security Act of 1935, which introduced payroll taxes that are often characterized as regressive.
President Franklin D. Roosevelt signed the act into law despite significant opposition from business interests, wealthy individuals, and fiscal conservatives across the political spectrum. At the time, the legislation was popularly referred to as the "Soak the Rich" tax due to its focus on high-incomes. 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.
Congress estimated that annual revenue would be increased by approximately $250 million when the new law took effect.
Predicted annual revenue increase (in millions)
A Normal Tax and a Surtax were levied against the net income of individuals as shown in the following table.
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." 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.
Text of Revenue Act of 1937