| Signed | December 30, 1969, by President Richard Nixon |
| Public law | 91-172 |
| In one sentence | A new minimum tax so that no one with high income paid nothing, paired with a larger standard deduction and exemption that took the poorest families off the rolls. |
| Still with us | The alternative minimum tax; the private foundation rules; separate rate tables for single and married filers; the hobby-loss rules |
Why it happened
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 reaction was immediate and lasting — more letters to Congress that year about those 155 returns than about the war — and it gave a new administration and a Democratic Congress a shared reason to act. The result was the largest rewrite of the income tax since the Second World War: a “reform” half that raised money from high incomes, foundations and businesses, and a “relief” half that cut taxes for everyone else.
What it did
- The minimum tax. A 10% tax on a list of “preference” items — the untaxed half of capital gains, accelerated depreciation, depletion — after a $30,000 exemption and the regular tax. This is the ancestor of today’s alternative minimum tax. It was rebuilt in 1978, merged into the AMT in 1982, and strengthened in 1986 and 1993; by the 2000s it was reaching millions of ordinary two-income families until the 2017 law raised the exemption sharply.
- A 50% cap on earned income. Wages and professional income could be taxed at no more than 50% from 1972, while interest, dividends and rent stayed on the regular schedule up to 70%. It was the first time the code treated earned and unearned income differently in the rate tables. It became unnecessary when the 1981 law cut the top rate to 50% for everyone.
- Private foundations. A 4% excise tax on investment income, a required annual payout, limits on owning a business, and bans on self-dealing and politics. These rules created the distinction between a public charity and a private foundation that still governs every large family foundation.
- A bigger standard deduction and exemption. The standard deduction rose from 10% of income (maximum $1,000) to 15% (maximum $2,000) by 1973; the personal exemption from $600 to $750; and a new $1,000 low-income allowance took families below the poverty line off the rolls entirely.
- Separate tables for single people. A single filer’s tax could be no more than 20% above a couple’s on the same income. This is where the separate single, joint and head-of-household schedules come from — and, indirectly, the “marriage penalty” that later laws kept trying to fix.
- Capital gains. The 25% alternative rate was kept only for the first $50,000 of gains; above that the top rate rose in steps to 35% by 1972.
- The investment credit repealed (it came back in 1971 and was repealed again in 1986), and new hobby-loss rules for farms and sidelines that lose money year after year.
What it meant
A family of four with a modest income paid less each year from 1970 to 1973 as the exemption and standard deduction grew, and the lowest-income families stopped filing. A doctor or a salaried executive got a ceiling of 50% on earned income. An investor with large gains paid more. And the 155 taxpayers who started it all were, in the end, a very small part of what the law did.
The minimum tax is the piece that mattered most in the long run. It was designed for a few hundred people. By 2010 it reached four million returns, most of them families with several children in high-tax states who had never heard of a tax shelter. The 2017 law cut that number back to a few hundred thousand, and the 2025 law kept it there.