In 1939, at the end of almost two decades of statewide want and despair, Oklahoma adopted the community property system “to save state residents on their federal income tax.” Between 1939 and 1947, Oklahoma and four other states openly and unabashedly exploited the Supreme Court's creation of what amounted to a tax loophole for the nation's wealthy; several more states seriously considered doing the same. In 1930, the Court had ruled that the community marital property regime of eight western states permitted their married couples to split family income between spouses, so that each spouse reported half of that income for federal income tax purposes. As a result of the federal government's progressive income tax bracket structure, in most cases this split meant that more of the family's income would be taxed in lower tax brackets. Thus, a property regime that was purely a creation of state law had the effect of reducing residents' federal tax obligations.
To Save State Residents: States' Use of Community Property for Federal Tax Reduction, 1939–1947