Wednesday, November 21, 2012
Happy Birthday to the income tax !?
Mark your calendar for next year, the federal income tax will be 100 years old. Celebrate in whatever way seems appropriate to you.
federal income tax will be celebrating a 100th birthday.
There was no income tax during the Revolutionary War era. During the War of 1812, the U.S. government prepared to impose an income tax to help pay war bills, but the fighting ended and the tax idea was shelved.
The first federal income tax was voted in by the (Northern) Congress during the Civil War, again to pay the costs of the fighting. This 1862 tax included a 3% tax on incomes of $600-10,000, and 5% on incomes above $10,000 up to $50,000. In terms of the purchasing power of a dollar today, folks with income less than about $11,400 wouldn't be taxed, and the top rate of 5% would be imposed on incomes of approximately $190,000-$950,000.
This Civil War-era income tax was modified repeatedly, and finally expired in 1872.
Subsequently Congress tried dozens of times to re-institute the federal income tax but was stymied by provisions of Article 1 of the Constitution which limited the right of Congress to impose a "direct tax."
The ratification of the 16th Constitutional Amendment in 1913 paved the way for the modern income tax, which was adopted in the same year.
The first set of tax rates was pretty simple: a 1% tax on all income above $3,000, and surcharges ranging from 2% to 7% on income in the $20,000 to $500,000 range. By the way, the average annual income of Americans in 1913 was $2,367, so an awful lot of ordinary folks didn't have to pay the tax at all.
Ah, the good old days….
More info on the income tax