The 100th anniversary of the implementation of the U.S.
Federal Income Tax
On February 3rd, 1913, one of the two most historic events
in US history took place: the ratification of the 16th amendment, which
established Congress’ right to impose a Federal income tax on Americans, and
overturned Article I, Section 9 of the US Constitution which explicitly
prohibited a general income tax. The amendment was brief and to the point, and
read as follows:
“The Congress shall have power to
lay and collect taxes on incomes, from whatever source derived, without
apportionment among the several States, and without regard to any census or
enumeration.”
And with that, the US Federal Income Tax was born and has
been with us for precisely 100 years this week.
It’s hard to imagine that, for many years, this country was
run on very limited funds. Up until the early 1800s, the government was run
purely on internal sales taxes.
During the Civil War the “Revenue Act” was passed to raise money
for the war, but that was repealed within a decade. But I imagine by then the
sharks had already had a taste of that blood, so the income tax was reinstated
in 1913:
The incomes of couples exceeding
$4,000, as well as those of single persons earning $3,000 or more, were subject
to a one percent federal tax.
Further, the measure provided a progressive tax structure,
meaning that high income earners were required to pay at higher rates.
It would require only a few years for the federal income tax
to become the chief source of income for the government, far outdistancing
tariff revenues.
A little more info below. Note in particular that in 1913
the tax code was 170 pages long as opposed to about 20,000 pages today.
Here is a graphic that will provide a snap-shot history of
the Federal Income Tax.
Now- for something really interesting – follow the link below
to an interesting and interactive version of the graphic above. Pay special
attention to a few things:
- The eventual progression in which the lower paid or middle
income Americans were eventually moved out of the lowest tax brackets. (i.e low
income earners saw their taxes increased).
- The periods of the 1970’s; which had a much higher rate on
high income earners – coincides with a bad economy.
- The 1980’s and early 1990’s is when the “tax rates” for higher
income earners were nearly on par with the average income earner (i.e. high
earners were given a tax cut) – coincides with periods of robust economic
growth (between 1982 and 1992; over 20 million new jobs were created; the total
dollars to the Federal Treasury increased).
… [Note – job creation
for this period are not in the graphic but are a matter of public records]
Here is the link to the interactive visual.
Happy Anniversary!
Resources & Links
