U.S. celebrates 100th anniversary of the income tax on Feb. 3

The United States is embarking on a 100th anniversary of the 16th Amendment that allows the Congress to levy an income tax. The U.S. has repeatedly attempted to implement an income tax throughout its history prior to the ratification on Feb. 3, 1913, the same year the Federal Reserve Act was passed.

“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,” the 16th Amendment states.

Federal income taxes can be seen throughout the early history of the nation. During the War of 1812, the first income tax was suggested based on the British Tax Act of 1798. To help pay for the Civil War, Congress imposed the Revenue Act of 1861, but was later repealed and replaced a year later. Congressional Democrats implemented a peacetime two percent income tax on those earning $4,000 or more in 1894.

File:1920 tax forms IRS.jpg

(U.S. taxpayers filing their taxes in 1920.)

Of course, this anniversary is of a different kind. It will surely not bring champagne flowing from the heavens, citizens will not be dancing the streets and libertarians, the Tea Party and some conservatives will not be thanking the federal government.

For the past century, the U.S. income tax has come a long way: starting from one percent in 1913 to as high as 35 percent in 2012. The federal tax code was first only 170 pages long and has now expanded to 71,684 pages (2010). It has also allowed the federal government to initiate various social programs, wars and high debt levels.

Since it was first imposed, there have been wide ranging tax rates. For instance, the top rate was highest during times of war: World War I (77 percent), World War II (94 percent) and the Vietnam War (77 percent).

Indeed, the income tax started very low, but has become a behemoth for tax filers over the years in each April because of its high levels, intricate language and annual headaches for households, except for accountants, tax preparers and the government. The latest figures suggest that the income tax brought in $1.3 trillion to the federal government last year, up from $689 billion in 1988.

A brief but detailed history of the income tax can be seen through this infographic brought to you by CEO.com and DOMO using information from the IRS, CNN Money, Tax Foundation, Chicago Booth University and National Taxpayers Union.

At the end of the infographic, as well as other outlets that have covered the income tax anniversary, it pegs the question: “what’s in store for the next 100 years of?” Since the IRS tax code has swelled dramatically over the past 36,500 days, it is safe to surmise that the income tax will be higher and even more difficult to understand.

There has been a growing movement across the U.S. to abolish the income tax. Retired Texas Republican Congressman Ron Paul made headlines during the 2008 presidential campaign because he stated that he would like to eliminate the income tax and replace it with nothing.

“Well, we should have the lowest tax that we’ve ever had, and up until 1913 it was 0%. What’s so bad about that? I think the question is generally misleading, because anytime you spend money, it’s a tax,” said the three-time presidential candidate during a Fox News debate last January. “You might tax, you might borrow, you might inflate. The vicious tax, that’s attacking the American people, the retired people today, is the inflation tax, the devaluation of the currency, the standard of living is going down, and you need to address that. And that’s why I want to make the inflation tax zero, as well.

Last year, Dr. Paul uttered the same message, but former New Mexico Republican Governor and Libertarian Party nominee Gary Johnson also advocated on getting rid of the income tax, but replacing it with a national consumption tax, otherwise known as the FairTax.

“But those mom-and-pop stores? The tech startups? The nimble new corporations with new ideas and new visions for our economy? They pay as much as 35 cents on every dollar they earn,” said Johnson in the Washington Times. “When the company pays its employees, the government taxes that money again. We need to stop taxing work, savings and investment. I advocate removing all income taxes, all capital-gains taxes, and replacing them with a consumption tax, kind of a national sales tax called the FairTax.”

What will you be doing on Feb. 3 to help ring in the 100th anniversary of the income tax?

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  1. Thanks for mentioning the CEO.com and Domo infographic on tax rates! There were a lot of surprises in there and it’s very telling of the volatility of income tax rates and regulations.

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