History of The Income Tax In The U.S., Part 1: The First Two Hundred Years

Our nation has existed since 1776. Some wonder whether the income tax has been around for as long. As perhaps would be expected, taxes were not much a part of our nation’s early history. After all, the Boston Tea Party involved a protest over a tariff, the Tea Act of 1773, imposed by the English crown. In the period directly preceding the 19th century, the United States imposed internal taxes on distilled spirits, tobacco, refined sugar, slaves, carriages, corporate bonds, snuff, and property sold at auction.

The 19th Century

However, the high cost of the War of 1812 brought about a need for revenue at the federal level and the nation’s first sales taxes were implemented on items such as gold, silverware, jewelry, and watches. Congress abolished these internal taxes in 1817, instead focusing on tariffs on imported goods to provide sufficient funds for operating the federal government.

In 1862, Abraham Lincoln enacted emergency measures to pay for the Civil War, which included a minimum 3% tax rate. This law lapsed in 1872 but in 1894, a 2% federal income tax was enacted. However, in 1895, the income tax was ruled unconstitutional by the U.S. Supreme Court in Pollack v. Farmer’s Loan and Trust.

The 20th Century

In 1909, the 16th amendment was proposed which authorized Congress to collect taxes on income. Not until 1913 when Wyoming cast the 37th vote, was the amendment ratified. One in 271 people paid a 1% federal income tax rate. The Revenue Act of 1926 reduced taxes because allegedly the federal government was collecting too much money.

In 1939, revenue statutes were codified by Congress. One out of 32 citizens paid a federal income tax rate of 4%. In 1943, one out of three Americans paid taxes. In the same year, withholding tax on salaries and wages was introduced.

Post-World War II

In 1954, the 875-page Internal Revenue Code of 1954 was drafted which was perhaps the most monumental overhaul of the federal income tax system. In 1969, the Tax Reform Act was enacted which contained major amendments to the 1954 Tax Code.

It is wise for both individual and business taxpayers located in the Tri-State area to consult with a tax professional to help assess their current tax situation, looking ahead to the future. If you have any question about taxes, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.income tax

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