Why Do We Even Pay Income Taxes? Here’s Your History Lesson
“Nothing can said to be certain, except death and taxes.” As April 15 approaches, those famous words from Benjamin Franklin resonate stronger and stronger. Yet Franklin spoke them 100 years before the most difficult and vexing tax to most Americans — the income tax — even existed.
So how exactly did the income tax as we know it come to be?
The income tax was started by Congress in 1862 to support the Civil War efforts and a commissioner of internal revenue was appointed to oversee it. The tax began as a graduated tax: a person earning $600 to $10,000 per year paid three percent. Unfortunately, even then the law was confusing enough that Abraham Lincoln overpaid his taxes by $1279.15.
In 1895, the Supreme Court agreed to hear a case against the income tax. One of the nine Supreme Court justices was on his death bed at the time of the case, but it was such an important issue, Justice Howell Jackson was dragged out of his home and into court so he could hear the case. The 5-4 verdict ruled the income tax unconstitutional, since the Constitution decreed taxes had to be portioned equally across the states based on their populations, which an income tax could not do. Justice Jackson died three months later.
In 1913, Congress passed the 16th Amendment to the Constitution, which permanently established the federal income tax. The first income taxes were essentially a tax on the rich, since it only required those making $3,000 a year to pay one percent of their income. The average yearly salary at the time was $800, so most people were excluded.
The original Tax Act was 13 pages long. That’s a far cry from today’s US tax code, which clocks in at over 70,000 pages.
In 1914, the Harrison Narcotics Act was passed, which forced opium producers to report to the IRS and pay their fair share of taxes.
From 1913 to 1916, no deductions were allowed for dependents. The year 1917 introduced a $200 deduction per dependent, approximately 18 times less than currently allowed.
In 1921, the highest earners — those making over $ 1million annually — were taxed at 73 percent. By comparison, the top tax bracket today is for all those making over $379,00 and they are taxed 35 percent.
In 1945, the top income bracket was for those earning over $200,000 and they were taxed a whopping 94%. However, as the corporate income tax at the time was substantially lower, many of the wealthiest simply incorporated their holdings so as to avoid the steep percentage.
In 1955, tax day was moved to April 15th, which is now as familiar a date to most US adults as July 4th or December 25th. Good news for procrastinators, though. This year, taxes aren’t due until April 18. Washington, DC closes down for the April 16 holiday of Emancipation Day, the day that Abraham Lincoln freed the slaves. Because April 16 falls on a Saturday this year, Emancipation Day will be observed on April 15, which means that government offices will be closed and tax day will be bumped back to the following Monday, April 18.