Since it’s tax season, I decided to do a little reading online about the history of income taxes in the United States. What I found was this: Our taxes are heavily affected by wars that our country is involved in. As I studied, I made this outline of our income tax history:
1791 – 1802 No income tax at all, although there were “internal taxes” on items such as alcohol, refined sugar, and tobacco.
1812 The War Of 1812 broke out, and taxes were created on gold, silverware, jewelry, and watches to pay for war expenses.
1817 Congress cancelled all internal taxes since the war was over, although there were tariff taxes on imported items. We were able to pay for our government with just tariffs!
1862 Civil War began, and Congress ordered the first income tax, to pay for the war. They also created the office of Commissioner Of Internal Revenue. Sales tax, excise tax, and inheritance taxes were also created. Those who earned $600-$10,000 a year were charged 3% income tax.
1866 The internal revenue service collected more than $310 million dollars in taxes, although the Civil War had wrapped up in April of 1965.
1868 Taxes on tobacco and liquor were started back up.
1872 Congress eliminated personal income tax.
1894 Congress passed a 2% income tax.
1895 The United State Supreme Court ruled that income tax was a violation of the Constitution, and cancelled the income tax.
1913 The 16th amendment to the original Constitution was passed, making it legal for the government to charge individuals and companies income tax. The tax rate was 1% for the poorest, and 7% for anyone making over $500,000 a year.
1914 World War I began. Although the U.S. did not join in the war until 1917, the government started collecting war funds.
1916 Congress passed the Revenue Act, and the top tax bracket was raised from 7% to 15%.
1917 The U.S. jumped into World War I. The War Revenue act was passed, and the top tax bracket was raised to 67%.
1918 The top tax bracket was raised to 77%. Over $1 billion dollars in taxes were collected.
1920 The war was over, but the government had gotten used to the tax money rolling in, and collected $5.4 billion dollars.
1925 The government finally got around to lowering the taxes, seven years after World War I had ended, lowering the top bracket to 25%. This rate continued through 1931.
1932 We were experiencing the Great Depression, and the government needed money for its relief programs. Congress raised the top tax bracket from 25% to 63%.
1939 World War II began. The United States was not involved yet, but started building up its war funds, using the still-high tax rates.
1941 The U.S. entered World War II, using the high taxes its citizens were paying.
1943 The government ordered that income tax be deducted from paychecks, instead of being due at the end of the year. They could not wait to get their money.Continue reading “War & Income Tax”