On February 13, 1913, passage of the Sixteenth Amendment authorized a federal income tax. The first time an income tax was used was to raise money during the Civil War; the tax was repealed in 1872 because money from the tax was no longer needed.
In 1894, a 2% income tax was levied on those who made more than $4,100 a year. In 1895, the U.S. Supreme Court ruled that a tax on wages, professions, and trades was legal. However, the income tax was ruled to be unconstitutional because it included a tax on rental income (a violation of the Constitution’s “direct tax” law).
In 1909, a 1% “excise” tax for corporate income over $5,000 was enacted. A tax on income was enacted when the Constitution was amended in February 1913 by the required 36 states. Soon, the tax was “graduated,” ranging from 1–7% of taxable income.
Before WWII, just one-third of the population earned enough income to be subject to the tax. After the war, half the country’s workers were subject to income taxes. Up until 1947, farmers paid little or no taxes because it was believed they did not keep good records and were not expected to keep good records.
Today, 70% of the population is subject to income taxes. Close to $1 trillion is collected each year from individual taxpayers. The top 40 million pay close to $860 billion, and the bottom 104 million returns pay the balance of roughly $95 billion. Taxpayers challenging the legality of the 16th Amendment can face a penalty of up to $25,000.