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Brief History Of U.S. Income Taxes

Brief History Of U.S. Income Taxes

To defray the costs of the Civil War, Congress passed a temporary income tax in 1861, 3% on income > $800 ($20,000 in today’s dollars). The very next year, the tax was expanded and made progressive, with higher rates on higher incomes. The income tax did not become permanent until 1913, after the ratification of the 16th Amendment. At the beginning of WWI, Congress expanded the tax and raised rates to as high as 77%. Still, by 1918, only one in six families paid income taxes.

Revenue from income taxes rose to 9.4% of GDP in 1944, up from just 0.9% in 1940. Today, income taxes represent 8.3% of GDP; the percentage of all federal taxes is higher. The original Form 1040 was three pages, with an additional page for instructions. Today, the 1040 is deceptively just two pages, but its instruction booklet is 200 pages.
Miscellaneous Tax Facts
  • The April 15 filing deadline came into being in 1954.
  • From 1910 to 1959, dividends were mostly tax-free.
  • Standard deduction (single) in 1913 was $3,000 ($69,000 in today’s dollars).
  • Standard deduction (joint return) in 1913 was $4,000 ($92,000 in today’s dollars).
  • A 1913 worker paid 7% on income > $500,000 a year ($11.2 million in today’s dollars).
  • Over time, the top rate got to as high as 94% (FDR failed to get a 100% top bracket).
  • The government began withholding tax during WWII.
  • Lower rates on capital gains were not introduced until 1922.
  • All forms of interest on personal debt were deductible; this was changed in 1986.
  • Since 1913, U.S. citizens living in any country are subject to U.S. income taxes.
  • Most countries only tax earned income within its borders, regardless of the earner.
  • Even in 1913, there was a “marriage penalty” (inequality).




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