Archive for Thursday, April 4, 2013

Income tax marks 100 years

April 4, 2013

Normally when a nationally-known institution – one that touches all citizens – reaches its 100th anniversary there is a major celebration. Usually, this includes a lot of national publicity and a variety of special events. In the case of a famous institution’s centennial in 2013, I’ll bet that this won’t happen.

The government institution I’m talking about is the federal income tax. The 16th amendment to the Constitution was ratified in 1913 giving the federal government the right to levy an income tax. The original income tax was rather mild – it was only one percent on Americans with an income over $3,000. Those citizens making $500,000 or more paid income tax at a rate of seven percent.

This wasn’t the first income tax in the history of the U.S. In 1894, an income tax was passed calling for levy of two percent on all incomes over $4,000 annually. I was surprised to read that only one percent of all Americans at that time made $4,000 or more annually. After a lot of legal wrangling, the Supreme Court tossed out the income tax. Actually there had been an income tax to finance the Civil War, but after the end of the conflict, the tax was repealed.

It was necessary to amend the Constitution to insure the legality of the federal income tax. In colonial times, the government relied on tariffs and taxes on whiskey to pay federal expenses. However, the growth of government services created a need for more money.

President William Howard Taft and President Woodrow Wilson have been called the “fathers of the modern income tax. Both favored the tax as a fair way for wealthy Americans to pay a share of the cost of government. I doubt either one could envision today’s modern IRS. Besides, the income tax was originally planned as a temporary measure to bolster federal finances in the short term. Certainly history changed that initially with the cost of World War I, followed by the Depression and World War II. In the next three decades, the role of the federal government changed and there was greater need for money. The income tax certainly isn’t going away.

Actually, the concept of a tax on income isn’t new or limited to the U.S. Ancient Egypt had a form of income tax. In their case, they didn’t collect money. Normally taxes were paid in grain or livestock. No, the idea wasn’t popular even back in those ancient days. Tablets have been found prepared by citizens who bitterly denounced the tax. The tithe, which is a part of religion, may have had its roots in taxation.

The Romans spread the income tax throughout the world. In fact, high taxes led to a rebellion in ancient England. Queen Bordar protested the high Roman levy in 60 C.E. The Romans decided to make an example of the queen and she was publically flogged. Instead of complying she organized a rebellion which may have resulted in the deaths of 70,000 Romans over several years.

Now, virtually every country has an income tax and while we complain about the rates, we pay less than many European Countries where the rate can top 50 percent or higher. I wonder if taxation is popular anywhere in the world. You can find literally thousands of ways that persons have tried to evade the tax collector, but from what I’ve discovered none of them worked. Probably the most famous U.S. tax evader was Chicago mobster Al Capone. While authorities couldn’t prove he was guilty of his many offenses, he was sent to prison for income tax evasion.

Tax day – April 15 – is just round the corner and I wonder if anyone will be singing “Happy Birthday” to the system.


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