The history of income tax in the US

The history of income tax in the US

1.913 celebrates the 16th Amendment to the United States Constitution opens the way to taxes. The tax code is more complicated than can imagine and a look at the major events of the last 100 years could help us understand how we got where we are today.

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Today's tax code is perhaps the most complex of all conflict rules, regulations and laws on earth. For the purposes of this article I will talk about the key factors and how to make your way through this maze. Even the most respected authorities on the issue of taxes are confused by nearly 10,000 pages of tax code.

There was a lot of taxes before the 16th Amendment. To help finance the War of 1812 was a tax on gold, silver, jewelry and watches. Once the war debts have been fully resolved, the taxes were discontinued in 1817. Operating income for the government was adequate with tariffs and quotas on goods sold until the Civil War. In 1862, Congress passed the first law of income tax to support the costs of the civil war. The tax rate was 3% and more in some luxury items. Then, in 1868, Congress passed a new tax on snuff and distilled spirits. This is the first sign of a "parallel" tax with income tax. Income was the highest ever at $ 310 million and quickly settled all debts of the country, so in 1872 Congress eliminated the income tax.

After the Civil War, America has experienced an economic boom with the "reconstruction era." In the years 1870-1900 of the benefits of the industrial revolution took action. Chicago hosted the 1893 World Expo celebrating 400 anniversary of the arrival of Christopher Columbus to the New World in 1492. In 1894, Congress revived the law of income tax and looked dynamic revenue growth. Only a year later, on 21 May 1895, the Supreme Court ruled that the tax was "unconstitutional." The 5/4 decision stated that a direct tax on income from movable and immovable property was unconstitutional and void. In the years that followed this decision the Supreme Court of the economy once again increased rapidly. The rich became richer it and there were jobs for everyone. The good life in America was organized with the growing immigration of Europe bringing traders who seek a better life. In 1904, St. Louis hosted the World's Fair that celebrates 100 years of purchasing Louisiana 1803. This event showed the world the richness of all aspects of life was in America.

In 1907, just three years later, America is facing a major crisis. The US economy has fallen to a point where the average family income was reduced by 40%. It occupies a panic because many banks closed and people have lost faith and hope. Times were hard for average families. When the banks closed, people who work lost their savings. President Taft addressed Congress in 1909 that offers a federal income tax of 2% of companies (for the privilege of doing business). July 12, 1909, Congress passed a resolution proposing the 16th Amendment. This Amendment to the Constitution allows Congress to impose a tax on income. Not required federal tax to be distributed or allocated to States and has no connection with the census results. It was written to avoid being a "direct tax" and avoid conflict with the judgment of the Supreme Court in 1895. With 48 states, 36 states to ratify before it can be approved as an amendment is necessary .

Then a secret meeting at Jekyll isolated island with the most powerful bankers took place in 1910 and financial decision makers at the time. This event really requires much more debate and entire books have been written about this meeting. What is important to take from this is the fact that this meeting was the beginning of what is now known as the Federal Reserve Bank. Few people even today to understand the impact of this meeting.

Interestingly, since the 16th Amendment proposed in 1909; only 31 States have ratified through 1911. The United States presidential election, 1912 was a rare four-way contest. The current President William H. Taft ran with former President Theodore Roosevelt and Woodrow Wilson (finally nominated by his party on the ballot 46a) and Eugene Debs of the Socialist Party. Throughout the presidential campaign of 1912 (an event usually two months), Amendment 16 was a "hot topic". At election time in November states to ratify the 16th Amendment needed more than two. Woodrow Wilson was elected and the 16th Amendment to the United States Constitution was ratified February 3, 1913.

With exceptional revenue of Congress it was time to jump on the roller coaster of cash. World War I came and in 1918 Congress established a tax rate of 77% for those with incomes over $ 1 million. This is an equivalent of $ 2,012 15 million in annual revenues, most people do not even care that it was not a tax on income. With this first significant tax revenues in 1918, our annual revenues exceeded one billion dollars for the first time in history. This is a "one" as simple and "B" billion. Then two years later, in 1920, the internal annual income increased by US $ 5.4 billion. This represents a 500% increase in just 24 months.

There is a lot of different story over the years 1920-1940 and the front of the tax was relatively quiet. The economy grew at a rapid pace during the 20s, hence the name "Roaring Twenties". Then in October 1929, the effect of "What goes up must come down." The stock market crashed and brought a depression. Like many events in history, government intervention halted the normal recovery, which was now known as the "Great Depression".

When speaking of "highest tax rate" often see a number that is reserved for the very rich. What is neglected, in addition to the highest dose, he returned "threshold" that determines the number of people affected by this rate. In 1941, the rate of the highest income tax was 81.1% for those earning more than $ 5,000,000. This has certainly limited the high rate of a minimum number of people. Then, in 1942 (next year), the highest rate rose to 88%. In itself, this does not seem so bad until you consider that the threshold is reduced to those earning over $ 200,000. The decrease in the threshold of $ 5 million to $ 200,000 means that many more people would pay the new higher rate. In 1942, World War II created a huge increase in employment and stimulate the economy (from years of depression). With this increase in employment was also an increase in tax revenues and revenues exceeded $ 7.3 billion in collections.

So far, the collection of taxes were voluntarily paid by taxpayers. People filed their tax returns and make payment of their taxes. In 1943, Congress passed "mandatory federal income tax at source" requires employers to take taxes from your paycheck and send it to the US Treasury. This measures the number of taxpayers has increased to over 60 million (estimated increase of + 30% in the number of taxpayers). After World War II, in 1945, Congress increased the top rate to 94% and the threshold remains at $ 200,000. Congress / IRS closed some gaps in the bill "withholding tax" and included more complications than had to pay quarterly tax payments. Net domestic annual sales in 1945 exceeded $ 43 billion, nearly 50 % every year for 15.

The end of World War II marked a period of significant growth in both the economy and the birth rate. We are entering a new era in America with tremendous growth and individual responsibility. Families lived the American dream. Congress and the Internal Revenue Service continued to "tinker" with the tax codes after the Second World War. In late 1969, Congress passed the "Law on tax reform of 1969," which established the alternative minimum tax (AMT). This was a completely independent new tax system for some Americans. The number Americans who have been forced to pay the AMT in 1970 was about 19,000, and the collected amount was $ 122 million.

The years pass, with obvious abundance of revenue for the federal government. Budgets increase automatically, regardless of the actual amounts required or worn. In 1981, Congress passed the largest tax cut in American history by cutting $ 750 billion over six years million turnover. Then, in 1982 alone, the following year, Congress passed legislation to increase tax revenue. The increase was not enough, so in 1984, Congress passed another law increasing tax revenues. Among the tax laws of 1982 and 1984, total revenue was about $ 265 billion. This is about 1/3 lower revenues approved in 1981, which will take place over 6 years.

October 22, 1986, President Ronald Reagan signed the "Tax Reform Act of 1986", the tax rate was reduced from over 50% to 28%. This represents a significant reduction of the maximum rate, the maximum speed most lowest since 1916. Another part of the 1986 Act was a change in TN to develop and include many homeowners. Congress has the bad habit to make his "Tax Act" annual, with more changes in 1987, and 88 89.

On November 5, 1990, the "law of reconciliation on the 1990 income" became law. It was just a fancy name for "Tax Act" and had most of the same tinkering with our taxes. This law focused on raising taxes on wealthy Americans. The economy was growing and inflation is recovering from the 80 When President Clinton signed the "Reconciliation Act of 1993," the purpose was to reduce the federal deficit by $ 496 billion. Revenues for the federal government was even greater than what is required to run and there was a surplus. In 1997, President Clinton signed the Tax Act by reducing taxes by $ 152 billion. This bill presented by tax on capital gains, provided that a tax credit of $ 500 per child, and had tax incentives for education.

In 2001, President Bush signed the "Economic Growth Act and relief of reconciliation Tax 2001". It contained the third largest tax cut since World War II, created to cut $ 1.3 trillion 10 years. With such a long name and a big cut this tax, it is anticipated that this might be enough to last 10 years. Well, that makes sense too. In 2003, President Bush signed the "law 2003 jobs and growth tax relief "accelerate the rate cut in 2001.

Although it is not a law, in 2004, the World Trade Organization ruled that the provision of tax US companies was illegal. This had an impact on the way companies plan their business and tax strategies. This also indicates foreign influence and encouragement for US companies to be more like European business models. In 2005 the favorable rates on capital gains and dividends were extended. The exemption levels for the alternative minimum tax were raised in 2006.

Remember a few paragraphs back, when we look for alternative minimum tax? Founded in 1969, the AMT was established as a completely separate tax system for income taxes. While most Americans did not know that this tax exists, changes made to the AMT affected nearly 5 million taxpayers in 2011. In 1970, the AMT has represented $ 122 million in revenues and income in 2011 AMT has exceeded US $ 40 billion. This is nearly 260 times more than 1,970.

Over the years since our founding, America has been on a rapid growth path of government. Taxes are the price we pay for living in a civilized society the provision of basic services and care for those who can not take care of themselves. If the government has shown a history of being good stewards with our taxes, more Americans proudly pay taxes without complaint. However, layers on layers tax regulations have led us to a point of the dependence of many of those who trust in our complicated tax system. The type of changes needed require a major overhaul. Most politicians and special interest groups today will not allow drastic measures to establish a new fair tax system. This means that everyone who looks to the future would have enough sense to understand that future taxes will be much higher than they are today.

People should be careful about the amount of money accumulated is considered "deferred taxes". I try not to use the term "deferred" when talking about the tax because they are really "deferred taxes". Think of it as the government gives you a loan. You say you can keep the money at a later date. If a bank is it, the first thing he would ask,. how much interest and when I will refund Well, the recording of "deferred taxes" is like that, but the government says, to keep money and when we need it, we will ask again and say the rate interest at the time. OK, so maybe this example is difficult, but do not know what will be in future tax savings and investments deferred tax.

References:

1) http://www.taxpolicycenter.org/

2) http://www.loc.gov/

If you need money and someone offer a loan, what would you know? If someone offered him money and says that you can have money right now, and they need the money immediately, simply said, I can pay later when I need money and I will fix the interest rate and later. Would you take this case? Probably not. When you think of this example, it is really the same as the government did with the retirement savings tax deferral. In fact, it is not known when it will take money to create a taxable event. Moreover, it is uncertain what the future tax rate. So one thing that is clear from this article is that taxes will not be the same in the future. A chic look would have to conclude that future taxes will be higher.