The U.S. government’s privilege to levy taxes was incorporated into the Constitution in 1787. The responsibility for how to collect these taxes fell to the Treasury Department where it has stayed. 30years later the issue of taxes was abandoned due to our governments needs were being met by taxes on imports. So no more taxes for citizens.
45 years later the Revenue Act of July1, 1862 was signed by President Lincoln due to the outbreak of the Civil War and the governments need for funding it. This established our nation’s first real income tax. The Internal Revenue Service is officially born.
When the war ended, as before, the nation’s financial needs were being met by the taxes on imports, along with taxes on tobacco and alcohol. This resulting in some 90% of our internal revenue. In 1872 (10 years after its birth) the “income tax” was once again abolished.
Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.
18 years after the Supreme Court ruling, Wyoming ratification of the 16th Amendment, provided the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to more or less re-enact an income tax. That same year, the first Form 1040 appeared after Congress levied a one percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000.
Five years later, during World War I, the top rate of the income tax was raised to 77 percent to help finance the war effort. In the post-war years, that dropped down to 24 percent by 1929, and rose again during the Depression.
During World War II, Congress introduced payroll withholding and quarterly tax payments.
I am compiling a historical highlight section for my website that I don’t have completed (not that my site is up yet either) yet but when it is going I will be directing more to it and from it.
If you want to get a look at what the first 1040 form looked like with it’s instructions follow the link below to where the IRS has as a pdf file reproduction.
“first 1040 form and instructions”
Some things of interest to notice:
1. Taxes were only paid on income above $3,000, equivalent to $61,000 in today’s dollars, at the initial rate of only 1%.
2. The highest marginal tax rate in 1913 was 6%, which applied to income above $500,000, equivalent in today’s dollars to a little over $10 million.
3. The entire 1040 tax form in 1913, including all forms and instructions, and was only 4 pages. All instructions in 1913 were contained on a single page, compared to the 2007 1040 Instructions, which held 92 pages long, (without any forms).
© 2008, Bruce Mc. All rights reserved.
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#1 by Andy on August 29, 2008 - 12:35 pm
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An interesting look back. Learnt something new today! Wish we still had those 1% taxes nowadays, but I think the government wasn’t really funding much in the early 1900′s.
New site is coming along nicely.
#2 by Wm on October 5, 2008 - 5:06 am
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Dear Taxguy,
Although the Constitution did authorize the government to levy taxes in Article 1 Section 8 you will notice that the imposition of a federal direct or capitation tax imposed on the citizens of the States was expressly forbidden in Article 1 Section 9, unless apportioned among the states in accordance with the Census. The wording is odd but you will notice that the Sixteenth Amendment contradicts this wording entirely.
The intent of the Founders was clear. As I understand it they were opposed to the Federal government being able to tax the citizens of the states. Also the powers granted to the Feds was limited to those powers designated in Article 1 Section 8 and certain powers were explicitly excluded in Section 9.
Notice that only coin was to be money not a paper currency which was not redeemable in coins of gold or silver. See Murray Rothbard’s The Case Against the Fed to be found at world wide web dot mises.org the site of the Ludwig von Mises Institute.
The attempt for there to be an income tax by Lincoln during the Civil was thwarted by the Supreme Court chief justice who made it clear that as long as he lived there would be an identical decision regarding any attempt to impose an income tax. The politicians waited until he died about 1910 and passed the Income tax amendment, the Sixteenth, in 1913.
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#3 by Dennis on October 26, 2008 - 4:02 pm
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Does anyone know when did the IRS tax codes allow for deductions on charitable giving?
#4 by Bruce on October 26, 2008 - 4:30 pm
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War Revenue Act of 1917
The deduction for charitable contributions is one of the oldest deduction provisions in the tax laws. Although an attempt to enact a deduction for gifts to “religious, charitable, scientific, or educational” institutions in 1913 was unsuccessful, such a provision was included in the War Revenue Act of 1917. It provided a deduction for:
Contributions or gifts actually made within the year to corporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual, to an amount not in excess of fifteen per centum of the taxpayer’s taxable net income as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury.