History of Income Tax ExposedSubmitted by Karstens Investments on May 15th, 2017
By Corey Voorman
The 1%, the 99%. These are phrases that are common in political discussion in the year 2017. We have seen political protests, rallies, demands that politicians release their tax returns. What is the history of the income tax? Was the United States Federal Government always fueled on the taxes of those who made the most? Is it now?
Fifteen years after the founding of the United States the federal government was primarily funded on taxes on spirits, sugar, slaves, tobacco and corporate bonds(1). Many of these taxes were in the form of tariffs which were levied on those importing to the United States. During the Civil War, an income tax was passed and quickly repealed post war. On July 2nd, 1909 the United States passed the 16th amendment to the Constitution which states, “The congress will have the power to lay and collect taxes on incomes, from whatever source derived, without appointment among several States, and without regard to any census or enumeration” (16th Amendment United States Constitution). This solidified the power of the federal government to collect income tax.
Fast forward 108 years and the results of the progressive income tax may surprise you. According to Kiplinger Tax Letter, in 2014 the top 1% of individual lers payed 39.5 percent of all federal income taxes (2). In comparison, the lower 50 percent of filers paid 2.75 percent of the total federal income tax collection. This was primarily subsidized through tax refunds.(2) If you believe that the current 39.6 percent income tax threshold is the highest one can pay for federal income tax, consider this: in 1944 the top tax rate peaked to 94% on taxable income over $200,000. Of course, during this time many investors moved to municipal bonds to minimize their tax burden. (3) Regardless of the jargon on the left and the right side of the political spectrum, the origins of the income tax do not re ect the current state of tax burden. However, it is interesting to note that though many believe those who are in the highest tax bracket do not pay their fair share and those that believe that federal tax rates have reached an all-time high; both are soundly refuted by historical evidence.
(2). Kiplingers Vol. 91, No. 25