Income Tax Turns 100 in 2013: Die, Monster, Die!
by Terri Eyden on
By Teresa Ambord
In case you missed the big celebration, federal income tax turned 100 this month. Woo-hoo? February 3, 1913, was the day the Sixteenth Amendment to the US Constitution was passed, ushering in the nemesis of nearly every American, the good ol' income tax.
The amendment says: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Later that year, on October 3, the Revenue Act of 1913 passed, creating the first permanent federal income tax.
Before that, there had been attempts to establish an income tax. Congress worried that the country's reliance on tariffs to raise revenue made the cost of imported goods rise too high. Not a bad point, really. But surely they didn't anticipate the monster the new system would become.
In the first year income was taxed, one in 271 Americans citizens was subject to it, and $28 million in revenue was raised. Tax returns were due on or before March 1. And the instructions were one page. (One!) Click here for a peek at the first return.
According to Thestreet.com, here are some highlights of our tax when it began its long, long life:
- Generally, tax applied to salaries and wages; interest; dividends; rents; royalties; pensions and annuities; income from estates, trusts, sole proprietorships, and partnerships; and gains from the sale of most property.
- A "normal tax" of 1 percent was applied to the first $20,000 of taxable income. This normal tax didn't apply to dividends. But for people earning over $20,000, an additional "super tax" was applied to income, which did include dividends. That super tax was also 1 percent, until income reached $50,000. When net income exceeded $500,000 it really got tough. That's when tax rose to 6 percent. (Six!)
- There were deductions for such things as personal interest, federal excise tax, state and local tax, casualty and theft losses, bad debts, business expenses, and depreciation of business property.
- A single taxpayer could take an exemption of $3,000; a married couple $4,000.
- State and local government employees were exempt from income tax related to their wages and salaries.
Obviously, various provisions were added through the years, like the personal exemption for dependents and the deduction for charitable contributions in 1917.
The standard deduction came along in 1944 as an alternative to itemizing.
Thirty years later, in 1974, Individual Retirement Accounts (IRAs) were introduced for people who didn't have employer pension plans. Then in 1975, the Earned Income Credit was created to help low-wage taxpayers with dependent children.
Note: The deduction for charitable contributions is now being targeted for possible extinction as a way to collect more taxes, while the Earned Income Credit has grown to cover families with incomes up to $51,567 and couples without children earning up to $19,680.
And on and on it goes. Remember that original one page of instructions? In 2012 CCH reported the tax code is now 73,608 pages and growing. No wonder former Treasury Secretary Paul O'Neill said, "Our tax code is so complicated we've made it nearly impossible for even the Internal Revenue Service to understand."
If the tax code were a person, one might marvel at a 100th birthday and greet it with a cake and a hearty celebration. Doubtful that many people, even those who make a living poring over the monster tax are willing to say, "long live the income tax," or "many happy returns!"
More like, "die monster, die!"
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1 week 3 days ago by mucar1990