DELRAY BEACH, Fla., April 7, 2017 — Few Americans relish the process of filing annual income tax. Many others argue against the tax, at least in its current form. However, the United States did not always have an income tax. Here are five things you may not have known about the U.S. income tax:
- The U.S. income tax did not come into existence until the Civil War. In the early days of the country, the U.S. government income came from taxes on property, distilled spirits, refined sugar, tobacco, and corporate bonds. With the War of 1812, the government needed more money, so it instituted the first sales tax in the country. By 1817, however, Congress eliminated the previous taxes and instead raised money by taxing goods that entered U.S. ports. During the Civil War, the U.S. lost revenue because of port blockades and sunk ships. To fund the war, and the government, President Abraham Lincoln established the first income tax. As a side note, the government decided to make tax returns public, as a way to induce people to pay taxes. In 1864, President Lincoln paid $1,296 in taxes.
- The first income tax was primarily a tax on the rich. It was a progressive tax and withheld income at the source. In other words, the more you earned, the more tax you paid, and the employer withheld the tax of the individual. Americans who earned $600 – $10,000 a year paid 3% tax and those who earned more than $10,000 paid a higher rate.
- In 1895, the Supreme Court ruled the income tax unconstitutional. Rich Americans who bore the brunt of the income tax argued that the tax directly countered the Constitution because it was an unapportioned direct tax. The Constitution stated that a direct tax had to be divided among the states according to population and not an individual graduated tax. Because one Supreme Court Judge was absent (he was literally dying), the Court had only eight judges to vote on the case. The judges voted 4-4, so the dying justice – a known supporter of the income tax – came back to vote, breaking the tie. Although that judge voted as expected, in favor of the tax, another judge changed his vote during the delay, so Supreme Court voted 5-4 against the tax, ruling it was unconstitutional.
- To allow an income tax, Congress and the states then passed the 16th Amendment to the Constitution. That Amendment states, “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.” The government ratified the amendment on February 3, 1913, making income tax a permanent part of the U.S. tax system.
- The most important spokesman for the U.S. income tax was Donald Duck. After the 16th Amendment, the income tax remained heavily skewed towards the rich. However, to fund World War II, the U.S. government expanded the tax base to include average Americans. The U.S. government, especially the Commissioner of Internal Revenue, worried that Americans would ignore the tax. A Gallup poll in the late 1940s showed that 37% of Americans said the film played an important part in persuading them to pay their taxes.
Thanks to a determined government, the Constitutional Amendment process, the income tax is here to stay.