Source: U.S. Internal Revenue Service
Every April, millions of Americans find themselves united in one pursuit: complaining about federal income tax. Sadly, this rare national harmony unravels when taxpayers argue over who's to blame for the government's grip on income.
Some accuse Congress. Others point the finger at big corporations. Still others rage against the IRS. In an effort to preserve a more perfect union, KnowledgeNews offers a scapegoat that should appeal to all Americans: Napoleon.
Money for War
Yes, the Little Corporal is indirectly responsible for "subtract line 56 from line 46." In 1799, the British government levied a personal income tax of 10 percent to raise money to finance the war against Napoleon, who was coming off a winning streak and seemed to be a direct threat to Great Britain.
British law and government policies greatly influenced 19th-century American leaders, who observed that citizens found income tax more palatable if the money went for war. (American lawmakers overlooked the fact that the income tax was so hated in Great Britain that, when it was repealed in 1816, taxpayers demanded that all records be destroyed. The top tax official publicly carried out the order to burn the records--while secretly retaining copies.)
So, when the Union needed money to fight the Civil War, Abraham Lincoln signed the Tax Act of 1862. On annual income between $600 and $10,000, you paid a 3 percent tax. Above $10,000, you paid a 5 percent tax. In just two years, however, the tax rate for income over $10,000 had jumped to 10 percent. Lincoln himself seems to have had some difficulty with the paperwork. He overpaid $1,250 in 1864.
The 16th Amendment
The government phased out income tax after the war, raising revenue via excise taxes and import duties instead. But in 1894, the taxman struck again, when provisions in the Wilson-Gorman Tariff Act created the first peacetime income tax. Because the tax fell on the rich, those with less wealth generally applauded it. One Arkansan, for instance, explained to a Supreme Court justice that he and his neighbors favored the income tax--because no one in their entire state made more than the $4,000 exempted by the law.
Opponents soon challenged the very heart of the law: that the rate of taxation should increase as income rises. By 1895, a lawsuit had made its way to the Supreme Court. After hearing the tax characterized as "communistic," the Court ruled, five justices to four, that parts of the income tax law were unconstitutional.
Yet the idea that the wealthy should pay proportionately more tax than the poor had continued appeal for that era's progressive politicians, including Republican President Teddy Roosevelt. In 1909, just after his last term, Congress began an end run around the Supreme Court by submitting a constitutional amendment to the states. By 1913, the states had ratified the 16th Amendment to the U.S. Constitution. President Woodrow Wilson signed a new tax law that year.
At first, income tax accounted for less than 5 percent of federal revenues. By 1940, it accounted for 20 percent. By 1970, 70 percent. Today, 43 percent of federal revenues come from income taxes, personal and corporate. Social security, Medicare, unemployment taxes, and other retirement taxes account for 32 percent. Excise, customs, estate, gift, and other taxes bring in 7 percent. Uncle Sam borrows the rest.
Colleen Kelly
April 13, 2006
Want to learn more?
Visit the Tax History Museum
Every April, millions of Americans find themselves united in one pursuit: complaining about federal income tax. Sadly, this rare national harmony unravels when taxpayers argue over who's to blame for the government's grip on income.
Some accuse Congress. Others point the finger at big corporations. Still others rage against the IRS. In an effort to preserve a more perfect union, KnowledgeNews offers a scapegoat that should appeal to all Americans: Napoleon.
Money for War
Yes, the Little Corporal is indirectly responsible for "subtract line 56 from line 46." In 1799, the British government levied a personal income tax of 10 percent to raise money to finance the war against Napoleon, who was coming off a winning streak and seemed to be a direct threat to Great Britain.
British law and government policies greatly influenced 19th-century American leaders, who observed that citizens found income tax more palatable if the money went for war. (American lawmakers overlooked the fact that the income tax was so hated in Great Britain that, when it was repealed in 1816, taxpayers demanded that all records be destroyed. The top tax official publicly carried out the order to burn the records--while secretly retaining copies.)
So, when the Union needed money to fight the Civil War, Abraham Lincoln signed the Tax Act of 1862. On annual income between $600 and $10,000, you paid a 3 percent tax. Above $10,000, you paid a 5 percent tax. In just two years, however, the tax rate for income over $10,000 had jumped to 10 percent. Lincoln himself seems to have had some difficulty with the paperwork. He overpaid $1,250 in 1864.
The 16th Amendment
The government phased out income tax after the war, raising revenue via excise taxes and import duties instead. But in 1894, the taxman struck again, when provisions in the Wilson-Gorman Tariff Act created the first peacetime income tax. Because the tax fell on the rich, those with less wealth generally applauded it. One Arkansan, for instance, explained to a Supreme Court justice that he and his neighbors favored the income tax--because no one in their entire state made more than the $4,000 exempted by the law.
Opponents soon challenged the very heart of the law: that the rate of taxation should increase as income rises. By 1895, a lawsuit had made its way to the Supreme Court. After hearing the tax characterized as "communistic," the Court ruled, five justices to four, that parts of the income tax law were unconstitutional.
Yet the idea that the wealthy should pay proportionately more tax than the poor had continued appeal for that era's progressive politicians, including Republican President Teddy Roosevelt. In 1909, just after his last term, Congress began an end run around the Supreme Court by submitting a constitutional amendment to the states. By 1913, the states had ratified the 16th Amendment to the U.S. Constitution. President Woodrow Wilson signed a new tax law that year.
At first, income tax accounted for less than 5 percent of federal revenues. By 1940, it accounted for 20 percent. By 1970, 70 percent. Today, 43 percent of federal revenues come from income taxes, personal and corporate. Social security, Medicare, unemployment taxes, and other retirement taxes account for 32 percent. Excise, customs, estate, gift, and other taxes bring in 7 percent. Uncle Sam borrows the rest.
Colleen Kelly
April 13, 2006
Want to learn more?
Visit the Tax History Museum
