history of income tax law in the united states

8/8/2019 History of Income Tax Law in the United States

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History of income tax law in the United States

1791-1802

The U.S. government was supported by internal taxes on the following sectors.

yDistilled spiritsyCarriagesyRefined sugaryTobacco and snuffyProperty sold at auctionyCorporate bonds andySlaves

1812

To collect the high expenditure of the war of1812a, the government, for the first time,

imposed sales taxes on the following:

yGoldySilverwareyJewelry andyWatches

1817

The congress removed all internal taxes. Instead, it imposed taxes (tariff) on imported

goods. The main reason of this tariff imposing is to increase government income to meet

increasing government expenditures.

1862-1866

It is the Civil Warb that led government to increase its income through imposing tax on a

wide range of income level. In fact, it was a fore-runner of the modern income tax in that

a The War of 1812 was a war fought between the United States of America and the British Empire- particularly and

the provinces of British North America, the antecedent ofCanada. Lasting from 1812 to 1815, it was fought chieflyon the Atlantic Ocean and on the land, coasts and waterways of North America.

b The American Civil War (18611865), also known as the war between the States was a civil war in the U.S.Eleven Southern slave states declared their secession from the United States and formed the Confederate Sates ofAmerica, also known as "the Confederacy". Led by Jefferson Davis, they fought against the United States(the Union), which was supported by all the free states and the five border slave states. It remains the deadliest warin American history, resulting in the deaths of 620,000 soldiers and an undetermined number of civilian casualties.Ten percent of all Northern males 2045 years of age died; as did 30 percent of all Southern white males aged 1840.


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it was based on the principles of graduated or progressive taxation and of withholding

income at the source. The tax sources for the government at that time were as follows.

yIncome tax - Income from $600-$10,000 per year would pay 3%.- Income > $10,000 per year would pay a higher rate.

ySales taxesyExcise taxesyInheritance taxes

The 1862 act created office of the Commissioner of Internal Revenue. The commissioner

had power to address the following tax issues:

yTo assess, levy, and collect taxes andyTo enforce the tax laws through seizure of property and income and throughprosecution. Excise taxes

It is important to note that, in 1866, internal tax collections reached their highest point in

the nation's 90-year historymore than $310 million and this figure remained the unique

highest until 1911.

1868-1872

In the year1868 the Congress again focused its taxation efforts on tobacco and distilled

spirits which was earlier imposed in 1791 and eliminated in 1817.

1894-1895

Eliminated in 1872, the income tax was again imposed in 1894 and remained valid

through 1895. But in 1895 the U.S. Supreme Court ruled that the income tax was

unconstitutional because it was not apportioned among the states in conformity with the

U.S. Constitution.

1913-1920

The 1895 ruling of the U.S. Supreme Court (that income tax is unconstitutional) finally

led to the 16th Amendment to the U.S. Constitution in 1913. The amendment gave

Congress legal authority to tax income and resulted in a revenue law that taxed incomes

of both individuals and corporations. In fact, this amendment made the income tax a

permanent fixture in the U.S. tax system. In 1918, the internal annual revenue collection,


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for the first time in U.S. tax history, passed the billion-dollar mark and in 1920 the figure

reached $5.4 billion.

1943-1945

The withholding tax on wages was introduced in 1943. At that time the number of

taxpayers also increased significantly. In 1945, the number of taxpayer rose up to 60

million and the tax collected was $43 billion.

1981-1984

In 1981, Congress enacted the largest tax cut in U.S. history, approximately $750 billion

over six years. The tax reduction, however, was partially offset by two tax acts, in 1982

and 1984 that attempted to raise approximately $265 billion.

1986

On Oct. 22, 1986, President Reagan signed into law the Tax Reform Act of 1986. This is

one of the most far-reaching reforms of the United States tax system since the adoption of

the income tax. Some features of the act were:

- The top tax rate on individual income was lowered from 50% to 28%, thelowest it had been since 1916.

- Tax preferences were eliminated to make up most of the revenue.- In an attempt to remain revenue neutral, the act called for a $120 billion

increase in business taxation and a corresponding decrease in individual

taxation over a five-year period.

1990

The Revenue Reconciliation Act of 1990 was signed into law on Nov. 5, 1990. This Act

was signed with a view to increase revenue by taxing the wealthier people.

1993

President Clinton signed the Revenue Reconciliation Act of 1993 into law on 10 August

1993. The predicted budget deficit from 1994 through 1998 was $496 billion. The

Revenue Reconciliation Act of 1993 was signed mainly to meet this deficit.

1997

President Clinton signed another tax legislation in 1997 which cut taxes by $152 billion.

The main features of that Act were:

- A cut in capital-gains for all individual taxpayers.


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- Tax credit/incentive of $500 per child for education.2001

President George W. Bush signed the Economic Growth and Tax ReliefReconciliation

Act of2001. The main contents of this Act were as follows:

- This act offered the highest tax cut for the taxpayers since World War-II. Itwas estimated to save taxpayers $1.3 trillion over ten years.

- It created a new lowest tax rate of 10% for the first several thousand dollarsearned.

- It reduced the tax rates from 28% to 25%; 31% to 28%; 36% to 33%; and39.6% to 35%.

- It increased the per child tax credit from $500 to $1000 in 10 years.- Middle-income couples owed the same tax as comparable singles.

2003

The Jobs and Growth Tax Relief and Reconciliation Act of2003 was signed in 2003. It

accelerated the tax rate cuts that had been enacted in 2001, and temporarily reduced the

tax rate on capital gains and dividends to 15%.

2004

In 2004, the U.S. was forced to eliminate a corporate tax provision that had been ruled

illegal by the World Trade Organization. Along with that tax hike, Congress passed a

cornucopia of tax breaks, which for individuals included an option to deduct the payment

of whichever state taxes were higher, sales or income taxes.

2005-2010

Two tax bills signed in 2005 and 2006 extended through 2010 the favorable rates on

capital gains and dividends that had been enacted in 2003, raised the exemption levels for

the Alternative Minimum Tax, and enacted new tax incentives designed to persuade

individuals to save more for retirement.

history of income tax law in the united states

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