At one time in our history, an income tax in the United States didn't even exist. However, today Americans say "only two things are certain: death and taxes". Many of us wish we lived back in the days of no income tax, but those days were difficult times. And be careful for what you wish for because many would gladly pay taxes for the conveniences of modern day living alone!
The history of taxes dates back to the period of 1791 to 1802 when the government was funded by taxes on alcoholic beverages, carriages, sugar, tobacco products, property, sales and corporate bonds. Then came the War of 1812 and all of the war associated expenses. Taxes were then added onto luxury consumer goods. Then, in 1817, all internal taxes were abolished and tariffs on imported products were the only funding the government received.
The history of the actual taxing of income begins during the Civil War period. The cost of this war caused the government to begin taxing the income of the citizens on a sliding scale. Other taxes were added such as inheritance tax and sales and excise taxes to fund the war effort. It is interesting to note that in 1866, the taxes for this young nation reached $310 million. Today, the total is far greater and the $310 million is mere chump change to Bill Gates and other cash machines of the day.
In 1872, income tax was abolished by Congress but it returned for a short time in 1894 through 1895. In 1895, income tax was ruled to be unconstitutional and was again rescinded.
Unfortunately for those who work for a living, in 1913, the 16th Amendment to the Constitution of the United States made income tax a permanent part of our lives. Congress was given the legal ability to tax the income of those living in the U.S and the corporations operating in the U.S.
The point in history at which income tax began to be withheld from paychecks was 1943. At that time, 60 million taxpayers were living in the U.S. In the following years, taxes changed frequently, both up and down. The most significant tax cut in history was in 1981 but in 1982 and again in 1984 taxes once again started to climb.
President George W. Bush has a part in what we will know in the future as the history of income taxes. In 2001, 2002, 2003 and again in 2004, tax cut legislation was signed into law. Whatever the public opinion of the President of the United States is, one thing is certain and that is the ever present fact that he indeed tried his best to make significant cuts in taxes.
At no time in history have there been more tax payers in America than today. With the child tax credit, earned income credit and other credit, some people are very happy to file their taxes and get refunds while others dread the task of having to submit a check with their tax return. This is why the tax season has always been a double-edged sword.
Learn more by watching the video Money, Banking, and the Federal Reserve
A great primer from the Mises Institute on our monetary system.