Sunday, February 3, 2013

The History of the Federal Income Tax ... Happy 100th Anniversary of the Ratification of the 16th Amendment to the U.S. Constitution

Exactly 100 years ago today the 16th amendment to the U.S. Constitution was ratified.

With its adoption, any lingering doubt about the federal government's authority to tax individual incomes was eliminated. During the Civil War, an income tax had been levied and was in effect until its repeal in 1872, because its revenues were no longer needed. Another similar tax was legislated thereafter, but in 1895 the U.S. Supreme Court ruled in Pollock v. Farmers' Loan that such a direct tax was improper since it was not apportioned among the states and their citizens and was therefore unconstitutional.

Does this leave you confused about the authority of Congress of levy taxes on income? If so, the 16th Amendment to the U.S. Constitution, which took effect on February 3, 1913, supersedes the prior ruling of the Supreme Court. And now we pay income taxes.

In fact, the clear and unambiguous language of the 16th Amendment states the present day power of the Congress succinctly:

"The Congress shall have the 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."

Case closed.

So now each year millions of U.S. citizens file income tax returns and pay lots of taxes. Millions more Americans must file returns but need to pay very little in income taxes. And finally, millions of other Americans are required to file income tax returns but pay nothing.

Many Unhappy Returns --- Millions of Them is a great summary of how and why the 16th Amendment to the Constitution was enacted. Here's a brief excerpt:

"A century ago, on Feb. 3, 1913, the 16th Amendment to the Constitution authorizing a federal income tax was ratified. But the amendment's adoption was more an accident than an act of political will, and tinkering with the Constitution was not even required for the federal government to tax Americans' earnings.

The country's first income tax was implemented to raise money during the Civil War. The tax was repealed in 1872 because the revenues were no longer needed. . . .


Before World War II, only one-third of the population earned enough to be subject to the income tax. After the war, the tax still affected only half the population. As late as 1947, farmers paid little or no income tax even when crops were good—it was generally accepted that they kept no books and were not expected to do much paperwork.

Over the years, the personal exemption and standard deduction have not kept pace with inflation, so today 70% of the population is subject to income taxes. Almost 60 million returns, mostly under $20,000 in gross income, pay no income tax, largely the result of the earned-income and child tax credits. The individual income tax today raises $950 billion annually through 144 million tax returns. Of this, the top 40 million returns pay about $856 billion and the bottom 104 million returns only about $94 billion.

The U.S. could easily reduce the tax-filing population to pre-World War II levels by dropping two-thirds of taxpayers from the drudgery of filing annual returns. . . .

Summing Up

Happy 100th anniversary to my 40 million fellow taxpayers who pay by far the lion's share of  personal income taxes collected by the federal government knows best gang. Aren't we lucky to be celebrating such a joyous occasion today?

And Happy 100th anniversary as well to those other 104 million filers of income tax returns, regardless of whether you have to pay a little or nothing at all.

Knowing that our money is being well spent and redistributed on our behalf by our duly elected "public servants" is such a comfort. Or is it?

So instead of celebrating today, maybe we should all just sit down and cry like the little boy shown in the picture above.

Thanks. Bob.

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