On February 3, while most Americans were settled in front of television sets watching the Ravens beat the 49ers, a landmark birthday went unnoticed.
The national income tax turned 100 on Sunday, marking the 100th anniversary of the ratification of the 16th Amendment in 1913.
Forbes contributor Travis Brown talks about the current national attitude toward income taxes. The attitudes range from blatant criticism to cynicism to denial. While many American’s celebrated the Super Bowl, Brown assumes that, when it comes to the income tax’s birthday, there’s “no celebration of that anniversary. Zilch. Nada. Nothing.”
“No saints are likely to come marching in for a parade that celebrates the ‘privilege’ of taking valuable resources from production and turning them into massive government growth. Automatic withholding resulted in a surge in federal revenues, and spending spiraled out of control. There are many reasons why Americans choose to ignore the reality of how our income tax is collected: we think we have say in the matter, we possess a tendency to avoid dwelling on financial pain, and we hang onto the idea that overpayment of taxes throughout the year is really just ‘forced savings.’ “
Brown goes on to say that some Americans may have at one time considered it their patriotic duty to contribute to the national income tax. Specifically during times such as World War II. But today, he warns, public attitudes are “likely to be much more cynical regarding what taxes are actually doing for our communities.”
President William Taft was in office when the ratification was made. It was purposed to ensure that more higher-income people paid taxes, and that the government wasn’t completely dependent on tariffs and taxes on goods.
While the income tax that Taft championed was the third national income tax to be instated, it was the one with the power of a constitutional amendment behind it, and — much to the chagrin of most Americans today — it stuck.
While the founding father — and generations of leaders that followed them — weren’t too keen on the idea of an income tax, the financial needs of the Civil War led to the first national income tax.
Author John Steele Gordon wrote a short history of the income tax in 2011 for The Wall Street Journal. Beginning with the Civil War, Gordon follows the tax’s maturation until the 16th Amendment. Gordon says the “combination of a huge government surplus and a heavy tax burden on consumers led President Grover Cleveland’s administration to pass a second income tax law in 1894.”
“The new tax, however, was very different from the Civil War income tax, which had exempted only the poor. The new one hit only the rich, imposing a 2 percent tax on incomes above $4,000. Less than 1 percent of American households in 1894 met that income threshold,” notes Gordon.
In the 1895 decision of Pollack v. Farmers’ Loan & Trust, the second income tax law was overturned by the Supreme Court.
By the time President Taft took office in 1909, the pubic were dissatisfied with a Robin-Hood-esque story, where the rich were being under-taxed and the over-taxed poor were paying the consequences. The summer after his inauguration, Taft sent a letter to Congress to lobby for the 16th Amendment. He defined a basic two-tax system in which income taxes were collected from citizens and businesses. He also understood that the amendment wouldn’t allow the Supreme Court to overturn a personal income tax based on the Pollack decision.
“I recommend, then, first, the adoption of a joint resolution by two-thirds of both Houses, proposing to the States an amendment to the Constitution granting to the Federal Government the right to levy and collect an income tax without apportionment among the several States according to population; and, second, the enactment, as part of the pending revenue measure, either as a substitute for, or in addition to, the inheritance tax, of an excise tax upon all corporations, measured by 2 percent of their net income.”
The amendment was passed, then finally ratified in 1913, when Delaware became the 36th state to approve it. The first 1040 appeared in 1914, and was three pages long.
The first income tax act after the 16th Amendment was 14 pages long, and the federal tax code was about 400 pages.
Now, one estimate puts the federal tax code at more than 70,000 pages. An IRS report from 2008 said that no one really knew how big the current tax code is, and it estimated the code at 3.7 million words.
So, while you were chomping down nachos and alternately cheering or booing during the 47th Super Bowl, your 1040 was quietly celebrating its own birthday. And we wish it many happy returns.
What do you think of the national income tax?
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