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A Brief History of U.S. Federal Income Taxes

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By Admin Views 623 18 Apr. 2023
So you think you're paying too much in taxes...
In 1861, the U.S. Government imposed the first income taxes on citizens in order to help cover the costs of the American Civil War. The tax was imposed as part of the Revenue Act of 1861 and was a 3% tax on all incomes in excess of $800. The Internal Revenue Services was founded in 1862. In the years following, the income tax rate was increased several times, challenges were made to the constitutionality of the income taxes imposed. Finally, in 1872 Congress repealed income taxes altogether. All was quiet until 1913, when Congress ratified the 16th Amendment which stated: 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. Then in October 1913, as part of the Revenue Act of 1913, U.S. Congress imposed a 1% tax on all income from any source over $3,000. From this point, tax rates increased and decreased considerably:
  • * 1918 the top tax rate was increased to 77% to help finance WWI (on income over $1,000,000 which was the current-equivalent of about $17M)
  • * 1922 the top marginal tax rate was reduced to 58%
  • * 1925 the top marginal tax rate was further reduced 25%
  • * 1929 the top marginal tax rate was reduced again to 24%
  • * 1932 the top marginal tax rate was increased again to 63%
  • * 1944 the top marginal tax rate was increased further to 94% to fund WWII.
  • To ensure that the government was able to collect the money it was due, Congress initiated payroll tax withholding and quarterly estimated taxes during WWII.
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