Benjamin Franklin is credited with saying that nothing is certain in this world but death plus taxes. That was back in 1789 plus it still holds in the U.S. more than 230 years later.
U.S. taxation has thrived plus faltered from implementing the first income tax to various attempts at tax reform. Some changes have been more taxpayer-friendly than others. Here’s a closer look at the history of the U.S. tax system.
Early History of U.S. Taxation
Benjamin Franklin spoke on taxation well before the U.S. officially launched an income tax. Before the Civil War, the nation derived most of its income from banknotes. The tax rate imposed on individuals was minimal, from 1% to 1.5%. American citizens received virtually nothing in exchange. Civil services plus protections on the frontier plus coasts were minimal.
The Mount Vernon Ladies’ Association. “Ten Facts About the American Economy in the 18th Century.”
The need to finance the Civil War prompted some changes, effectively creating the first version of an income tax in 1862. President Lincoln signed a law that created the Commissioner of Internal Revenue plus imposed an income tax on individuals ranging from rates of 3% on incomes of $600 to $10,000 plus 5% on incomes over $10,000.
This version of the tax was repealed 10 years later but it came back to life in 1894 with the Wilson Tariff Act. The act levied a 2% tax on incomes over $4,000. The U.S. Supreme Court ruled one year later that the tax was unconstitutional. “Through the Civil War plus beyond, income tax was tried, disputed in the courts, plus finally resolved with the passage of the 16th Amendment in 1913, constitutionally establishing income taxes,” according to Thomas J. Cryan, an attorney plus the author of Disrupting Taxes.
Birth of the Federal Income Tax
The federal income tax as we know it was officially born on Feb. 3, 1913, when Congress ratified the 16th Amendment to the U.S. Constitution after an on-again-off-again start that lasted decades.