It’s that time of year again. Tax Day. April 15th. For some, the most stressful day of the year. Fingers are crossed, eyes directed to the heavens, refund or write a big fat check to the IRS?

Taxes Have Been Around a While

In the early years of the United State there were few taxes because our new nation was formed because of excessive taxation from Great Britain. Taxes in the early history of our nation came from internal taxes on things like distilled sprits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves.

Wars are always great for eating up available cash. The War of 1812 gave America its first national sales tax on things like gold, silverware, jewelry and watches. Sounds a little like taxing the rich doesn’t it? But unlike today’s spendthrift governments, the Congress of 1817 abolished all internal taxes and ran the government strictly on tariffs or goods imported from other countries. We had a much better balance of trade in those days. Everyone wanted to sell to this brand new market.

The First Income Tax

Most people think the income tax came along in 1913. Not so fast grasshopper. In 1862 we had another war to pay for. So, Congress enacted the very first income tax in our nation’s short history. Like our current tax, this tax was a graduated or progressive income tax. This Act of 1862 established the first Commissioner of Internal Revenue. Taxes were assed and levied, tax laws enforced through things like seizure of property or prosecution.

If you were earning $600 to $10,000 (big bucks in those days), you paid a 3% income tax. If you were fortunate enough to make over $10,000 per year, you moved up to a slightly higher tax rate. You can thank this same group for the sales tax, excise and inheritance taxes that we enjoy today.

Folks were making big bucks in those days because the government was able to collect a whopping $310 million dollars in tax revenue. That number would not be reached again until 1911.

Income Tax Constitutional?

Like most congressional leaders of today, their forerunners liked extra tax money to spend so in 1868 tobacco and distilled spirits came back and the income tax was eliminated — but not for good.

It reared it’s ugly head again in 1894 and 1895 until the Supreme Court decided the income tax was unconstitutional because it was not apportioned among the states to conform with our constitution.

The 16th Amendment – Income Taxes Become Permanent

What were they thinking? I can’t believe the voters of 1913 really wanted to allow the government to collect part of their hard earned dollars. I’m thinking they really questioned that decision a short 16 years later when the market crashed in 1929. Of course I guess taxes are no worries when there are zero jobs.

Some Final Thoughts

If you asked ten people on the street if they are happy with the current tax code most would respond in the negative. But congress keeps trying nonetheless. New tax acts were passed in 1986, 87, 88, 89, 90, 93, 2001, 03, 05 and 06. If you are old enough to have worked through that entire period I’ll ask you a common political campaign question, “Are you better off than you were 27 years ago?”

Congress is always going to be walking a fine line between vote getting entitlements that buy votes but cost big bucks; and overtaxing the populous and slowing our economic growth. So far they haven’t been doing too well. But there’s always next year — or an extension to October 15th.

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