100th Birthday of the Federal Income Tax

While many of us were spent Sunday, February 3, paying attention to the big game between the 49ers and Ravens, that day also marked the 100th birthday of the U.S. federal income tax.  The current income tax came about with the passage of the 16th Amendment to the Constitution on February 3, 1913.

It was not the first income tax though.  There were incomes taxes in ancient Egypt paid for with grain or livestock instead of money.  And proof that some things never change: there are records that have survived that show people complained about the tax then too.  Income taxes in the US actually predate the 16th Amendment.  Congress passed revenue acts in 1861 and 1894 that created an income tax.  The first, during the Civil War was a 3% tax on personal incomes over $800 to help pay war expenses.  It was repealed in 1872.  The 1894 tax was 4% on income over $4,000.  However, the Supreme Court disagreed and struck it down.  In 1909, Congress tried again and went about it with an amendment to the Constitution.

In 1913 the first tax was 1% on net personal income over $3,000, going up to 6% on incomes over $500,000.  Very few paid any tax as the average annual income at that time was only $800.  During World War I the income tax rose to 77% to help finance the war. Then in 1944, the highest brackets levied a tax of 94%.  After the war ended the rates were decreased.  In 1981 the top bracket of 70% was abolished and it has never returned to that level.

The income tax has seen plenty of changes over the years, and there will certainly be more changes in the future.  But one thing will remain the same: people will always complain about high taxes.

Greg Tanner – is a Tax Principal at Wertz & Company, LLP, a Professional Services Firm located in Orange County, CA that specializes in working with entrepreneurs along their journey to success.