Calendars around the world include July 4, but only in American does the date hold significant meaning. Likewise, April 15 comes and goes in every country, but the day is etched in the U.S. consciousness. No explanation is necessary. Just say the words “April 15,” and people instantly know what you mean.
But it wasn’t always that way. In fact, America was a nation for nearly 100 years before the first income tax was imposed. The first income tax was implemented Aug. 5, 1861, by Congress to help pay for the Civil War. There were no 1040 forms to fill out, that first tax was a simple flat tax – 3 percent of all incomes over $800 (about $19,000 in 2010 dollars according to the Bureau of Labor Statistics).
That tax was replace the following year by the Revenue Act of 1862 that substituted a progressive income tax for the flat tax. Citizens earning more than $600 were taxed at 3 percent, while those making more than $10,000 were taxed at 5 percent. As part of the language of the 1862 legislation, the collection of income tax ended in 1866.
In 1894, Congress approved the Wilson-Gorman tariff, the first peace-time income tax levied in the U.S. Less than 10 percent of households paid the tax, which collected 2 percent of annual incomes over $4,000 (about $88,000 in 2010 dollars).
The Supreme Court struck down the Wilson-Gorman tariff the next year saying the law violated the U.S. Constitution by taxing dividends, interest and rent income. In the case, Pollock v. Farmers’ Loan & Trust Co., Chief Justice Mellville Fuller reasoned that taxes on property were a direct tax and therefore had to be apportioned to comply with the Constitution. That is, the amount of tax collected had to be equally spread out among all of the individual congressional districts. A congressional district in New York could collect no more taxes than a congressional district in rural North Carolina.
The 16th Amendment to the Constitution nullified the Pollock decision and removed the requirement that taxes on income generated by property (stocks, land, etc.) be apportioned.
Did you know?
- During the 2008 tax year, President Barack Obama and his wife, Michelle paid $855,323 of tax on income of $2.3 million.
- Last year the IRS issued 77,720,000 refunds totaling $210.2 billion
- According to the IRS, 163,199,000 tax returns were filed in 2009, of which 70,907,000 were submitted electronically.
- Taxpayers spend 42 cents for the IRS to collect $100 in taxes.
- By checking a box on their tax forms, taxpayers can contribute $3 to the Presidential Election Campaign Fund. The fund collected $50 million from 2008 tax returns.