Here's an article I found in a miscellaneous story/fact/humor book that I have, called the Ultimate Bathroom Reader by the Bathroom Readers Institute. You can visit their website here. The article is also followed by two humorous quotes to do with Taxes.
Enjoy!
The History of Income Tax
Abraham Lincoln isn't remembered as the "Father of the income tax"... but he could be. In 1862, in order to raise money to pay for the Civil War, he signed the country's first income tax into law.
However, under this law, only people with an income over $800 a year had to pay any tax. And only 1% of the American people made that much money in 1862... so the government wound up having to look elsewhere for a source of money to finance the war (they borrowed it)
Tax Controversy
From the start, the income tax was very controversial. No one was sure if was legal. The Constitution had authorized the federal government to collect takes "to pay the debts and provide for the common welfare of the United States"-but it didn't explicitly state that the government had the right to levy taxes on income. And as this was hotly debated, public opposition grew. The first income tax was repealed in 1872.
But is wasn't dead. By the 1890s, an overwhelming majority of Americans supported re-establishing an income tax - as long as it applied only to the super-rich. Farm, labor, and small-business interests promoted it as a means of taking money away from millionaires and robber barons and redistributing it for the "common good".
In 1894 they succeeded in passing a 2% tax on all personal and corporate net income over $4000. Few Americans were in that income bracket... but those who were had the incentive and resources to oppose the tax. They battled it all the way to the Supreme Court, and in 1895 the Court declared that an income tax was unconstitutional.
Theodore Roosevelt
Opinion was divided along party lines - Democrats and Populists supported the income tax; Republicans opposed it. But in 1908, outgoing Republican president Theodore Roosevelt broke with his party and called for both an income tax and an inheritance tax. He wasn't able to enact either before his term ran out, but he momentum had shifted.
In the election of 1908, America sent a pro-tax Congress and an anti-tax president - Republican William Howard Taft - to Washington. Taft tried to derail the issue by proposing a Constitutional amendment permitting the personal income tax. He figured the hurdles for such an amendment were so great that the amendment would fail and the income tax issue would go away.
But he was wrong. By February 1913, less than four years after it was introduced, 36 states had ratified the 16th amendment to the Constitution. For the first time in U.S. history, income taxes were indisputably constitutional. On October 3, 1913, President Woodrow Wilson signed the first modern income tax into law.
Popular Tax?
The 1913 tax was simple - the entire tax code was only 16 pages long (compared to 9,100 pages today) . The rate was 1% on income over $3000 for a single person and $4000 for a married person, with "super taxes" as high as 6% applied to income over $500,000. In general, the tax was popular with just about everyone... because it applied to almost no one.
The few Americans who were required to pay income taxes in 1913 paid an average of $97.88 apiece.
Weapon of War
But America's entry into World War I in 1917 changed everything. The federal budget shot up from $1 billion in 1916 to $19 billion in 1919. Faced with enormous, unprecedented expenses, the Wilson administration was forced to raise the tax rate... and to broaden the tax base to include millions of Americans who had never before paid taxes.
To ensure that the new taxes were paid promptly and in full, Wilson expanded the IRS. The agency's total number of employees mushroomed from 4,000 workers in 1913 to 21,000 in 1920.
Compared to earlier income taxes Wilson's were pretty severe. The top tax rate, applied to income over $1 million, was 77%. These taxes revolutionized the finances of the federal government; it's total tax revenue went from $334 million to $5.4 billion... and the percentage of government revenues collected from income taxes went from 10% to 73%.
In the 1920s, income taxes were cut five different times, but they never would again be as low as they were before the war.
World War II
The 1930s too were a period of relatively low taxes. The Great Depression had wiped out the earnings of most Americans. In1939 for example, the average blue-collar employee paid no taxes, the average doctor or lawyer paid about $25 a year, and a successful business person earning $16,000 paid about $1,000. But taxes changed once more when America began gearing up for World War II.
Like the previous "Great War", World War II was a budget buster. Government expenses rose from $9.6 billion in 1940 to $95 billion in 1945 - prompting the government to raise the tax rate again (the highest bracket rose to 94%).
The tax base broadened too. In 1939, before the war, there were 6.5 million Americans on the tax rolls; they paid about $1 billion a year. By the end of the war in 1945, 48 million Americans paid $19 billion annually. To handle this, the IRS nearly double in size, governing from 27,000 employees in 1941 to 50,000 in 1945.
For the first time, even people with ordinary incomes had to pay taxes. As the Chicago Times put it, World War II transformed America's income tax "from a class tax to a mass tax"
Withholding Begins
Another development that came about as a result of World War II was income tax withholding, which enabled the government to collect estimated taxes every pay period, not just once a year. The federal government's cash needs were so great during the war that it couldn't wait until the end of the year, and it began withholding estimated taxes from every paycheck. Similar "pay-as-you-go" plans had been used during the Civil War and World War I, but they were abandoned. This time the change was permanent.
There was a second reason for withholding: Taxes were collected from so many new taxpayer that the IRS could no longer handle the flood of tax payment that came in on tax day. It had no choice but to spread the payments out over the entire year.
Income Taxes Today
By the end of World War II the pattern for taxation had been set: wars and other crises pushed the taxes up, peace and prosperity sen the back down, although rarely to where they had been before. Today's taxes seem higher than ever, but believe it or not, when you correct for inflation they're about the same as they were in the 1960s.
On the other hand; the IRS's job is bigger than ever - it is now the worlds largest law-enforcement agency, with more than 115,000 employees. In fiscal year 1993 it processed more than 207 million, collecting more than $586 billion in personal income taxes and 1.2 trillion in other taxes. It also paid out more that $84 billion in personal refunds, and cost taxpayer more than $7.1 billion to operate. That comes to about $0.60 for every $100 collected.
"The hardest thing to understand is income taxes."
-Albert Einstein, 1952
"In this world, nothing can be said to be certain, except death and taxes."
-Benjamin Franklin, 1789
This article published in "Uncle John's Ultimate Bathroom Reader" by the Bathroom Readers' Institute. www.bathroomreader.com
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