Friday marks the 150th anniversary of the law that created the U.S. income tax system. While many Americans won't be celebrating the milestone, the income tax is vitally important to running the government. Ever wonder how our income tax system came to be?
1814: First personal income tax proposed
The first income tax in the United States was proposed as a way to pay for the War of 1812. The end of the war in 1815 ended the need for the tax, and it was never implemented.
Aug. 5, 1861: United States imposes first income tax
Before the Civil War, the U.S. government was funded primarily through tariffs and excise taxes. However, the high cost of the conflict created a shortage of revenue to fund both the government and the war. This led Congress to pass the Revenue Act of 1861, which imposed the first personal income tax on citizens.
June 30, 1864: First federal tax returns required
The Internal Revenue Act required every taxpayer to submit a list of income and taxable property to a tax assessor by the first Monday in May. Fines were established for those who failed to follow the law.
1872, 1894, 1895: Income tax comes and goes
Even in the late 1800s, income tax was a controversial idea. In 1872, Congress abolished the income tax, instead raising excise taxes on tobacco and alcohol in order to fund the government. Congress re-established a flat rate income tax in 1894 only to have the Supreme Court rule that it was unconstitutional in 1895.
Feb. 25, 1913: Ratification of the 16th Amendment makes income tax permanent
Before the ratification of the 16th Amendment, income tax was a temporary solution to a lack of government funds. This change recognized income tax as an integral part of the U.S. economy and gave the government the power to tax incomes as it saw fit. Today, the income tax is the U.S. federal government's largest source of revenue.
1913: First 1040 form
Americans were required to fill out Form 1040 for the first time following the reinstatement of income tax in 1913. This is still the main form for U.S. taxpayers and follows the same basic layout.
Jan. 1, 1937: FICA begins collecting payroll taxes
When President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935, the question of how to fund the program was at the forefront of national debate. The solution was the formation of FICA, an income tax to fund Social Security, according to CNNMoney. In 1965, the FICA tax was expanded to include Medicare.
1943: Payroll withholding introduced
Automatic payroll withholding as a means to pay income tax helped increase the number of taxpayers to 60 million by 1945.
April 15, 1954: Modern deadline for filing
April 15 has not always been the filing date for income taxes. In 1913, the deadline was March 1. In 1918, the date was changed to March 15, where it remained until 1954.
Aug. 13, 1981: Economic Recovery Tax Act
Known as the Reagan tax cuts, this law dropped income tax rates by 23 percent over three years. Critics blame these cuts on speeding up the growth of the federal deficit.
June 7, 2001: Economic Growth and Tax Relief Reconciliation Act
Signed into law by President George W. Bush, this was the largest tax reform law to date. The law significantly changed income tax rates, estate and gift exclusions and retirement plans.
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