History of US Taxation

[Hogeye]

Question for Barbara re Social Security Letter to Editor

Don't Privatize Social Security
Prior to the 16th Amendment (1913) there was no income tax. Taxes were sales or property or import or government permission (licensing fees). By 1900, however, over 50 percent of our population was urban, and city dwellers were falling through the tax cracks, hence the income tax.

I don't understand the last sentence. Since the vast majority of Americans paid no federal taxes whatsoever (only importers paying tariffs, plus a few odd others like farmers with stills the revenuers knew about), the "falling through the cracks" comment doesn't seem to apply at all. The bulk of federal revenue was from tariffs.

The real motivation for the income tax was the new militarist/imperialist policy of the US. You know, the conquest and occupation of the Philippines, etc. It had nothing to do with urbanization. If anything, urbanization increased demand (hence revenues) from whiskey taxes.

The first taxes were relatively low, especially for the lower-income groups...

Right, very low - zero to be exact for low, middle and even most high income people. The 1913 income tax only applied to the wealthiest one percent of Americans. (Cf: US Treasury's History of the U.S. Tax System) Only interest and dividends were taxed - not wages. The sixteenth amendment was sold as a soak the rich scheme, and would never have passed if people had predicted it would apply to them, or apply to wages.

By 1913, 36 States had ratified the 16th Amendment to the Constitution. In October, Congress passed a new income tax law with rates beginning at 1 percent and rising to 7 percent for taxpayers with income in excess of $500,000. Less than 1 percent of the population paid income tax at the time.

It seems to me that your letter would mislead anyone who doesn't know the history into thinking that federal taxation was common, and applied to wages, long before it actually grew to that stage after WWI and the depression. The main ramp-ups were, of course, WWI and WWII. Per the ratchet effect, taxation didn't decline to pre-war levels after the wars. Income tax is an excellent example of the cancerous growth of govt power. Federal plunder has gone from under 5% of the GNP before 1910 to over 20% of the GNP today.