Tax history 101

Tax time is coming.

That means the chatter about whether taxes are too high or unfair will certainly get louder. But have you ever wondered how the federal government began imposing income tax upon U.S. citizens without reliving the Boston Tea Party?

Congress enacted the U.S. income tax in 1861. It was abolished in 1872. Congress reintroduced it in 1894. The U.S. Supreme Court declared it unconstitutional in 1895.

End of story, right? Not so fast.

In 1913, after nearly 20 years of inactivity, the Sixteenth Amendment was passed and ratified. It empowered Congress to levy taxes on “income from whatever source derived,” without apportioning the revenue among states. It didn’t take long before Congress passed the Revenue Act, which reinstated the income tax but only made it applicable to a few affluent households.

Since then, marginal tax rates based on income level have become the norm. Rates have been raised and lowered numerous times over the past 79 years in efforts to stimulate investment, spur business activity and keep the country running. Despite President Bush’s tax cut initiative, moving tax rates up and down is a practice sure to continue with future administrations. Source: Federal Reserve Bank of Cleveland

Dustin S. Klein