fbpx

Federal Income Tax: How Did We Get Here?

According to the Tax Foundation, Americans will pay $3.4 trillion in federal taxes in 2019, more than they spend on food, clothing, and housing combined.

But it wasn’t always this way. In fact, income taxes are a fairly new development in the overall history of America. So how did we get to this point?


In the Beginning…

The United States was founded, in part, on the premise that colonists didn’t want to pay taxes without representation, which led to the famous tossing of tea into the Boston Harbor and the American Revolution.

However, not long after the colonies gained their freedom from England, Congress passed the Stamp Act of 1797, which essentially was our nation’s first estate tax. Otherwise, from the early 1790s to 1802, the U.S. government was supported by taxes on such items as spirits (alcohol, not the ghostly kind), sugar, tobacco, and corporate bonds.

Wars played a big part in the history of taxation in this country. To fund the War of 1812, Congress taxed sales of gold, silverware, jewelry, and watches. In 1817, tariffs on imported goods provided the main source of revenue to run the government.

With the onset of the Civil War, Congress enacted the nation’s first income tax law, the Revenue Act of 1861, which included a flat tax of 3% on annual incomes exceeding $800 to help pay for the costs of the war.

That tax law was repealed and replaced by the Revenue Act of 1862, which established the Office of the Commissioner of Internal Revenue (forerunner to the Internal Revenue Service), levied excise taxes on most goods and services, and replaced the flat tax with a progressive tax.


The 16th Amendment

However, it was not until 1913 with the adoption of the 16th Amendment to the Constitution, that the income tax became a permanent fixture in the American tax system. Congress now had the authority to tax income of both individuals and corporations.

It didn’t take the IRS long to start inundating us with forms, beginning in 1914 with the introduction of the first income tax form, the dreaded Form 1040. Enactment of the Revenue Act of 1916 introduced tax rates and income scales.


Tax Rates

Here’s a sobering fact — In 1913, the top federal income tax bracket was 7% on all income over $500,000, and the lowest tax bracket was 1%.

During the Great Depression, Congress raised the highest tax bracket to 63%. Wars can be expensive, as evidenced by the jump in the highest tax rate to 94% during World War II.

In 2018, the highest income tax rate was lowered to 37%.


Trying to Get It Right

Over the years, there have been frequent attempts to reform the tax law in some manner. We’ve seen the adoption of the alternative minimum tax, Social Security tax, taxes on cigarettes and alcohol, gasoline taxes, aviation taxes, property taxes, telecommunication taxes, not to mention state and local taxes.

To quote Will Rogers, “The difference between death and taxes is death doesn’t get worse every time Congress meets.”

Tax laws are always changing and will likely remain a political hot potato. Only time will tell what changes are ahead, but there is no doubt that through taxation, what the government giveth, it inevitably taketh back again.


This article is not intended to be a substitute for specific individualized tax advice. We recommend discussing the tax changes with your financial and qualified tax professionals about how they may affect you.  This article does not explain all of the changes introduced by tax reform nor is the information provided intended to be tax advice. You can find additional information about tax law changes on the IRS website. For Tax Season: Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice.  A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.

Please remember that due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was prepared by Broadridge Investor Communication Solutions, Inc.

IMPORTANT DISCLOSURE INFORMATION:

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.comPlease Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

latest posts

Stay up to date with our most recent news and updates!

IT Support by SADOSSecure, Fast Hosting for WordPress

Work with a financial advisor who puts your needs first.

Want to talk first? Call us at
(866) 237-0121

  • This field is for validation purposes and should be left unchanged.

You are now leaving the Bogart Wealth, LLC / Bogart Wealth™ (“Bogart”), website and entering a third party website that we do not control.

Bogart is not responsible for third party websites hyper linked our website, and does not guarantee or necessarily endorse any content, recommendations, products or services offered on third party sites.

In addition, third party websites may have different privacy and security policies than Bogart. Therefore, you should review the applicable privacy and security policies of any third party website before you provide any information.

Ok