Thursday, April 5, 2012

Tax Day and a Giveway

Tax day is fast approaching. I don’t know if this will interest folks as much as it did me, but I was surprised to learn even this little bit about the history of our federal income tax system. Taxes have been a hot topic from the inception of our country. We all know that our forefathers and those who fought alongside them believed we had to have representation: No taxation without representation. (The Colonists felt their interests weren’t being represented to the King.) Most of us also know our country didn’t begin with a federal tax. What I didn’t know was that we did have a federal tax for a short time, but it was abolished because it was deemed unconstitutional!

Take a look and let me know what you think.

History of the Income Tax in the United States
Source: Tax Foundation.

In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut. In 1866, internal revenue collections reached their highest point in the nation's 90-year history—more than $310 million, an amount not reached again until 1911.

The Act of 1862 established the office of Commissioner of Internal Revenue. The Commissioner was given the power to assess, levy, and collect taxes, and the right to enforce the tax laws through seizure of property and income and through prosecution. The powers and authority remain very much the same today.

In 1868, Congress again focused its taxation efforts on tobacco and distilled spirits and eliminated the income tax in 1872. It had a short-lived revival in 1894 and 1895. In the latter year, the U.S. Supreme Court decided that the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution.

In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945.

In 1981, Congress enacted the largest tax cut in U.S. history, approximately $750 billion over six years. The tax reduction, however, was partially offset by two tax acts, in 1982 and 1984, that attempted to raise approximately $265 billion.

On Oct. 22, 1986, President Reagan signed into law the Tax Reform Act of 1986, one of the most far-reaching reforms of the United States tax system since the adoption of the income tax. The top tax rate on individual income was lowered from 50% to 28%, the lowest it had been since 1916. Tax preferences were eliminated to make up most of the revenue. In an attempt to remain revenue neutral, the act called for a $120 billion increase in business taxation and a corresponding decrease in individual taxation over a five-year period.

Following what seemed to be a yearly tradition of new tax acts that began in 1986, the Revenue Reconciliation Act of 1990 was signed into law on Nov. 5, 1990. As with the '87, '88, and '89 acts, the 1990 act, while providing a number of substantive provisions, was small in comparison with the 1986 act. The emphasis of the 1990 act was increased taxes on the wealthy.

On Aug. 10, 1993, President Clinton signed the Revenue Reconciliation Act of 1993 into law. The act's purpose was to reduce by approximately $496 billion the federal deficit that would otherwise accumulate in fiscal years 1994 through 1998. In 1997, Clinton signed another tax act. The act, which cut taxes by $152 billion, included a cut in capital-gains tax for individuals, a $500 per child tax credit, and tax incentives for education.

President George W. Bush signed a series of tax cuts into law. The largest was the Economic Growth and Tax Relief Reconciliation Act of 2001. It was estimated to save taxpayers $1.3 trillion over ten years, making it the third largest tax cut since World War II. The Bush tax cut created a new lowest rate, 10% for the first several thousand dollars earned. It also established a slow schedule of incremental tax cuts that would eventually double the child tax credit from $500 to $1,000, adjust brackets so that middle-income couples owed the same tax as comparable singles, cut the top four tax rates (28% to 25%; 31% to 28%; 36% to 33%; and 39.6% to 35%).

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 accelerated the tax rate cuts that had been enacted in 2001, and temporarily reduced the tax rate on capital gains and dividends to 15%. In 2004, the U.S. was forced to eliminate a corporate tax provision that had been ruled illegal by the World Trade Organization. Along with that tax hike, Congress passed a cornucopia of tax breaks, which for individuals included an option to deduct the payment of whichever state taxes were higher, sales or income taxes.

Two tax bills signed in 2005 and 2006 extended through 2010 the favorable rates on capital gains and dividends that had been enacted in 2003, raised the exemption levels for the Alternative Minimum Tax, and enacted new tax incentives designed to persuade individuals to save more for retirement.

Article Source

Everyone deserves a break during tax season. My contribution is a digital copy of my Scottish Medieval The Pendulum. Leave a comment and you're in the drawing. I'll contact the winner via email.

Link

Two men.

Two murderers.

Two demands for the promised payment of marriage.

Murder, deceit, and fraud pull Lady Arin Keith between these men.

Which one will bed her, claim her...own her?

WWW.TARAHSCOTT.COM

12 comments:

  1. Very informative post. Thanks for sharing.

    bn100candg(at)hotmail(dot)com

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  2. Good to see you, bn100. Are you ready for tax day? (Is anyone ever really ready?)

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  3. Lord, am I ever ready for tax day to be over. Had no idea that income tax was collected during The Civil War. Now, if after 150 years they could just simplify the tax code.

    Thank you for the post, Tarah! I found your blog on Twitter, BTW, so you're getting the word out. :-)

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  4. I thought it was pretty interesting, Diane. ROFL.

    Hey, Viv. Great to see you!

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  5. I actully did know some of this. Not all. I love learning about the history of our country.
    Mel

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  6. It's very interesting, isn't it, Mel?

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  7. I'm all for doing a flat rate tax. X% for X$ earned, but then it would put the thousands of accountants and IRS clerks out of jobs...odd that we pay taxes, to pay people, to process taxes.

    Taxes shouldn't be so complex.

    Thanks for the post.
    elizabeth.kelley.books(at)gmail(dot)com

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  8. I love Medieval books! Just putting the finishing touches on my own!

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  9. ROFL. Elizabeth, well said

    Michele, me too. Good luck with your book!

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  10. My taxes are done. Winning The Pendulum would definitely help me feel better!

    robindpdx(at)yahoo(dot)com

    ReplyDelete