Happy 100th Birthday to the Income Tax

largeArticle012511

A hundred years ago (on February 3, 1913), the 16th Amendment to the U.S. Constitution became law. This permitted the federal government to legally levy an income tax. Since the first income tax return (called Form 1040 since its inception) of 4 pages–3 to be completed and 1 for instructions–the tax return has grown for many filers to include dozens of schedules and forms.

What the original tax law was like

The first income tax required every citizen with net income of $3,000 or more to file a return. In 1913, the average annual wage for worker in the U.S. was less than $1,300, so only the “wealthy” had to file a return. (The $3,000 filing threshold in 2012 dollars would be the equivalent of $69,573.94 in today’s dollars, according to the Bureau of Labor Statistics.) Only 2% of households met this filing threshold.

In just a handful of paragraphs in the 1-page instructions, the types of income and expenses allowable were explained in full. In addition, each unmarried person (or married person living apart from his or her spouse) was entitled to an exemption of $3,000. Husbands and wives living together had a $4,000 exemption.

The first return had graduated income tax rates of 1% to 6%. Most filers were subject only to the 1% rate, called the normal tax. It applied to taxable income, which was net income reduced by deductions and exemptions. When net income exceeded $20,000, other tax rates, were called the additional or super tax, applied. The top 6% rate applied to amounts over $500,000, which would be $11,595,656.57 in today’s dollars.

What the original return was like

The return was completed by hand my most filers, with pencil likely the implement of choice and computations done manually. The form itself enabled filers to enter their income and then figure their tax liability.

The form contained an affidavit that the filer had to sign before an officer authorized to administer oaths. The oath says that the filer solemnly swears (or affirms) that the foregoing is, in effect, accurate.

Even then, however, the form did allow for paid preparers to complete the returns. There was a separate affidavit to be executed by a “duly authorized agent making return for individual.”

The due date for the return was March 1. (This due date quickly became March 15 and was not changed to April 15 until the Tax Code of 1954.)

Conclusion

Today, the size of the federal tax law has grown beyond the imaginations of those who ratified the 16th Amendment. Still, only about 47% of Americans pay any income tax. Major tax reform is being talked about for this year. Let’s see what happens!

Source: jklasser.com

Both comments and pings are currently closed.

Comments are closed.

Subscribe to RSS Feed Follow me on Twitter!