La Quinta, CA
(760) 895-3516

Thursday, April 30, 2015

The History of income tax in the United States

Tax was implemented during the time in which our country was composed of colonies. Once the U.S. had gained independence, tariffs and excise taxes were collected. After the civil war in 1862, the federal government declared it mandatory to pay income tax (3% on income less than $10,000 and 5% more than $10,000). This was the birth of the office of the Commissioner of the Internal Revenue (what we know today as the IRS). The commissioner could seize property and prosecute in some cases where taxes were not paid.

The U.S. did away with income tax all together from 1872-1894, but in 1984, the Wilson-Gorman Tariff Act was enacted and Americans were back to paying income tax. In this new tax act, certain states paid taxes according to their census population.

In 1913, the law changed to a tax of 1% on income above $3,000 and 6% on net incomes above $500,000. The tax rates sky rocketed and reached 77% on incomes over $1,000,000 (imagine having almost 80% of your wages garnished!). Mind you, this was enacted to fund WWI. Rates went back down after the war effort. The U.S. took the same approach in WWII, hiking the tax rates up to 63% in 1932, and they climbed all the way up to a top tax rate for individuals of 92% in 1952. (for every $100 of income, the earner would only be able to keep $8).

Rates came down from that point going forward and finally President Ronald Reagan put an end to high tax rates in 1986 by bringing rates down from 50% and capping them at 28%. Tax preferences were eliminated to make up revenue.

Clinton and the congress accepted an increase of income tax top rates to 39.5% while Bush lowered them to 35% afterward. Currently, Obama has extended existing low tax rates.

Looking for a tax service in California? Borders Bookkeeping is a tax preparation and bookkeeping service in Coachella Valley, California. Call today to set up a free consultation.

(760) 895-3516
Borders Bookkeeping