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In the nation's early history,
very few taxes were imposed in the US to run the government.
From 1791 until 1802, the Government collected
internal taxes on alcohol, carriages, sugar, tobacco,
auctioned-off property, corporate bonds, and slaves.
Then,
in order to pay off the debts that were incurred from the
War of 1812, sales taxes were
were imposed on gold, silverware, jewelry, and watches. However,
in 1987, Congress did away with those taxations. And the Government
was supported by collecting tariffs from imports brought into
the country.
Congress then passed the nation's
first income tax law in 1862
to support the Civil War effort. It was a forerunner of the
modern income tax in that it wa based on a progressive scale,
much like what is used today. The lowest tax rate was a flat
3%, and it applied to people who earned anywhere between $600
and $10,000 a year. The next highest tax rate was 5%, and
it was levied on any income amount that exceeded $10,000.
For people who earned a higher dollar amount, the rates were
increased accordingly. Additional sales and excise taxes were
added, and an "inheritance" tax also made its debut.
The Act of 1862 was also the
beginning of the Internal Revenue Service -- the
office of the 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. His powers and authority remain very
much the same today.
Rates were changed when the
Government instituted the Internal Revenue Act of June 30,
1864. The people who earned between $600-$5000 paid 5%, while
the people who earned over $5000+ paid 10% of their incomes.
This tax change was needed in order to generate additional
revenue to fund the Civil War. Now, every taxpayer had to
submit a list of their income as well as a list of any taxable
property they might have to the tax assessor before the first
Monday in May. And, fines were imposed on people who failed
to abide by the tax laws.
Internal revenue collections
reached their highest point in the nation's 90-year history
of more than $310 million in 1866. (An amount not reached
again until 1911.)
In 1872, Congress did away
with the imposed income tax once again. Instead of taxing
people's incomes, Congress once again looked towards the
taxation of goods, tobacco and alcohol, for revenue.
It had a short-lived revival in 1894 and 1895.
Questioning the validity of
the taxes imposed during the Civil War times, lead the U.S.
Supreme Court to finally hand down a ruling in 1895, that
said that the income tax was unconstitutional because the
taxes were not collected proportionately among the states.
To correct this situation, the 16th
Amendment to the Constitution was ratified on February
25, 1913. Now, income taxes were a permanent part of the United
States economy, and Congress could tax incomes however they
saw fit.
In FY 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, and so 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.
Congress enacted the largest
tax cut in U.S. history in 1981, 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.
The Tax Reform Act of 1986,
one of the most far-reaching reforms
of the US tax system since the adoption of the income tax,
was 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 emphasis of the Revenue Reconciliation Act 1990 was
increased taxes on the wealthy.
- The purpose of the Revenue Reconciliation Act of 1993
was to reduce by approximately $496 billion the federal
deficit that would otherwise accumulate in fiscal
years 1994-98.
- The Taxpayer Relief Act of 1997 included $152 billion
in tax cuts, a cut in capital-gains tax for individuals,
a $500 per child tax credit, estate tax relief, tax incentives
for education, and a host of revenue-raising and tax-simplification
provisions.
- The Economic Growth and Tax Relief Reconcilation Act of
2001 included a variety of tax cuts and offered benefits
to a broad range of taxpayers through relief provisions
that included: married couples; families w/ children (to
help pay for education, and childcare); single mothers;
and seniors. The act also included tax cuts that completely
eliminated the entire income tax liability for some families.
Over the years, there have
been several grass roots efforts by Americans who believe
that the idea of a mandatory income tax and the Sixteenth
Amendment are unconstitutional. At least one group claims
to have proof that the amendment was not even ratified because
at least eleven states did not vote on it. The main goal of
these groups is to get the amendment declared legally null
and void.
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