A Brief History of Taxes

May 18, 2012 — 2 Comments

The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, and Spanish Empire. After independence from Europe the United States collected poll taxes, tariffs, and excise taxes. The United States imposed income taxes intermittently until 1895 when unapportioned taxes on interest, dividends and rents were ruled unconstitutional. The advent of the 16th Amendment to the United States Constitution modified the apportionment requirement in 1913, and since then the income tax has become one of the means of funding the Federal Government.

In order to help pay for its war effort in the American Civil War, Congress imposed its first personal income tax in 1861. It was part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Congress also enacted the Revenue Act of 1862, which levied a 3% tax on incomes above $600, rising to 5% for incomes above $10,000. Rates were raised in 1864. This income tax was repealed in 1872.

A new income tax statute was enacted as part of the 1894 Tariff Act. At that time, the United States Constitution specified that Congress could impose a “direct” tax only if the law apportioned that tax among the states according to each state’s census population.

In 1895, the United States Supreme Court ruled, in Pollock v. Farmers’ Loan & Trust Co., that taxes on rents from real estate, on interest income from personal property and other income from personal property (which includes dividend income) were direct taxes on property and therefore had to be apportioned. Since apportionment of income taxes is impractical, the Pollock rulings had the effect of prohibiting a federal tax on income from property. Due to the political difficulties of taxing individual wages without taxing income from property, a federal income tax was impractical from the time of the Pollock decision until the time of ratification of the Sixteenth Amendment (below).bb<

Trackbacks and Pingbacks:

  1. The Gift That Could Stop Giving | The Joy of Tax Law - June 11, 2012

    […] A gift tax is a tax imposed on the transfer of ownership of property. The United States Internal Revenue Service says a gift is “Any transfer to an individual, either directly or indirectly, where full […]

    Like

  2. Mixing Business with Pleasure | The Joy of Tax Law - June 1, 2012

    […] mind combining work with play, the IRS offers a helping hand, but only to those who follow the rules. In 2002, the IRS ruled that it “will not assert that any taxpayer has understated his […]

    Like

Add your $0.02

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s