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THE HISTORY of U.S. TAXATION 

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  • 100 years ago there was no federal income tax as we know it today. As the nation developed so did our need to raise money to support our growth.

  • First came the Revenue Act of 1813-Taxes were imposed when and as needed

  • Pre 1862- U.S. government operations funded through collected import duties and sold public lands

  • July 1, 1862 Congress formed Office of Commissioner of Internal Revenue (within the U.S. Treasury) to meet fiscal demands of the Civil War.

  • After the war, tax efforts declined and in 1872 the tax was repealed.

  • In 1894 Congress revived the tax; however the following year the Supreme Court ruled the tax to be unconstitutional.

  • In 1913 the 16th Constitutional Amendment introduced our first  Income Tax by giving Congress the authority to enact tax legislation. There exists the on-going debate as to whether or not the States actually ratified the 16th Amendment. Pursuant to Article V of the Constitution, an amendment  to the Constitution requires ratification by 75% of the States. The 16th Amendment was ratified by 40 states, including Ohio, and issued by proclamation in 1913. Shortly thereafter the amendment was supported by two additional states. Further the matter concerning constitutionality of subsequent income tax legislation has been upheld by the Supreme Court in Brushaber v. Union Pacific R.R.., 240 U.S. 1 (1916) and has since been consistently upheld by the Courts. For more information concerning why NOT to EVADE one's tax responsibilities read "Why Pay Tax" (navigation option above).

  • WWI generated heavy fiscal demands and increased tax efforts causing rates to spike to 77% in 1918.

  • From 1916-1951 new tax legislation was enacted every year with rates as high as 77% in 1918 and as low as 24% in 1929, followed by increases to finance our national deficit during the Great Depression.

  • The Revenue Act of 1926 created the Joint Committee on Internal Revenue Taxation following two years of investigations of alleged inefficiency and waste within the Bureau of Internal Revenue by the Senate Select Committee following the introduction by Senator James Couzens (Michigan) of a resolution to create such a committee. At that time one of the issues being investigated by the Senate Select Committee was the valuation of oil and gas properties and in 1925 made public charges that millions of tax dollars were being wasted as a result of the Bureau's favorable treatment of large corporations, especially those associated with the Oil & Gas Industry. Shortly thereafter, Senator Couzens was notified by the Bureau that he owed $10 Million in back taxes. The then Secretary of the U.S. Treasury Department was Andrew W. Mellon who at the time was the principal owner of Gulf Oil, which it appears had significantly benefited from the Bureau rulings that were specifically criticized by Senator Couzens. This led to further investigation by the Senate Select Committee into the affairs of Andrew Mellon which lasted until 1935 when he was exonerated. This information is available on the Joint Committee website.  One of the Joint Committee's primary responsibilities is to ensure tax simplification. Sure is simple to me!

  • 1939-U.S. Tax Laws first codified as an integral part of the U.S. Code-the Internal Revenue Code of 1939 (IRC 1939).

  • During WWII tax legislation created the first payroll withholding tax and estimated tax payment requirements.

  • 1954-The U.S. tax code was amended and becomes IRC 1954. The IRS was reorganized and the name changed from the Bureau of Internal Revenue to the Internal Revenue Service to better reflect the service that it extended to the U.S. citizens.

  • 1986-Code completely revamped: becomes IRC 1986 US Code, Title 26, Internal Revenue Code of 1986

  • 1997-Taxpayer Relief Act of 1997-New beneficial rules to offset education costs.

  • 1998 saw the IRS Restructuring and Reform Act which revamped the IRS and was responsible for the creation of the Taxpayer Advocate Services (TAS). When you find yourself pounding your head against the wall and all else fails with the IRS (assuming that you are in the right) then contact TAS and they will fix the problem.

  • 2001- Economic Growth and Tax Relief Reconciliation Act of 2001. Phased in changes with sunset provisions causing the new tax laws to terminate in 2011, leaving the clean up to future sessions of Congress. Middle income taxpayers assume burden for repealed estate tax provisions by now paying capital gains income tax on decedent's built in gain

  • 2004 brought more drastic changes to our tax system that include a $250 (max) deduction to Gross Income (AGI adjustment) for educator's (teacher's etc.) expenses, substantial increases in the Child Credit (up to 15% of the amount of earned income that exceeds $10,750). new combat zone pay exclusions, earned income credits and tax payment deferrals. Also beginning in 2004, Congress restored the old sales tax deduction, but with a new twist. You can now elect EITHER a deduction for income tax paid, OR a sales tax deduction that is based on general sales tax rate tables in addition to sales tax paid on motor vehicles and boats. So if you live in a state like Florida where there is no state income tax, you now can claim a new tax deduction, but if you live in a high tax state such as NY or CA, you could see no benefit whatsoever. Is this discriminatory and therefore unconstitutional? My guess is that someone will challenge this legislative provision. Oh, and don't forget the $2,000 Clean Fuel Vehicle Deduction which has been retained through 2005 if you buy one of those hybrid electric/gasoline cars like the ones made by Toyota and Honda. It needs to be a pre-certified and qualifying vehicle so check out the rules before you buy. I want to know why we get a tax deduction to buy from foreign car companies and why not American car manufacturers. I guess I need to research this some more

  • 2008- Economic Bailout Plan Personal Tax Provisions- Some very important tax changes but in my opinion, too little and too late for many Americans. Read more

It's your money so don't forget that the tax laws that determined the amount of tax that you pay are legislated by your representatives that you elect to Congress. This same congress determines how your money is to be spent which in turn directly influences the amount of tax revenue that is needed to finance the budget.  It is your responsibility to learn the issues and get to know your representatives in Congress. 

Democracy is NOT a Spectator Sport and in today's information age you have instant access to government websites as well as those of your representatives on Capitol Hill. So let your elected representatives in the House of Representatives and U.S. Senators in Congress know how you feel about the issues, and to vote for the candidate who will best serve your interests. This is still a democracy, a government elected by the people, of the people and for the people of our United States of America. The same is true regarding your state legislators and representatives. The key word here is elected!  Watch what your elected representatives are doing and let them know that if they want to keep their jobs by getting re-elected, they had better represent you. Also, keep a close watch on what is going on at the U.S. Treasury Department (of which the IRS is part of)-the guys who spend your money, and of course The White House. To access many of the U.S. Government's programs go to FirstGov.gov.

Did you know that initially, the methodology used to determine tax liability was very simple. It was almost like a flat tax for individual taxpayers and based on simple accounting for businesses. The rate initially was 1% of net personal income over $3,000 plus a 6% surcharge on income over $500,000. Today many proponents say they want a flat tax, but history teaches us that we pay dearly for simplicity. 1981 brought reduced rates and elimination of deductions, for which we are paying dearly today. Besides, income taxation creates jobs for millions of accountants and IRS employees.

 I once saw a poster that read:

THE NEW FLAT TAX FORMULA:

          How much did you make this year?

This is your tax amount-send it in!

 

 

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