This month marks centennial anniversary for the passage of the 16th amendment to the United States Constitution. Simply put, its 100 years since the federal government made it legal for Uncle Sam to stick his hands in our pockets for the purpose of collecting income taxes.
Oh how tax season has changed since 1913! Back then taxpayers only had until March 1st to pay up if they owed anything but tax laws were way less complicated. As part of the “birthday celebration”, let’s take a look at some of the content from the original Form 1040.
An individual- either single or married but not living with their spouse, was allowed an exemption of $3,000. If the filer was married and lived with their spouse, then they were allowed a joint exemption of only $4,000 on their aggregate income. They had the option of filing jointly or separately but couldn’t claim more than the allowed exemption.
There was an additional “normal tax” assessment of one percent on whatever your total income was after the exemption of either $3,000 or $4,000. In 1913 the specific allowable exemption was $2,500 or $3,333.33 However, if the normal tax was deducted or withheld on any part of the income at the source (can we say payroll deduction?) or if any part of the income was received as a stock dividend or from company net earnings, then that income could be deducted from the filer’s total net income from the purpose of calculating the amount the person was liable for the one percent normal tax. Confused yet? Seems like even from the beginning, the plan was to get as much as possible.
WHEW! Even then the IRS talked in circles! Today it takes over 73,000 pages to explain the 2013 U.S. federal tax codes compared to only about two pages when this all began.
Interestingly enough, the mortgage interest deduction has always been around along with the itemized deductions for local and state taxes. The deduction for charitable contributions came along in 1917 as income taxes were raised to pay for World War I.
As a side note on modern tax collections, the segment of U.S. taxpayers least likely to pay their fair share of income taxes? Those with household incomes below $67,000. Incidentally, these households are where over one-half of the taxable income is found in the United States. Now you know why President Obama was so glad to let the emergency two percent payroll tax cut expire at the beginning of this year.