Federal Income Tax Celebrates 100th Birthday This Month

Federal Income Tax Celebrates 100th Birthday This Month

This month marks the 100th birthday of the federal income tax. Ratification of the 16th Amendment in February 1913 gave the government legal authority to tax the incomes of businesses and individuals. Nine months later Congress enacted the Revenue Act of 1913 and the income tax was born.

Back then, if you were a single taxpayer, a 1% tax kicked in once your income exceeded $3,000 ($4,000 for married/joint). The tax rate gradually increased, hitting a maximum marginal rate of 7% on income above $500,000.

According to the Tax Foundation, if the same income brackets were in effect today (taking into account inflation), regardless of your filing status, your maximum income tax rate would be 1% until your income exceeded $463,826.(1)

Of course, thanks to the recently-enacted American Taxpayer Relief Act of 2012 (ATRA), income of this level means you will be taxed at the highest marginal rate of 39.6%.

Tax rates and income brackets are not the only things that have changed over the past 100 years. The Internal Revenue Code (IRC) has morphed and multiplied over the past 10 decades. In 1913, the entire code was 400 pages long. According to CCH, a leading provider of tax and accounting information and software, today’s federal tax code has grown to nearly 74,000 pages!

As she has testified for years, in her annual report to Congress last month, National Taxpayer Advocate Nina Olsen listed the complexity of the tax code as the most serious tax problem Americans face. She has called the very act of having to fill out a tax return each year as creating a “significant, even unconscionable, burden.”

A year ago, Olsen estimated that American taxpayers- including businesses- spend more than six billion hours a year complying with the tax code. That’s the equivalent of three million full-time workers. This includes keeping records, compiling information and filling out tax forms.

The increasing complexity of the Tax Code is one of the main reasons people cheat on their taxes. It’s also the reason we spend millions each year to get help filling out our returns. According to the most recent study by the IRS, the average taxpayer spent $258 on tax preparation, either by buying software or hiring a professional to complete their return. And that was back in 2007!

Source: FOX Business