Tax History - Happy 4th of July!

"Imposing Taxes on us without our Consent" is one of the 27 "injuries and usurpations" listed in the Declaration of Independence adopted July 4, 1776. This phrase is better known as taxation without representation. 

Back in the late 1700s, the US tax system involved tariffs and reliance on state taxes. There was no income tax until President Lincoln signed the Revenue Acts of 1861 and 1862. The 1862 act also created the Office of the Commissioner of the Internal Revenue to be sure imposed taxes were collected. The need to generate money to fund wars has shaped our US tax system over 250 years. In 1942, millions more individuals became subject to the federal income tax, with it becoming a "mass tax." 

Famous songwriter Irving Berlin wrote "I Paid My Income Tax Today" and gave the copyright to the Treasury Department. The song aimed to encourage millions of taxpayers to pay their taxes and contribute to the war effort. It also reminded people that they should watch how lawmakers spend their tax dollars. You can hear Gene Autry singing it here.

Frequent themes throughout 250 years of tax history include calls for simplification (even back to the 1890s), ensuring that high income people and corporations "pay their fair share."

There is a lot of interesting items in U.S. tax history. Two items for more information:

1. IRS Pub. 5335, IRS History Timeline - this has interesting photos and facts.

2. "State tax history at the United States' 250th anniversary," The Tax Advisor, June 2026 - this is my article highlighting interesting items in 250 of state tax history.

Happy 4th!

Tax Return Due Dates and Some History

Several federal bills enacted in 2015 included tax changes. One of these was P.L. 114-41 (7/31/15), the Surface Transportation and Veterans Health Care Choice Improvement Act. Given the title, we might think that any tax change involved transportation, such as the gasoline excise tax. Wrong! This bill does not increase teh gasoline excise tax. Its main purpose is to transfer money from the general fund to the Highway Trust Fund because our gasoline excise tax of 18.4 cents per gallon is insufficient to fund the HTF (and more fuel efficient cars means we buy less gas each year).  [I've blogged on this a few times - here, for example.]

One of the tax change in P.L. 114-41 is to change due dates of certain returns, starting mostly for the 2016 tax year. The purpose is improved administration of our tax system. For example, one change is to move the due date for a calendar year corporation return from March 15 to April 15 and that of a partnership from April 15 to March 15. That is smart because the partnership return is needed to get information to the partners. No one needs the information on the corporate return in order to file their return.  The AICPA has a helpful chart that lists the changed due dates.  

There is no change to the due date of Form 1040 - it remains April 15 with the extended due date still being October 15.  Which brings me to my main point - some trivia. Did you know that individual returns were once due on March 15?

The April 15 due date started with 1954 returns.  Did you know that the IRS has the Form 1040 and instructions on its website for 1953 and 1954? Take a look:

1954       Form       Instructions
1953       Form       Instructions

I like the tips offered by the IRS. For example, for 1954 (which notes the "new law" that includes the new due date for 1954 returns):

Page 1 of 1954 Form 1040 Instructions

I also find this statement from the instructions interesting - that you should have no problem filing your return and if you need help, the IRS will sell you a guide book for 25 cents!

Page 3 of 1954 Form 1040 Instructions

Tax rates were a lot higher in 1954 and 1953 - in the low 90% range. Of course, most people did not have income high enough to be in the rate. For 1993, you'd have to have income over $300,000 to have the excess taxed at 92%.  That equals about $2.7 million today.  That is no doubt, a high rate. There were 26 tax brackets ranging from 22% to 92%.  You'd be at the 41% bracket with income over $12,000 ($107,000 today). There was a tax table - you can find it on page 12 of the 1953 instructions.

Tax rates are still high today, but certainly not at 92%. The highest individual rate is 39.6% and less than 2% of individuals have to deal with that.  One of several reasons for high rates today is that they support our small tax base - made small by the numerous deductions and exclusions allowed in our complex income tax system.

Hope you enjoyed looking at the old returns.

What do you think - about the due dates, old returns, rates?

Happy 100th Anniversary 16th Amendment

Today - February 3, 2013, marks the 100th anniversary of the ratification of the 16th Amendment which allowed for an income tax. The complete text follows:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."

Click here to see a copy of the Amendment and a copy of the 1913 personal income tax form.

Without the amendment, a personal income tax was not within the confines of the congressional taxing authority. In 1911 though, the US Supreme Court upheld the corporate income tax as a permissible excise tax (Flint v. Stone Tracy Co., 220 U.S. 107 (1911)).

The income tax enacted soon after ratification of the 16th Amendment had many features we still have today such as consideration of business expenses and a standard deduction for individuals. The standard deduction was $3,000 ($4,000 if married).

The rate structure and exemption was such that few individuals owed tax.The tax rate for individuals was 1%. There was a surtax for higher income individuals:

• 1% on net income over $20,000 and not exceeding $50,000
• 2% on net income over $50,000 and not exceeding $75,000
• 3% on net income over $75,000 and not exceeding $100,000
• 4% on net income over $100,000 and not exceeding $250,000
• 5% on net income over $250,000 and not exceeding $500,000
• 6% on net income over $500,000

Returns were due March 1.

Some things that have changed since 1913:

• Individual returns are now due April 15.
• In 1913, a person with $3,000 or less of income ($4,000 if married), owed no tax. The $3,000 of 1913 equates to about $69,573 today.  For 2012, a single person under age 65 owes income tax once their income exceeds $9,750 ($11.200 if age 65 or older).
• In 1913, the top rate of 6% kicked in on net income over $500,000. For 2012, the top rate of 35% kicks in for a single person when income is $388,350.  That $500,000 of 1913 equates to $1,393,000!
• In addition to today's income tax, employees and self-employed individuals pay payroll taxes of 15.3%.

So, yes, we pay a lot more tax today than in 1913 and a much greater percentage of the population owes income tax than in 1913.  The number of individuals subject to income tax grew during WWII as more revenue was needed to fund the war effort (and it was viewed as patriotic to pay your taxes).

Some additional information you may find of interest:

• GPO report on the 16th Amendment and "income" - here
• Historical highlights of the IRS (a timeline from the IRS) - here
• History of the IRS (from the IRS) - here
• Tax history from CRS (2001) - here
• Tax History Project from Tax Analysts - here

Historical observation - Gender in the tax field

I was in the law library looking for a journal that isn't online.  The rare times I'm in a physical library, I like to look at old documents. In the Santa Clara County Law Library, one of my favorites is the bound copies of Taxes magazine (CCH) dating back to Volume 1 issued in 1923.  It is interesting to see that topics in past decades are not much different from today - thin capitalization, problems with PL 86-272 and UDITPA, IRS procedures, and one of my favorites - an article in 1923 on the problems of tax law complexity!

Today, I noticed in the 1962 volume that a regular feature was "Meetings of Tax Men"!  That is how Taxes magazine listed upcoming tax conferences from about 1959 through May 1972!  In June 1972 - just 40 years ago, that feature was renamed "Tax Meetings."  Progress!