A century ago this month (February 25 to be precise), the 16th Amendment to the U.S. Constitution was ratified, allowing for a direct tax on income:
“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.”
We call this the income tax. The following are some interesting factoids about our beloved tax (my sources are “Our Changing Tax Laws,” issued by CCH in 1988 on the 75th anniversary of the income tax, and the National Taxpayer Advocate’s Annual report released last month.
- The federal tax law was 16 pages.
- Every citizen with net income of $3,000 or more was required to file a return.
- The return contained graduated income tax rates of 1% to 6%; the top rate applied to income over $500,000. The first 1% was a normal tax; the additional tax rates were a super tax.
- The tax return was three pages; another page was instructions.
- The return had to be signed before an officer authorized to administer oaths.
- The filing deadline for individuals and corporations was March 15th. (The due date changed after enactment of the Tax Code of 1954.)
- Tax was collected by the Bureau of Internal Revenue. (The Bureau became the Internal Revenue Service in 1953.)
- You can view the original income tax form, called Form 1040 even then, at the Tax Foundation.
- Today the Internal Revenue Code is comprised of nearly 4 million words.
- 59% of taxpayers use paid preparers.
- Individuals and businesses spend about 6.1 billion hours and $168 billion each year filing returns and complying with the tax law.
- By my last count, there were at least 18 different definitions of “small business” (some dependent on income, some on assets, and some on the number of employees) and taxpayers must distinguish between a qualifying child, a qualifying dependent, and a qualifying individual (all who are the same in most cases) for different tax credits.
- The Internal Revenue Service (IRS) processes more than 133 million returns.
- The IRS collects taxes of more than $1.2 trillion.
What is the future of the income tax? There is much talk about sweeping reform to eliminate “loopholes” (which are merely tax breaks created for special purposes, such as encouraging home ownership or charitable contributions) and, perhaps, reduce tax rates to a flat (or nearly flat) rate.
Personally, I don’t believe that today’s political climate would allow for real reform, no matter how much I think it is needed. There may be a new tax code in the offing, but likely it won’t be dramatically different from the one we have now. However, a hundred years from now, there may indeed be a different tax landscape. For instance, down the road, the income tax may be scrapped for a national sales tax or other revenue raiser.
Whatever the change, it is certain that we will still be paying taxes. Oliver Wendell Homes, Jr. said (in a 1927 decision) that “taxes are what we pay for civilized society.”