(Un)happy birthday to income tax
No matter how independent-spirited, man is dependent upon man. No one can entirely avoid the collective and thus, the collection.
On this day in 1861, Congress levied the first federal income tax (although it didn't collect it until the following year).
Governments have taken tribute from subjects since civilization began, even before money was invented 2,500 years ago. Rulers in ancient Mesopotamia expected families to deliver cattle and sheep in numbers based on herd size; Egyptian farmers of old owed bushels of grain to their pharaoh, pre-calculated according to field size, rather than the success of the harvest. Don't have a farm? Use your body: Labor was another way to pay taxes before money dominated economies.
In the West there's an easier target for income tax blame: Napoleon. In 1799, Great Britain's prime minister led Parliament to pass its first income tax of 10 percent to fund the nation's war against that cheeky Frenchman. Because the tax was levied only on incomes more than GBP 60, more than the average citizen's income, in a way this was a progressive tax system of earn more, pay more. While Parliament later repealed the tax and ordered its documentation destroyed, the king secretly kept copies and taxes were reinstated 25 years later.
Across the waters the new American government followed suit, memorialized in our constitution and first attempted in 1815 to pay for the War of 1812. The House defeated that measure, but by 1861 when the Civil War's chest neared empty, Congress and President Lincoln did the deed. This was a 3 percent flat tax on all incomes more than $800 (about $20,000 today), later changed to a higher, progressive tax with three brackets. This tax ended in 1873, and for another 40 years until the 16th Amendment was passed, Americans enjoyed life free of income taxes.
As frustrated as we may become, Americans nevertheless are currently less taxed (relative to GDP) than are our counterparts. According to the Organization for Economic Cooperation and Development, the U.S. average rate of 22.6 percent ranks a low 26 among 28 developed countries in amount paid. This figure includes other forms of taxes such as property, sales, social welfare, health, and estate. In 2009, corporate taxes were 1.3 percent of GDP, while the average for the other 28 OECD nations was 2.4 percent.
It may also surprise some to know that the richest Americans pay less now than they did after WWII; even considering the post-war peak, the trend has been mostly downward. According to the IRS, a married couple filing jointly with an income of $1 million would have paid $664,312 in 1945 versus $319,873 in 2011; the same couple earning $30,000 would have paid $7,016 in 1945, but only $3,650 in 2011.
Of course, that's if we can figure out how to pay the minimum. Complexity has gotten ridiculous. In 1940 the instruction booklet for Form 1040 consisted of only two pages. Today it's nearly 100 pages long. The tax code itself has gotten so dense it's ready for the big bang. Good business for CPAs.
Policy issues and the infamous "1 percent" notwithstanding, generally our taxes both local and national pay for a lot which most Americans would not give up if pressed. Highways, law enforcement agencies and emergency services, a standing army, guaranteed schooling for children rich and poor (in money as well as parentage) come easily to mind. There is also clean and safe water - something millions of people do not enjoy. Dams - necessary for power, as well as recreation. Courts. Border patrols - by land and sea. Airports. Pipelines and renewable energy. The Inland Northwest enjoys vast natural beauty maintained by tax dollars and which modest park fees, where they exist, do not begin to cover.
For an individualized worksheet on where the taxes you paid are going see Whitehouse.gov/2013-taxreceipt.
Sholeh Patrick, J.D., is a columnist for the Hagadone News Network. Contact her at Sholeh@cdapress.com.