Legal History of Income Tax in the United States

The legal history of income tax in the United States is marked by several key milestones. Here’s an overview of its evolution:

Legal History of Income Tax in the United States

1. Table of Contents

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   Civil War Income Tax (1861-1872):

   • During the Civil War, the United States implemented its first federal income tax in 1861 to finance war expenses. It was a progressive tax, with rates ranging from 3% to 5%. The tax was repealed in 1872.

2. Wilson-Gorman Tariff Act (1894):

   • The Wilson-Gorman Tariff Act of 1894 included a provision for a 2% federal income tax on incomes over $4,000. However, the Supreme Court declared it unconstitutional in the case of Pollock v. Farmers’ Loan & Trust Co. (1895), stating that certain types of income taxes were direct taxes and required apportionment among the states.

3. 16th Amendment (1913):

   • In response to the Pollock decision, the 16th Amendment to the U.S. Constitution was ratified in 1913, granting Congress the power to levy income taxes without apportionment among the states. This amendment paved the way for the modern federal income tax system.

4. Revenue Act of 1913:

   • The Revenue Act of 1913 established the framework for the modern federal income tax system. It introduced progressive tax rates, with the top rate set at 7% for incomes over $500,000.

5. World War I and Tax Changes:

   •  The highest marginal tax rate reached 77% for incomes over $1 million.

6. Roaring Twenties and Tax Cuts:

   •  The top marginal tax rate was lowered to 25% under the Revenue Act of 1924.

7. Great Depression and New Deal:

   • The economic challenges of the Great Depression led to tax increases. The Revenue Act of 1932 raised rates, and subsequent New Deal legislation further increased tax burdens on higher incomes.

8. Post-War Era and Tax Reforms:

   • The post-war period saw various tax reforms. The Internal Revenue Code of 1954 simplified the tax structure and introduced deductions for mortgage interest and medical expenses.

9. Tax Reform Act of 1986:

   • The Tax Reform Act of 1986 was a significant overhaul of the tax code. It lowered tax rates, eliminated many deductions, and aimed to simplify the tax system.

10. Subsequent Reforms and Adjustments:

    • Over the years, there have been numerous adjustments to the tax code, including changes to rates, deductions, and credits. The Tax Cuts and Jobs Act of 2017 was a major reform that lowered tax rates for individuals and corporations.

The legal history of income tax in the United States reflects a dynamic interplay between economic conditions, wartime needs, and evolving fiscal policy. The federal income tax system has undergone substantial changes since its inception, shaping the nation’s revenue structure and tax policies.