Dear Valued Clients,
Motivating the citizens of the United States to pay their Federal Income Tax has always been a struggle. Various strategies have been implemented over the years to improve tax collection. Some meant to force tax payers and others to encourage them.
The first income tax in our nation was enacted by Congress in 1862 to help support the Civil War. (Blockades against the ports of the North limited supplies and cut off tariffs.) President Lincoln himself paid $1,296 in 1864 for his income tax. In order to encourage ordinary citizens to pay the government made tax returns public. Americans were encouraged to turn in those they suspected of not paying their fair share.
This Civil War Era income tax was removed ten years after it began, only to be brought back in 1894 until the Supreme Court voted in 1895 that it was unconstitutional.
In 1913, Congress passed the 16th amendment of the U.S. Constitution. This new law created the first permanent income tax in our country. At that time, the highest rate was 7 percent. Five years later the top bracket was at 77 percent. (See the full history of the top brackets in the graphics on pages 3 and 4.)
By the time World War II came, the nation had a serious problem with deficits. Congress was not about to make tax returns public. Instead, the nation turned to Donald Duck who explained to Americans their duty to pay the government: “Taxes to bury the Axis.”
Today, most of us might relate more to Arthur Godfrey who said, “As an American I am proud to pay my taxes. But I’d be just as proud for half as much.” Nevertheless, our nation needs us and so, taxes are here to stay. I hope you enjoy this issue of the Money Moxie® as we “celebrate” the 100th anniversary of the U.S. Income Tax.
James R. Derrick
SFS Chief Investment Strategist
Source: David Kestenbaum, “From Abe Lincoln to Donald Duck: History of the Income Tax,” NPR, 3/22/2012.