Finance #TBT: income tax law is passed this week in 1913
On February 25, 1913, a darling document named the 16th Amendment went into full effect. You're probably thinking "Okay... so..."
Well, you know that little time that rolls around every year called "tax season"? The one that's currently in full swing and slowly starting to give you anxiety? You can thank the 16th Amendment for that: its ratification is responsible for the modern day income tax. Thanks, founding fathers.
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Though we'll spare you the compete history lesson on how the income tax came to be, we'll still give you a bit of loose background.
The U.S. Treasury has been taxing its citizens since as far back as can be remembered, mostly through sales taxes and tariffs. Then in 1861, good old Abe Lincoln suggested something along the lines of "why don't we just start taxing people based on how much money they make?" And the rest of the government kind of went "I mean, yeah, that makes sense."
With the Civil War in full swing, the government desperately needed more money. Enter the first progressive tax (in which people who earned more were taxed more). This lasted until 1872.
A graph of the top federal tax rate over time:
In 1894, congress re-instated the income tax, but this time, it was met with opposition. In the court case Pollock vs. Farmers' Loan and Trust Co., it was ruled by the Supreme Court that income tax was unconstitutional (awkward.) Congress defeatedly looked for a solution, and so in 1909, they proposed that the notion of income tax become its own amendment in the U.S. Constitution.
On July 2, 1909, the 16th amendment (which allowed for Congress to enact an income tax on the American people, regardless of population and dividing the tax evenly by state) was authorized and eventually ratified on February 3, 1913.
Then on February 25, 1913, Secretary of State Philander C. Knox signed and certified the amendment, and in to effect it went.
Here's some additional information on the man behind the signature:
Though (obviously) the government can no longer tax the American people at any rate and by any qualifications that they want, the 16th amendment answered the question of whether or not it was constitutional to levy an income tax on American citizens at all. The answer, of course, being yes.
So come April, when you're kicking yourself for procrastinating on filing your 1040 for so long, give a shout out to good old Secretary Knox and that signature that changed it all 103 years ago.
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