Our great nation came into existence in fits and starts. Following the revolt against the British, a federal government was elected and the fun began. This “fun” inevitably led to the situation where not everyone could agree on what the United States should stand for, much less what laws should be enacted. As a result, there was no federal income tax for nearly 100 years. Ah, the good ole days!
If there was no income tax during this period, you are probably wondering how the government functioned. It did so by collecting use and sales taxes. Taxes were charged on liquor, tobacco and imports to mention just a few. Many people in our modern society would like to return to just such a system.
Contrary to popular notions, the first income tax was not put into law in the early 1900's. In fact, the first President to institute an income tax was Abraham Lincoln. In 1861, President Lincoln and Congress passed an income tax law to assist with funding the Civil War with the south. When the war came to an end, the tax was phased out. Imagine a tax being phased out now? That should bring a tear of laughter to your eye.
The income tax as we know it was first instituted in 1913. Congress passed a law establishing a graduated tax rate of one to seven percent on all income taxes. I can say honestly and truthfully that I would kill to pay one percent in taxes these days. Heck, I am willing to take on the burden of paying seven percent!
In establishing the income tax system, the Constitution was amended to add a 16th Amendment. This Amendment gave the federal government the right to collect taxes. The politicians primarily responsible for this were President Roosevelt and President Taft. I mention two Presidents because the bitter debate over the subject took some time to work out.
If you're looking to blame a particular political party, Presidents Roosevelt and Taft were both Republicans. Of course, the Democrats haven't exactly made much of an effort to repeal the tax, so both parties deserve a whack upside the head in my opinion. Nonetheless, this is how we came to be burdened by the income tax in the United States.
History Of Income Tax
The U.S. Federal Income Tax Code requires American corporations and citizens to pay a percentage of their income (earnings) to the government. This income tax provides for the operation of the government. The current Tax Code is found in Title 26 of the U.S. Code of Federal Regulations (CFR), as amended.
A Clause For Alarm
The Taxing and Spending Clause of the U.S. Constitution is found in Article I, Section 3, Clause 1. This article gave Congress the power to impose taxes, duties, imposts, and excises. However, Section 9 required that these taxes be uniform throughout the country.
A Very Taxing War
In 1861 the American government imposed a personal income tax to help pay for the Civil War. However, a federal income tax was not feasible at that time due to difficulties in classifying property and in the way that wages were paid.
Congress Created A Loophole
The Sixteenth Amendment to the Constitution was ratified by the States in 1913. This Amendment increased the power of Congress to levy taxes. In summary, the Amendment gave Congress the power to levy federal income taxes that were not uniform across all states. Furthermore, this income tax could be imposed regardless of any census or population data.
The Modern Federal Income Tax
The U.S. Tax Code has been amended (modified) many times since it was first approved. The tax laws and rules have grown increasingly complex to address increasingly complex financial and legal situations. The result is a tangle of legalese that requires teams of trained professional accountants, computers, or both, to understand.
Understanding The Federal Income Tax Return
Generally, American citizens have income tax deducted from each paycheck by their employers. The employers group the taxes from their company and send them to the government. Corporations pay income taxes in a similar manner.
The U.S. Internal Revenue Service (IRS) requires each citizen or corporation to make an accounting of their tax situation once per year (usually by April 15). This accounting takes the form of filing a tax return.
The broad purpose of the tax return is to determine whether or not the individual or corporation has paid enough income tax throughout the year. If exactly enough income tax was paid, all is well. If the tax return indicates that taxes were underpaid, additional tax must be paid to make up the shortfall. Finally, if too much income tax was paid, the person or company receives a refund of the overpayment, or a return of the taxes overpaid.
Why A Large Tax Refund Is Bad
Many people are delighted to receive an income tax refund. What they have failed to consider is that the refund is their money from the start. The Government has had interest-free use of it during the past year.
Those who consistently receive large tax refunds should decrease the amount of taxes withheld by their employers. This action decreases or eliminates an annual tax refund, but it puts more money in the person's pocket each month!
For More Information
The website below provides free information about income tax preparation tips, tax assistance articles, and related resources.
Both Richard Chapo & Doug Smith are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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