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WHAT IS THE ORIGIN OF THE FEDERAL INCOME TAX?

In the early years of the United States of America, there were very few taxes. Up until 1802, the nation was mainly supported by taxes on goods (such as tobacco, carriages, sugar and spirits). During the War of 1812, a sales tax was introduced to offset the high cost of war.

The origin of the income tax on individuals is generally recognized to be the passage of the 16th Amendment by Congress on July 2, 1909 and ratified on February 3, 1913. However, its history actually goes back even further. During the Civil War, Congress passed the Revenue Act of 1861 which included a tax on personal incomes to help pay war expenses. During this time, a worker who earned $600 to $10,000 annually was taxed at a rate of 3%. For those earning more than $10,000 per year, a higher income tax rate was imposed. The tax was repealed ten years later. In 1894 Congress enacted a flat rate Federal income tax, which was ruled unconstitutional the following year by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state. The 16th amendment, removed this objection by allowing the Federal government to tax the income of individuals without regard to the population of each State. It did not take long for the government to collect substantial tax revenue. In 1918, annual collections topped $1 billion and by 1920, tax revenue reached over $5 billion.

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