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Civil War Income Tax
During the Civil War an income tax of 3% was to be paid if you had an income over %800 dollars. This was established through the Revenue Act of 1861. This was to help the Union fund it's war effort against the South. The Act would later be replace with the Revenue Act of 1862 that levied a graduated tax of 3% to 5% on an income of $600. This tax would expire in 1872 and it proved to be a great way for the government to gain revenue. -
Wilson-Gorman Tariff Act
The Wilson-Gorman Tariff Act was passed to slightly reduce U.S. tariff rates, but an amendment was added to it. This little add on was to imposed a 2% income tax on incomes of more than $4000 ($116,000 in 2018). This was strongly favored in southern states and northeastern central states. Though it was strongly opposed by the industrialize northeast and far west states. The tariff act itself was opposed, but the income tax part was not opposed by all. -
Pollock vs Farmers' Loan & Trust co.
The U.S. Supreme Court almost immediately struck down this income tax declaring it to be unconstitutional unapportioned direct tax. This was a shock as the U.S. Supreme court had never done anything to the previous income taxes during the Civil War. The Court reasoned that a tax on income from property should be treated as a tax on "property by reason of its ownership" and so should be required to be apportioned. -
Congress Reaction
Congress was concerned with this decision as they worried that the wealthy had consolidated to much economic power. They also would not try to enact another income tax for awhile after the Pollock decision. This was because any attempt to try and enact an income tax would be struck down instantly by the U.S. Supreme Court. -
Proposing of an Amendment
Senator Norris Brown from Nebraska first proposed an amendment to the Constitution for income tax. The senator submit two proposal for the amendment which were Senate Resolution Nos. 25 and 39. The amendment proposal accepted was Senate Jointed Resolution No. 40, introduced by senator Nelson W. Aldrich of Rhode Island. Nelson did to defuse tensions between progressives and congress about an income tax, but conservatives and Nelson also hoped it would not be ratified believing it had no chance. -
Ratification
Do to several different condition like the republican party weakening , public blaming tariffs for inflation and rising price, and the democrats winning the presidency and controlling both houses of Congress. The amendment was ratified in just four years. It also overruled the Pollock vs Farmers Loans & Trust co. Though even after the ratification of the 16th Amendment, only 1% of the population in 1913 were paying income tax. -
World War I
In 1918 income taxes were raised to pay for the war. For the average American it was raise from 2% to 6%. Though for those who earned $1,000,000 or more the income tax was up to 77%. This was done with the Revenue Act of 1918. Still only 5% paid federal income tax, but yet the money gained from these taxes paid for 1/3 of the war. -
Untied States vs Sullivan
This cased charged Manley Sullivan with tax evasion as it is required for any kind of income to be put on tax return forms legal or illegal. Sullivan argued that this would only amount to him self-incriminating himself. The court still ruled against him. Though this decision would be reversed by the Fourth Circuit Court of Appeals, on Fifth Amendment Grounds. Though this would not happen for many criminal one example being Al Capone. -
Changes to the IRS
The IRS Restructuring and Reform of 1998 reorganized and modernized the IRS and form a Taxpayer Advocate Service as an independent voice inside the agency on behalf of the taxpayer.
