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Flat 3% on incomes higher than $800, later changed to 5% on all incomes greater than $600 and $5,000. This was repealed in 1872 by Congress.
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In an effort to reduce tariff rates, Congress institutes another income tax of 2% on incomes greater than $2,000. Citizens who oppose this income tax denounce it because it “takes from the wealth of the thrifty and the enterprising and gives it to the shifty and sluggard.”
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In Pollock vs. Farmers’ Loan & Trust Co. it is ruled that the income tax is unconstitutional and violates Article 1, sections 2 and 9 of the Constitution (these sections are known as the “rule of apportionment” and specify that all federal taxes must be imposed based on the population of each state and not the people directly)
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Sixteenth amendment is ratified and congress levies 1% tax on personal incomes greater than $3,000 and a 6% tax on incomes above $500,000 – these taxes only affect a small portion of the US population
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In Strattons vs. Howbert, income is defined by the Supreme Court as “gain derived from capital, from labor, or from both combined.”
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To raise additional taxes necessary to finance the first World War, the top tax rate was increased to 77% by Congress– an all-time high. For comparison, modern tax rates vary between 10% - 37% as of October 2023.
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The tax court gives taxpayers a place to dispute internal revenue service decisions involving payment of federal income, gift, or estate tax. Decisions made by the Tax Court can be appealed to federal courts of appeals and are subject to be reviewed by the U.S. Supreme Court. There are nineteen Tax Court Judges today who are appointed by the President to serve for fifteen years.
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In United States vs. Sullivan, it is decided by the Supreme Court that there is no reason for income from illegal businesses and money that is illegally from things such as drug dealing or gambling should not also be taxed. The statute requires that payment from businesses of any kind be taxed as if it were lawful.
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Congress imposes taxes on people with average incomes to fund the second World War. But because many people have not saved adequately to pay their taxes, a new law is set that requires taxes to be taken out of salaries before paychecks are given to employees.
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First established in 1862, the Bureau of Internal Revenue is rebuilt and renamed as the Internal Revenue Service (IRS) and remains the largest bureau in the Department of the Treasury and is responsible for collecting federal taxes.
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The U.S. Tax Court imposes financial penalties on taxpayers who pursue “frivolous cases” to delay the payment of their taxes. The IRS also rejects many claims by people who refuse to pay taxes.