Happy 100th Birthday, Income Tax
The federal income tax turns 100 this week. No matter how you feel about paying it, the revenue the tax produces is critical to the U.S. economy. We take a look back at how the tax has shaped the American way of life and created new professions--and associations.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” – 16th Amendment to the U.S. Constitution.
You may not be inclined to send a gift to the IRS or celebrate with cake and balloons, but we think the birthday of the income tax in America deserves a brief moment of commemoration.
A hundred years ago, the 16th Amendment to the U.S. Constitution—enabling the federal income tax—was ratified. Taxes are standard in most nations now, and the government could not function without them.
“The 16th Amendment may be far from the most popular of constitutional amendments, but it is among the most important,” Duke University Law School professor Lawrence Zelenak said. “The economic history of the United States over the past 100 years would have been radically different—in ways we can hardly imagine—if the amendment had never been ratified.”
Let’s honor the 16th Amendment’s centennial by taking a short walk through history:
The process: The amendment finally answered a question that had been haunting Congress for years: how to tax income in a way that allows the federal government to better serve Americans. The bill was contested, as most bills are in Congress, but the need was apparent. As the gap between rich and poor became more obvious, the federal government had to step in and create government-run programs that benefited everyone. The federal income tax would fund those programs.
The ratification: Ratified on February 3, 1913, the 16th Amendment established the right of the federal government to tax individuals based on their income, regardless of state population. Before the amendment was instituted, income tax was collected by state governments under the Revenue Act of 1861, which was a flat tax system.
What it looks like now: As anyone who has ever filed a tax return knows, the tax code has become a lot more complex over the past century. The federal income tax now funds just about everything—more than 1,500 government-funded programs.
Tax education: The income tax eventually spawned entirely new professions, and today several associations watch out for tax professionals and advocate for tax education. The American Taxation Association, founded in 1974, promotes research and education on taxation. The National Association of Tax Professionals, founded in 1979, is a nonprofit professional association with about 25,000 members who assist millions of Americans in tax preparation.
What’s next: The current Congress has placed income tax reform high on its legislative agenda, though there’s no consensus on what it should look like. Associations are watching closely to see how reform proposals might affect the tax-exempt status of nonprofits and the deductibility of charitable contributions, among other issues.