America 250- Income Taxes Past

It’s the final stretch of tax season! On April 15 (when else?), I am teaching a new class called Income Taxes: Past, Present, and Future. As a small part of the nationwide America 250 effort, the class describes taxes in America since its founding in 1776. 

For almost 100 years, there was no income tax at all (until a short-lived tax that began in 1862 to help fund the Civil War) and the country earned revenue from customs duties, tariffs, and excise taxes on alcohol, tobacco, and, yes, even slaves.

In this post and the next two, I will present class highlights starting with past tax history. Below is a chronology of some key historical tax-related legislation, events, and trends:

 

1776-1861- No federal income tax existed

1862- First federal income tax to fund the Civil War and Office of Internal Revenue established

1872- Income tax repealed

1894- A 2% peacetime tax was passed by Congress and the Bureau of Internal Revenue was created

1895- The Supreme court ruled that the new tax was unconstitutional and the tax bureau disbanded

1909- President Taft recommended a constitutional amendment for government taxing authority

1913- 16^th amendment to establish an income tax was ratified and first 1040 form introduced

1918- The Revenue Act of 1918 significantly increased taxes to fund World War I (73% top tax rate)

1931- Al Capone was convicted of tax evasion and sentenced to 11 years in prison

1943- Income tax withholding was introduced

1944- Standard deductions were created and top tax rate of 94% for income over $200,000

1945-1963- Top tax rate of 91% for nineteen tax years!

1954- The tax filing deadline changed from March 15 to April 15

1969- Alternative minimum tax (AMT) created after wealthy people boasted that they paid no tax

1981- The Economic Recovery Act of 1981 lowered marginal tax rates and expanded IRA access

1986- The Tax Reform Act of 1986 simplified the tax code and lowered top tax rate from 50% to 28%

1986- Limited electronic income tax filing began

1992- Taxpayers who owed money were allowed to file tax returns electronically

2001 and 2003- Bush tax cuts reduced income tax rates and capital gains taxes

2010- The Affordable Care Act introduced the Net Investment Income Tax (NIIT) to help fund Medicare

2017- The Tax Cuts and Jobs Act (TCJA) greatly overhauled the tax code and nearly doubled standard deduction

2024- About 93% of individual taxpayers filed their income tax returns electronically

2025- The spending and tax bill known as OBBBA passed and made the 2017 TCJA tax cuts permanent 

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