History of taxation in the United States

The history of taxation in the United States begins with the colonial protest against British taxation
policy in the 1760s, leading to the American Revolution. The independent nation collected taxes on imports
("tariffs"), whiskey, and (for a while) on glass windows. States and localities collected poll taxes on voters
and property taxes on land and commercial buildings. In addition, there were the state and federal excise
taxes. State and federal inheritance taxes began after 1900, while the states (but not the federal government)
began collecting sales taxes in the 1930s. The United States imposed income taxes briefly during the Civil
War and the 1890s. In 1913, the 16th Amendment was ratified, permanently legalizing an income tax.

Federal taxes by type

Contents
Colonial taxation
Stamp Act
Townshend Revenue Act
Sugar Act 1764
Boston Tea Party
Capitation tax
Tariffs
Income for federal government
Protectionism
Origins of protectionism
Sectionalism
Early 20th century protectionism
Era of GATT and WTO
Excise tax
Income tax
Legal foundations
Pre-16th Amendment
16th Amendment
Tax rate reductions
Development of the modern income tax
 Treatment of "income"
Estate and gift tax
Payroll tax
Creation
Development
Alternative minimum tax
Capital gains tax
Corporate tax
See also
References
Further reading

Colonial taxation
Taxes were low at the local, colonial, and imperial levels
throughout the colonial era.[1] The issue that led to the Revolution
was whether parliament had the right to impose taxes on the
Americans when they were not represented in parliament.

Stamp Act
The Stamp Act of 1765 was the fourth Stamp Act to be passed by
the Parliament of Great Britain and required all legal documents, A British newspaper cartoon reacts
permits, commercial contracts, newspapers, wills, pamphlets, and to the repeal of the Stamp Act in
playing cards in the American colonies to carry a tax stamp. It was 1765.
enacted on November 1, 1765, at the end of the Seven Years' War
between the French and the British, a war that started with the
young officer George Washington attacking a French outpost. The stamp tax had the scope of defraying the
cost of maintaining the military presence protecting the colonies. Americans rose in strong protest, arguing
in terms of "No Taxation without Representation". Boycotts forced Britain to repeal the stamp tax, while
convincing many British leaders it was essential to tax the colonists on something to demonstrate the
sovereignty of Parliament.

Townshend Revenue Act

The Townshend Revenue Act were two tax laws passed by Parliament in 1767; they were proposed by
Charles Townshend, Chancellor of the Exchequer. They placed a tax on common products imported into
the American Colonies, such as lead, paper, paint, glass, and tea. In contrast to the Stamp Act of 1765, the
laws were not a direct tax that people paid daily, but a tax on imports that was collected from the ship's
captain when he unloaded the cargo. The Townshend Acts also created three new admiralty courts to try
Americans who ignored the laws.[2]

Sugar Act 1764

The tax on sugar, cloth, and coffee. These were non-British exports.
Boston Tea Party

The Boston Tea Party was an act of protest by the American

colonists against Great Britain for the Tea Act in which they
dumped many chests of tea into Boston Harbor. The cuts to
taxation on tea undermined American smugglers, who destroyed
the tea in retaliation for its exemption from taxes. Britain reacted
harshly, and the conflict escalated to war in 1775.
This 1846 lithograph has become a
classic image of the Boston Tea
Capitation tax Party.

An assessment levied by the government upon a person at a fixed

rate regardless of income or worth.

Tariffs

Income for federal government

Tariffs have played different parts in trade policy and the economic history of the United States. Tariffs
were the largest source of federal revenue from the 1790s to the eve of World War I until it was surpassed
by income taxes. Since the revenue from the tariff was considered essential and easy to collect at the major
ports, it was agreed the nation should have a tariff for revenue purposes.[3][4]

Protectionism

Another role the tariff played was in the protection of local industry; it was the political dimension of the
tariff. From the 1790s to the present day, the tariff (and closely related issues such as import quotas and
trade treaties) generated enormous political stresses. These stresses lead to the Nullification crisis during the
19th century, and the creation of the World Trade Organization.

Origins of protectionism

When Alexander Hamilton was the United States Secretary of the Treasury he issued the Report on
Manufactures, which reasoned that applying tariffs in moderation, in addition to raising revenue to fund the
federal government, would also encourage domestic manufacturing and growth of the economy by
applying the funds raised in part towards subsidies (called bounties in his time) to manufacturers. The main
purposes sought by Hamilton through the tariff were to: (1) protect American infant industry for a short
term until it could compete; (2) raise revenue to pay the expenses of government; (3) raise revenue to
directly support manufacturing through bounties (subsidies).[5] This resulted in the passage of three tariffs
by Congress, the Tariff of 1789, the Tariff of 1790, and the Tariff of 1792 which progressively increased
tariffs.

Sectionalism

Tariffs contributed to sectionalism between the North and the South. The Tariff of 1824 increased tariffs to
protect the American industry in the face of cheaper imported commodities such as iron products, wool,
and cotton textiles, and agricultural goods from England. This tariff was the first in which the sectional
interests of the North and the South truly came into conflict because the South advocated lower tariffs to
take advantage of tariff reciprocity from England and other countries that purchased raw agricultural
materials from the South.

The Tariff of 1828, also known as the Tariff of Abominations, and the Tariff of 1832 accelerated
sectionalism between the North and the South. For a brief moment in 1832, South Carolina made vague
threats to leave the Union over the tariff issue.[6] In 1833, to ease North-South relations, Congress lowered
the tariffs.[6] In the 1850s, the South gained greater influence over tariff policy and made subsequent
reductions.[7]

In 1861, just before the Civil War, Congress enacted the Morrill Tariff, which applied high rates and
inaugurated a period of relatively continuous trade protection in the United States that lasted until the
Underwood Tariff of 1913. The schedule of the Morrill Tariff and its two successor bills were retained long
after the end of the Civil War.[8]

Early 20th century protectionism

In 1921, Congress sought to protect local agriculture as opposed to the industry bypassing the Emergency
Tariff, which increased rates on wheat, sugar, meat, wool and other agricultural products brought into the
United States from foreign nations, which protected domestic producers of those items.

However, one year later Congress passed another tariff, the Fordney–McCumber Tariff, which applied the
scientific tariff and the American Selling Price. The purpose of the scientific tariff was to equalize
production costs among countries so that no country could undercut the prices charged by American
companies.[9] The difference in production costs was calculated by the Tariff Commission. A second
novelty was the American Selling Price. This allowed the president to calculate the duty based on the price
of the American price of a good, not the imported good.[9]

During the outbreak of the Great Depression in 1930, Congress raised tariffs via the Smoot–Hawley Tariff
Act on over 20,000 imported goods to record levels, and, in the opinion of most economists, worsened the
Great Depression by causing other countries to reciprocate thereby plunging American imports and exports
by more than half.

Era of GATT and WTO

In 1948, the US signed the General Agreement on Tariffs and Trade (GATT), which reduced tariff barriers
and other quantitative restrictions and subsidies on trade through a series of agreements.

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the
most significant changes was the creation of the World Trade Organization (WTO). Whereas GATT was a
set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from
traded goods to trade within the service sector and intellectual property rights. Although it was designed to
serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round)
plurilateral agreements created selective trading and caused fragmentation among members. WTO
arrangements are generally a multilateral agreement settlement mechanism of GATT.[10]

Excise tax
Federal excise taxes are applied to specific items such as motor fuels, tires, telephone usage, tobacco
products, and alcoholic beverages. Excise taxes are often, but not always, allocated to special funds related
to the object or activity taxed.
During the presidency of George Washington, Alexander Hamilton
proposed a tax on distilled spirits to fund his policy of assuming the
war debt of the American Revolution for those states which had
failed to pay. After a vigorous debate, the House decided by a vote
of 35–21 to approve legislation imposing a seven-cent-per-gallon
excise tax on whiskey. This marks the first time in American
history that Congress voted to tax an American product; this led to
the Whiskey Rebellion.
The Whiskey Rebellion: The painting
depicts George Washington and his
Income tax troops near Fort Cumberland,
Maryland, before their march to
suppress the Whiskey Rebellion in
western Pennsylvania.

The history of income taxation in the United States began in the 19th century with the imposition of income
taxes to fund war efforts. However, the constitutionality of income taxation was widely held in doubt (see
Pollock v. Farmers' Loan & Trust Co.) until 1913 with the ratification of the 16th Amendment.

Legal foundations

Article I, Section 8, Clause 1 of the United States Constitution assigns Congress the power to impose
"Taxes, Duties, Imposts, and Excises", but the same clause also requires that "Duties, Imposts, and Excises
shall be uniform throughout the United States".[11]

In addition, the Constitution specifically limited Congress' ability to impose direct taxes, by requiring it to
distribute direct taxes in proportion to each state's census population. It was thought that head taxes and
property taxes (slaves could be taxed as either or both) were likely to be abused and that they bore no
relation to the activities in which the federal government had a legitimate interest. The fourth clause of
section 9, therefore, specifies that "No Capitation, or other direct, Tax shall be laid, unless in Proportion to
the Census or enumeration herein before directed to be taken".

Taxation was also the subject of Federalist No. 33 penned secretly by the Federalist Alexander Hamilton
under the pseudonym Publius. In it, he explains that the wording of the "Necessary and Proper" clause
should serve as guidelines for the legislation of laws regarding taxation. The legislative branch is to be the
judge, but any abuse of those powers of judging can be overturned by the people, whether as states or as a
larger group.
What seemed to be a straightforward limitation on the power of the legislature based on the subject of the
tax proved inexact and unclear when applied to an income tax, which can be arguably viewed either as a
direct or an indirect tax. The courts have generally held that direct taxes are limited to taxes on people
(variously called "capitation", "poll tax" or "head tax") and property.[12] All other taxes are commonly
referred to as "indirect taxes".[13]

Pre-16th Amendment

To help pay for its war effort in the American Civil War, Congress imposed its first personal income tax in
1861.[14] It was part of the Revenue Act of 1861 (3% of all incomes over US$800; rescinded in 1872).
Congress also enacted the Revenue Act of 1862, which levied a 3% tax on incomes above $600, rising to
5% for incomes above $10,000. Rates were raised in 1864. This income tax was repealed in 1872.

A new income tax statute was enacted as part of the 1894 Tariff Act.[15][16] At that time, the United States
Constitution specified that Congress could impose a "direct" tax only if the law apportioned that tax among
the states according to each state's census population.[17]

In 1895, the United States Supreme Court ruled, in Pollock v. Farmers' Loan & Trust Co., that taxes on
rents from real estate, on interest income from personal property and other income from personal property
(which includes dividend income) were direct taxes on property and therefore had to be apportioned. Since
the apportionment of income taxes is impractical, the Pollock rulings had the effect of prohibiting a federal
tax on income from the property. Due to the political difficulties of taxing individual wages without taxing
income from property, a federal income tax was impractical from the time of the Pollock decision until the
time of ratification of the Sixteenth Amendment (below).

16th Amendment

In response to the Supreme Court decision in the Pollock case,

Congress proposed the Sixteenth Amendment, which was ratified
in 1913,[18] and which states:

The Congress shall have the 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.

The Supreme Court in Brushaber v. Union Pacific Railroad, 240

U.S. 1 (https://supreme.justia.com/cases/federal/us/240/1/) (1916),
indicated that the Sixteenth Amendment did not expand the federal
government's existing power to tax income (meaning profit or gain
from any source) but rather removed the possibility of classifying
an income tax as a direct tax based on the source of the income.
The Amendment removed the need for the income tax on interest,
dividends, and rents to be apportioned among the states based on Amendment XVI in the National
population. Income taxes are required, however, to abide by the Archives
law of geographical uniformity.
Congress enacted an income tax in October 1913 as part of the Revenue Act of 1913, levying a 1% tax on
net personal incomes above $3,000, with a 6% surtax on incomes above $500,000. By 1918, the top rate of
the income tax was increased to 77% (on income over $1,000,000, equivalent of $16,717,815 in 2018
dollars[19]) to finance World War I. The average rate for the rich however, was 15%.[20] The top marginal
tax rate was reduced to 58% in 1922, to 25% in 1925 and finally to 24% in 1929. In 1932 the top marginal
tax rate was increased to 63% during the Great Depression and steadily increased, reaching 94% in
1944[21] (on income over $200,000, equivalent of $2,868,625 in 2018 dollars[22]). During World War II,
Congress introduced payroll withholding and quarterly tax payments.[23]

Tax rate reductions

Following World War II tax increases, top marginal individual tax

rates stayed near or above 90%, and the effective tax rate at 70%
for the highest incomes (few paid the top rate), until 1964 when the
top marginal tax rate was lowered to 70%. Kennedy explicitly
called for a top rate of 65 percent, but added that it should be set at
70 percent if certain deductions weren't phased out at the top of the
income scale.[24][25][26] The top marginal tax rate was lowered to
50% in 1982 and eventually to 28% in 1988. It slowly increased to
39.6% in 2000, then was reduced to 35% for the period 2003
through 2012.[23] Corporate tax rates were lowered from 48% to
46% in 1981 (PL 97-34), then to 34% in 1986 (PL 99-514), and
increased to 35% in 1993, subsequently lowered to 21% in 2018.
A comedic representation by Clifford
Timothy Noah, the senior editor of the New Republic, argues that
K. Berryman of the debate to
while Ronald Reagan made massive reductions in the nominal introduce a sales tax in the United
marginal income tax rates with his Tax Reform Act of 1986, this
States in 1933 and end the income
reform did not make a similarly massive reduction in the effective
tax
tax rate on the higher marginal incomes. Noah writes in his ten-part
series entitled "The Great Divergence," that in 1979, the effective
tax rate on the top 0.01 percent of taxpayers was 42.9 percent, according to the Congressional Budget
Office, but that by Reagan's last year in office it was 32.2%. This effective rate on high incomes held
steadily until the first few years of the Clinton presidency when it increased to a peak high of 41%.
However, it fell back down to the low 30s by his second term in the White House. This percentage
reduction in the effective marginal income tax rate for the wealthiest Americans, 9%, is not a very large
decrease in their tax burden, according to Noah, especially in comparison to the 20% drop in nominal rates
from 1980 to 1981 and the 15% drop in nominal rates from 1986 to 1987. In addition to this small
reduction in the income taxes of the wealthiest taxpayers in America, Noah discovered that the effective
income tax burden for the bottom 20% of wage earners was 8% in 1979 and dropped to 6.4% under the
Clinton Administration. This effective rate further dropped under the George W. Bush Administration.
Under Bush, the rate decreased from 6.4% to 4.3%.[27] These figures also correspond to an analysis of
effective tax rates from 1979–2005 by the Congressional Budget Office.[28]

Development of the modern income tax

Congress re-adopted the income tax in 1913, levying a 1% tax on net personal incomes above $3,000, with
a 6% surtax on incomes above $500,000. By 1918, the top rate of the income tax was increased to 77% (on
income over $1,000,000) to finance World War I. The top marginal tax rate was reduced to 58% in 1922, to
25% in 1925, and finally to 24% in 1929. In 1932 the top marginal tax rate was increased to 63% during
the Great Depression and steadily increased.
During World War II, Congress introduced payroll withholding and
quarterly tax payments. In pursuit of equality (rather than revenue)
President Franklin D. Roosevelt proposed a 100% tax on all
incomes over $25,000.[30][31] When Congress did not enact that
proposal, Roosevelt issued an executive order attempting to achieve
a similar result through a salary cap on certain salaries in
Historical federal marginal tax rates
connection with contracts between the private sector and the federal
for income for the lowest and highest
government.[32][33][34] For tax years 1944 through 1951, the
income earners in the US.[29]
highest marginal tax rate for individuals was 91%, increasing to
92% for 1952 and 1953, and reverting to 91% 1954 through
1963.[35]

For the 1964 tax year, the top marginal tax rate for individuals was lowered to 77%, and then to 70% for
tax years 1965 through 1981. In 1978 income brackets were adjusted for inflation, so fewer people were
taxed at high rates.[36] The top marginal tax rate was lowered to 50% for tax years 1982 through 1986.[37]
Reagan undid 40% of his 1981 tax cut, in 1983 he hiked gas and payroll taxes, and in 1984 he raised tax
revenue by closing loopholes for businesses.[38] According to historian and domestic policy adviser Bruce
Bartlett, Reagan's 12 tax increases over the course of his presidency took back half of the 1981 tax cut.[39]

For tax year 1987, the highest marginal tax rate was 38.5% for individuals.[40] It was lowered to 28% in
revenue neutral fashion, eliminating many loopholes and shelters, along with in corporate taxes, (with a
33% "bubble rate") for tax years 1988 through 1990.[41][42] Ultimately, the combination of base
broadening and rate reduction raised revenue equal to about 4% of existing tax revenue[43]

For the 1991 and 1992 tax years, the top marginal rate was increased to 31% in a budget deal President
George H. W. Bush made with the Congress.[44]

In 1993 the Clinton administration proposed and the Congress accepted (with no Republican support) an
increase in the top marginal rate to 39.6% for the 1993 tax year, where it remained through the tax year
2000.[45]

In 2001, President George W. Bush proposed and Congress

accepted an eventual lowering of the top marginal rate to 35%.
However, this was done in stages: with the highest marginal rate of
39.1% for 2001, then 38.6% for 2002 and finally 35% for years
2003 through 2010.[46] This measure had a sunset provision and
was scheduled to expire for the 2011 tax year when rates would
have returned to those adopted during the Clinton years unless
Total government tax revenues as a
Congress changed the law;[47] Congress did so bypassing the Tax
percentage of GDP for the U.S. in
Relief, Unemployment Insurance Reauthorization and Job Creation
comparison to the OECD and the EU
Act of 2010, signed by President Barack Obama on December 17,
15.
2010.

At first, the income tax was incrementally expanded by the

Congress of the United States, and then inflation automatically raised most persons into tax brackets
formerly reserved for the wealthy until income tax brackets were adjusted for inflation. Income tax now
applies to almost two-thirds of the population.[48] The lowest-earning workers, especially those with
dependents, pay no income taxes as a group and get a small subsidy from the federal government because
of child credits and the Earned Income Tax Credit.
While the government was originally funded via tariffs upon imported goods, tariffs now represent only a
minor portion of federal revenues. Non-tax fees are generated to recompense agencies for services or to fill
specific trust funds such as the fee placed upon airline tickets for airport expansion and air traffic control.
Often the receipts intended to be placed in "trust" funds are used for other purposes, with the government
posting an IOU ('I owe you) in the form of a federal bond or other accounting instrument, then spending
the money on unrelated current expenditures.

Net long-term capital gains as well as certain types of qualified dividend income are taxed preferentially.
The federal government collects several specific taxes in addition to the general income tax. Social Security
and Medicare are large social support programs which are funded by taxes on personal earned income (see
below).

Treatment of "income"

Tax statutes passed after the ratification of the Sixteenth Amendment in 1913 are sometimes referred to as
the "modern" tax statutes. Hundreds of Congressional acts have been passed since 1913, as well as several
codifications (i.e., topical reorganizations) of the statutes (see Codification).

The modern interpretation of the Sixteenth Amendment taxation power can be found in Commissioner v.
Glenshaw Glass Co. 348 U.S. 426 (https://supreme.justia.com/cases/federal/us/348/426/) (1955). In that
case, a taxpayer had received an award of punitive damages from a competitor and sought to avoid paying
taxes on that award. The U.S. Supreme Court observed that Congress, in imposing the income tax, had
defined income to include:

gains, profits, and the income derived from salaries, wages, or compensation for personal
service ... of whatever kind and in whatever form paid, or from professions, vocations, trades,
businesses, commerce, or sales, or dealings in property, whether real or personal, growing out
of the ownership or use of or interest in such property; also from interest, rent, dividends,
securities, or the transaction of any business carried on for gain or profit, or gains or profits and
the income derived from any source whatever.[49]

The Court held that "this language was used by Congress to exert in this field the full measure of its taxing
power", id., and that "the Court has given a liberal construction to this broad phraseology in recognition of
the intention of Congress to tax all gains except those specifically exempted."[50]

The Court then enunciated what is now understood by Congress and the Courts to be the definition of
taxable income, "instances of undeniable accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion." Id. at 431. The defendant, in that case, suggested that a 1954
rewording of the tax code had limited the income that could be taxed, a position which the Court rejected,
stating:

The definition of gross income has been simplified, but no effect upon its present broad scope
was intended. Certainly, punitive damages cannot reasonably be classified as gifts, nor do they
come under any other exemption provision in the Code. We would do violence to the plain
meaning of the statute and restrict a clear legislative attempt to bring the taxing power to bear
upon all receipts constitutionally taxable were we to say that the payments in question here are
not gross income.[51]
In Conner v. The United States,[52] a couple had lost their home to a fire and had received compensation
for their loss from the insurance company, partly in the form of hotel costs reimbursed. The U.S. District
Court acknowledged the authority of the IRS to assess taxes on all forms of payment but did not permit
taxation on the compensation provided by the insurance company, because unlike a wage or a sale of goods
at a profit, this was not a gain. As the court noted, "Congress has taxed income, not compensation".[53] By
contrast, at least two federal courts of appeals have indicated that Congress may constitutionally tax an item
as "income," regardless of whether that item is in fact income. See Penn Mutual Indemnity Co. v.
Commissioner[54] and Murphy v. Internal Revenue Serv.[55]

Estate and gift tax

The origins of the estate and gift tax occurred during the rise of the state inheritance tax in the late 19th
century and the progressive era.

In the 1880s and 1890s, many states passed inheritance taxes, which taxed the donees on the receipt of their
inheritance. While many objected to the application of an inheritance tax, some including Andrew Carnegie
and John D. Rockefeller supported increases in the taxation of inheritance.[56]

At the beginning of the 20th century, President Theodore Roosevelt advocated the application of a
progressive inheritance tax on the federal level.[57]

In 1916, Congress adopted the present federal estate tax, which instead of taxing the wealth that a donee
inherited as occurred in the state inheritance taxes it taxed the wealth of a donor's estate upon transfer.

Later, Congress passed the Revenue Act of 1924, which imposed the gift tax, a tax on gifts given by the
donor.

In 1948 Congress allowed marital deductions for the estate and the gift tax. In 1981, Congress expanded
this deduction to an unlimited amount for gifts between spouses.[58]

Today, the estate tax is a tax imposed on the transfer of the "taxable estate" of a deceased person, whether
such property is transferred via a will or according to the state laws of intestacy. The estate tax is one part of
the Unified Gift and Estate Tax system in the United States. The other part of the system, the gift tax,
imposes a tax on transfers of property during a person's life; the gift tax prevents avoidance of the estate tax
should a person want to give away his/her estate just before dying.

In addition to the federal government, many states also impose an estate tax, with the state version called
either an estate tax or an inheritance tax. Since the 1990s, the term "death tax" has been widely used by
those who want to eliminate the estate tax, because the terminology used in discussing a political issue
affects popular opinion.[59]

If an asset is left to a spouse or a charitable organization, the tax usually does not apply. The tax is imposed
on other transfers of property made as an incident of the death of the owner, such as a transfer of property
from an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to
beneficiaries.

Payroll tax
Before the Great Depression, the following economic problems were considered great hazards to working-
class Americans:

The U.S. had no federal-government-mandated retirement savings; consequently, for many

workers (those who could not afford both to save for retirement and to pay for living
expenses), the end of their work careers was the end of all income.
Similarly, the U.S. had no federal-government-mandated disability income insurance to
provide for citizens disabled by injuries (of any kind—work-related or non-work-related);
consequently, for most people, a disabling injury meant no more income if they had not
saved enough money to prepare for such an event (since most people have little to no
income except earned income from work).
In addition, there was no federal-government-mandated disability income insurance to
provide for people unable to ever work during their lives, such as anyone born with severe
mental retardation.
Finally, the U.S. had no federal-government-mandated health insurance for the elderly;
consequently, for many workers (those who could not afford both to save for retirement and
to pay for living expenses), the end of their work careers was the end of their ability to pay for
medical care.

Creation

In the 1930s, the New Deal introduced Social Security to rectify the first three problems (retirement, injury-
induced disability, or congenital disability). It introduced the FICA tax as the means to pay for Social
Security.
In the 1960s, Medicare was introduced to rectify the fourth problem (health care for the elderly). The FICA
tax was increased to pay for this expense.

Development

President Franklin D. Roosevelt introduced the Social Security (FICA) Program. FICA began with
voluntary participation, participants would have to pay 1% of the first $1,400 of their annual incomes into
the Program, the money the participants elected to put into the Program would be deductible from their
income for tax purposes each year, the money the participants put into the independent "Trust Fund" rather
than into the General operating fund, and therefore, would only be used to fund the Social Security
Retirement Program, and no other Government program, and, the annuity payments to the retirees would
never be taxed as income.

During the Lyndon B. Johnson administration Social Security moved from the trust fund to the general
fund. Participants may not have an income tax deduction for Social Security withholding. Immigrants
became eligible for Social Security benefits during the Carter administration. During the Reagan
administration Social Security annuities became taxable.[60]

Alternative minimum tax

The alternative minimum tax (AMT) was introduced by the Tax Reform Act of 1969,[61] and became
operative in 1970. It was intended to target 155 high-income households that had been eligible for so many
tax benefits that they owed little or no income tax under the tax code of the time.[62]

In recent years, the AMT has been under increased attention. With the Tax Reform Act of 1986, the AMT
was broadened and refocused on homeowners in high tax states. Because the AMT is not indexed to
inflation and recent tax cuts,[62][63] an increasing number of middle-income taxpayers have been finding
themselves subject to this tax.

In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious
problem with the tax code. The advocate noted that the AMT punishes taxpayers for having children or
living in a high-tax state and that the complexity of the AMT leads to most taxpayers who owe AMT not
realizing it until preparing their returns or being notified by the IRS. [2] (https://web.archive.org/web/20080
625032949/http://www.irs.gov/pub/irs-utl/arc-exec_summary-2006.pdf)

Capital gains tax

The origins of the income tax on gains from capital assets did not distinguish capital gains from ordinary
income. From 1913 to 1921, income from capital gains was taxed at ordinary rates, initially up to a
maximum rate of 7 percent.[64]

Congress began to distinguish the taxation of capital gains from the taxation of ordinary income according
to the holding period of the asset with the Revenue Act of 1921, which allowed a tax rate of 12.5 percent
gain for assets held at least two years.[64]

In addition to different tax rates depending on the holding period, Congress began excluding certain
percentages of capital gains depending on the holding period. From 1934 to 1941, taxpayers could exclude
percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded
on assets held 1, 2, 5, and 10 years, respectively.[64] Beginning in 1942, taxpayers could exclude 50
percent of capital gains from income on assets held at least six months or elect a 25 percent alternative tax
rate if their ordinary tax rate exceeded 50 percent.[64]

Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts.[64]

The 1970s and 1980s saw a period of oscillating capital gains tax rates. In 1978, Congress reduced capital
gains tax rates by eliminating the minimum tax on excluded gains and increasing the exclusion to 60
percent, thereby reducing the maximum rate to 28 percent.[64] The 1981 tax rate reductions further reduced
capital gains rates to a maximum of 20 percent.

Later in the 1980s, Congress began increasing the capital gains tax rate and repealing the exclusion of
capital gains. The Tax Reform Act of 1986 repealed the exclusion from income that provided for tax-
exemption of long-term capital gains, raising the maximum rate to 28 percent (33 percent for taxpayers
subject to phaseouts).[64] When the top ordinary tax rates were increased by the 1990 and 1993 budget
acts, an alternative tax rate of 28 percent was provided.[64] Effective tax rates exceeded 28 percent for
many high-income taxpayers, however, because of interactions with other tax provisions.[64]

The end of the 1990s and the beginning of the present century heralded major reductions in taxing the
income from gains on capital assets. Lower rates for 18-month and five-year assets were adopted in 1997
with the Taxpayer Relief Act of 1997.[64] In 2001, President George W. Bush signed the Economic
Growth and Tax Relief Reconciliation Act of 2001, into law as part of a $1.35 trillion tax cut program.

Corporate tax
The United States' corporate tax rate was at its highest, 52.8 percent, in 1968 and 1969. The top rate was
hiked last in 1993 to 35 percent.[65] Under the "Tax Cuts and Jobs Act" of 2017, the rate adjusted to 21
percent.

See also
Income tax in the United States
Starve the beast (policy)
Taxation in the United States
Tax resistance in the United States
History of taxation in the United Kingdom

References
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u-feel-about-a-94-tax-rate/). Retrieved 2018-10-20.
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24. Jaikumar, Arjun (2011-07-10). "On taxes, let's be Kennedy Democrats. Or Eisenhower
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n-taxes,-lets-be-Kennedy-Democrats-Or-Eisenhower-Republicans-Or-NixonRepublicans-).
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25. Krugman, Paul (2011-11-19). "The Twinkie Manifesto" (https://www.nytimes.com/2012/11/1
9/opinion/krugman-the-twinkie-manifesto.html). The New York Times. Retrieved 2012-12-02.
26. Michael Medved. "The Perils of Tax Rate Nostalgia" (http://townhall.com/columnists/michael
medved/2012/12/05/the_perils_of_tax_rate_nostalgia/page/full/). townhall.com.
27. Noah, Timothy. "The United States of Inequality." Slate.com. The Slate Group, 9 Sept. 2010.
Web. 16 Nov. 2011. <http://www.slate.com/>
28. "Historical Effective Tax Rates, 1979 to 2005: Supplement with Additional Data on Sources
of Income and High-Income Households" (http://www.cbo.gov/sites/default/files/cbofiles/ftpd
ocs/98xx/doc9884/12-23-effectivetaxrates_letter.pdf) (PDF). CBO. 2008-12-23. Retrieved
2012-05-27.
29. "U.S. Federal Individual Income Tax Rates History, 1913–2011" (https://web.archive.org/we
b/20130116210911/http://taxfoundation.org/article/us-federal-individual-income-tax-rates-his
tory-1913-2011-nominal-and-inflation-adjusted-brackets). Tax Foundation. 9 September
2011. Archived from the original (http://taxfoundation.org/article/us-federal-individual-income
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30. W. Elliott Brownlee, Federal Taxation in America: A Short History, pp. 109-10, Woodrow
Wilson Center Press (2004), citing Congressional Record, 78th Congress, 1st Session, vol.
89, p. 4448. (U.S. Gov't Printing Office 1942).
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34. Roosevelt, Franklin D. (February 15, 1943). "Franklin D. Roosevelt: Letter to the House
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x.php?pid=16363)..
35. "See Tax Rate Schedules, Instructions for Form 1040, years 1944 through 1963" (https://ww
w.irs.gov/pub/irs-prior/i1040--1944.pdf) (PDF)., U.S. Dep't of the Treasury.
36. "Income-tax bracket creep, through the decades" (http://www.csmonitor.com/USA/Politics/20
08/0909/p25s10-uspo.html). The Christian Science Monitor. 2008-09-09. Retrieved
2011-12-30.
37. See Tax Rate Schedules, Instructions for Form 1040, years 1964 through 1986, Internal
Revenue Service, U.S. Dep't of the Treasury.
38. Stockman, David (2011-11-09). "Four Deformations of the Apocalypse" (https://www.nytime
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39. Barlett, Paul (April 6, 2012). "Reagan's Tax Increases" (https://web.archive.org/web/2012062
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41. See Tax Rate Schedules, Instructions for Form 1040, years 1988 through 1990, Internal
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43. Feldstein, Martin (2011-10-24). "The tax reform evidence from 1986" (http://www.aei.org/artic
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Revenue Service, U.S. Dep't of the Treasury.
45. See Tax Rate Schedules, Instructions for Form 1040, years 1993 through 2000, Internal
Revenue Service, U.S. Dep't of the Treasury.
46. See Tax Rate Schedules, Instructions for Form 1040, years 2001 through 2009, Internal
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47. See generally Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-
16, sec. 901 (June 2, 2001).
48. Income tax collection (https://www.irs.gov/pub/irs-soi/02inrate.pdf), Internal Revenue Service
49. 348 U.S. at 429
50. Id. at 430.
51. Id. at 432-33.
52. 303 F. Supp. 1187 (S.D. Tex. 1969), aff'g in part and rev'g in part, 439 F.2d 974 (5th Cor.
1971).
53. Id.
54. 277 F.2d 16, 60-1 U.S. Tax Cas. (CCH) paragr. 9389 (3d Cir. 1960).
55. 2007-2 U.S. Tax Cas. (CCH) paragr. 50,531 (D.C. Cir. 2007).
56. Carnegie, The Gospel of Wealth, Harvard Press 1962, 14, 21-22.
57. Works of Theodore Roosevelt, Scribner's 1925, 17.
58. For the gift tax provision, see Internal Revenue Code sec. 2523(a), as amended by the
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(help)
65. "Obama should cut corporate tax rate, potential GOP foe says" (http://www.politifact.com/geo
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Further reading
 Brownlee, W. Elliot (2004). Federal Taxation in America: A Short History (https://books.googl
e.com/books?id=If2T5ZaFxIEC&pg=PA14). Cambridge U.P.
Burg, David F. A World History of Tax Rebellions: An Encyclopedia of Tax Rebels, Revolts,
and Riots from Antiquity to the Present (2003) excerpt and text search (https://www.amazon.
com/World-History-Tax-Rebellions-Encyclopedia/dp/0415924987/)
Doris, Lillian (1963). The American Way in Taxation: Internal Revenue, 1862–1963 (https://b
ooks.google.com/books?id=tOtgJKPeJKgC&pg=PA1). Wm. S. Hein. ISBN 978-0-89941-
877-3.
Rabushka, Alvin (2008). Taxation in Colonial America (https://books.google.com/books?id=
0j6GvkVvAGsC&pg=PA435). Princeton U.P. ISBN 1-4008-2870-8.
Shepard, Christopher. The Civil War Income Tax and the Republican Party, 1861–1872.
Manuscript. New York: Algora Publishing, 2010.
Stabile, Donald. The Origins of American Public Finance: Debates over Money, Debt, and
Taxes in the Constitutional Era, 1776–1836 (1998) excerpt and text search (https://www.ama
zon.com/Origins-American-Public-Finance-Constitutional/dp/0313307547/)

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