Don't Mess With Taxes

You are having a party for the income tax today, right?

It was on Aug. 5, 1861, that President Abraham Lincoln signed the revenue act that imposed the United States' first federal income. The money was needed to finance the Civil War.

According to Tax Analysts' Tax History Project, lawmakers back then preferred an emergency property tax like the one they instituted during the War of 1812. But the Constitution required the federal government to apportion the burden among states on the basis of population rather than property values.

That, however, would have meant that folks who lived in the less-populated western states, border states and poor northeastern states would have borne a greater tax burden than those of highly-populated urban states.

So lawmakers followed the British example of income taxation, which that country used to finance the Crimean War.

The Revenue Act defined income as gain "derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever."

The first income tax was moderately progressive: a 3 percent tax on annual incomes of more than $800 and up to $10,000. A 5 percent tax rate kicked in on earnings of more than 10 grand.

As we've come to expect, the first income tax didn't last long before Congress began tinkering.

The Internal Revenue Act of 1862 expanded the progressivity of the 1861 tax measure. It exempted the first $600 from taxation, imposed a 3 percent rate on incomes between $600 and $10,000 and imposed a 5 percent rate on incomes of more than $10,000.

In addition, taxes were withheld from the salaries of government employees as well as from dividends paid to corporations.

In 1872, lawmakers let the Civil War income tax expire. A few other versions popped up now and then until 1913, when the income tax system we currently pay under was created.

As our current crop of lawmakers struggle with today's tax laws, both expired (the estate tax) and soon to run out (Dubya's tax cuts), I thought a little look back at tax history might help lend some perspective.

Now I'm off to bake a tax cake and try not to eat 1,040 calories worth of it in one sitting!

Related posts:

• Your 2011 tax burden
• Tax cuts or total tax reform?
• 2010's expiring tax cuts likely to be dealt with by a lameduck Congress
• Colbert: Defusing the coming 'tax bomb'
• Happy 148th Birthday, U.S. Income Tax
• Next historic tax date: Oct. 3, 1913
• Happy Birthday to Abraham Lincoln, father of the U.S. income tax
• Back in the tax day
• The best way to pay for war
• Today's taxes aren't too bad
• Federal tax law changes (PowerPoint)
• A look back at the decade in taxes