John Fund | Happy 100th birthday income tax!

Amid all the attention paid to the government shutdown — more of a “slimdown,” as 83 percent of the government remains open — few people noticed that last Friday, October 4, marked the 100th anniversary of the federal income tax. The size and intrusiveness of the federal government that is at the heart of today’s shutdown would never have been possible without the income tax.

For a century and a quarter, the United States avoided an income tax. Thomas Jefferson warned against such “internal” taxes, saying that under the British they had “filled our land with officers and opened our doors to their intrusions.” Until the early 20th century, a small federal government relied on import duties and taxes on alcohol and tobacco for most of its revenue.

Congress passed an income tax to fund the Civil War in 1862 but allowed it to expire a decade later. In 1894, it passed another — a 2 percent flat-rate income tax that kicked in at today’s equivalent of $110,000. It was declared unconstitutional by the Supreme Court because it was not apportioned among the states, as the U.S. Constitution required.

Then, during the Progressive era, supporters of the tax passed the 16th Amendment, giving Congress the power to tax income, and in 1913 Congress approved a tax with a series of rates ranging from 2 to 7 percent. But high personal exemptions meant that fewer than one out of every 50 Americans owed any tax at all.


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