the staff of the Ridgewood blog
Ridgewood NJ, April 15th, often dreaded as Tax Day in the United States, echoes a truth spoken more than 230 years ago by Benjamin Franklin: “In this world, nothing is certain except death and taxes.” That statement, made in 1789, still rings true today as Americans navigate a complex and ever-evolving tax system.
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From its Civil War roots to the sweeping changes introduced in the 21st century, here’s a comprehensive look at the history of U.S. income taxation — and what it means for taxpayers in the modern era.
📜 The Origins: War, Revenue, and the First Income Tax
The early U.S. government primarily relied on tariffs and duties. But in 1862, during the Civil War, the country instituted its first federal income tax to fund the war effort. It taxed individuals earning more than $600 per year.
By 1894, another version of the tax was enacted, but struck down by the Supreme Court as unconstitutional. The federal income tax finally gained legitimacy in 1913 with the ratification of the 16th Amendment, officially granting Congress the authority to tax income.
🏛️ The 16th Amendment: The Birth of Modern Income Tax
On February 3, 1913, the 16th Amendment established federal income taxes as a permanent fixture in American life. Early tax rates were low and affected less than 1% of the population. That changed during World War II, when the Revenue Act of 1942 and the Current Tax Payment Act of 1943 created employer withholding and expanded the tax base significantly.
🔄 Key Tax Reforms That Changed the Game
✅ The Alternative Minimum Tax (AMT)
Introduced in 1969, the AMT targeted high-income earners who avoided taxes through deductions and credits. It was later expanded by the Tax Reform Act of 1986.
✅ The Tax Reform Act of 1986
Simplified the tax code with just two brackets (15% and 28%) and eliminated many loopholes, including those for tax shelters.
✅ The American Taxpayer Relief Act (ATRA)
Signed in 2012, ATRA restored the top tax rate to 39.6%, reversing earlier cuts from the Bush-era tax reforms.
✅ The Tax Cuts and Jobs Act (TCJA)
Passed in 2017, the TCJA reshaped individual and corporate taxes by lowering rates, increasing standard deductions, and capping state and local tax (SALT) deductions. It is currently set to expire in 2025, unless extended by Congress.
✅ The Inflation Reduction Act (IRA)
In 2022, the IRA introduced significant energy tax credits for both individuals and businesses, many of which are still being evaluated or potentially altered.
🍷 Excise Taxes: The Hidden “Sin” Taxes
Excise taxes, sometimes called “sin taxes,” are imposed on specific goods such as alcohol, tobacco, and gasoline. Though small compared to income tax revenue (just 1.7% of total federal revenue in 2023), they serve as both a revenue generator and a behavior deterrent.
“Excise taxes on alcohol and tobacco traditionally lean to increased prices at the time of retail sale,” says tax expert Thomas J. Cryan. “This price increase can reduce consumption and limit health harms.”
📞 IRS Modernization: E-Filing and Toll-Free Support
In an effort to streamline the tax process, the IRS introduced toll-free help lines in 1965 and launched electronic filing in 1986, later expanding it to include taxpayers who owed money by 1992.
📌 The Bottom Line: A System in Motion
The U.S. tax system has never stood still. From income tax and withholding to excise taxes and energy credits, change is the only constant.
Franklin’s words remain as true as ever — and for today’s taxpayers, staying informed and planning ahead is the best strategy for navigating the inevitable.
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