I do not recall anyone suggesting a centennial celebration this year.
In 1913, 42 states ratified the 16th Amendment to the U.S. Constitution, allowing the federal government to impose direct income taxes on citizens of this nation.
From the ratification of the U.S. Constitution until 1861, the federal government never imposed income taxes on the people. In fact, the Constitution, as originally written, forbad the federal government from imposing direct taxes upon the people.
For three years during the Civil War – 1861, 1862 and 1864, Abraham Lincoln and the U.S. Congress passed an income tax to fund the war. I am not quite sure what happened in 1863 and 1865.
Everyone knew Lincoln was on shaky ground because of clear constitutional prohibitions against a direct tax on the people. Still, Lincoln and his Congress pulled many a shady deal, such as suspension of habeas corpus, using war power arguments to justify clear violation of constitutional provisions.
With the exception of those three years, this nation operated from 1789 until 1913 without a federal income.
How did the federal government manage without income taxes? The first way was by limiting itself to the enumerated powers granted in the U.S. Constitution. The second way was by using tariffs and taxes apportioned by population among the states.
But tariffs became outrageously high on some goods. For instance, the tariff on imported woolen goods stood at 56 percent of its value. A woolen item from Britain valued at $1 ended up costing U.S. consumers $1.56 – giving American woolen producers a competitive advantage.
When the income tax went into effect in 1913, people paid income tax only after a single person’s income exceeded $3,000. The income of a married couple had to exceed $4,000 before the couple had to pay taxes. Once income exceeded those limits, the citizen had to pay one percent on the income above the threshold until income reached $20,000. At that point, the tax became progressive.
However, as I constantly remind my students, when we discussed monetary issues from earlier times, we must translate those figures into current dollars. Translated into 2010 dollars, the figures become the first $66,100 a single person and the first $88,100 a married couple were untouched by taxation. So until a person earned more than these limits, he or she paid no income taxes.
The $20,000 threshold is today’s equivalent of $440,400. When a person’s income exceeded $20,000, the person had to pay an additional one percent on income over that amount. The next stop was $50,000 – equivalent to well over $1 million in 2010 dollars – and another percent added for income exceeding $50,000. The limit was seven percent for the highest bracket.
Imagine who would be paying taxes today if no one paid until he or she had an income that exceeded $66,100 for the single or $88,100 for the married. From $88,101 to $440,400, earners would pay only one percent. A person who had an income of $100,100 paid only $340 in federal income taxes.
In 2010, the comparable threshold for what we call the standard deduction and personal exemption was $9,350 for single and $18,700 for married. The 2010 exemption is only 14.1 percent of the 1913 exemption for a single payer and 21.2 percent for a married couple.
The worst effect of the income tax amendment was that it opened the door for a huge federal power grab. One purpose of limiting tax revenues through the Constitution was to limit the size and functions of the central government.
Jefferson and the other founders were much smarter than we give them credit for being.
Mike Parker is a columnist for The Free Press. You can reach him at mparker16@suddenlink.net or in care of this newspaper.