‘Cause I’m the Taxman!

“April is the cruelest month.” – ­ T.S. Eliot, Poet

“If you got money in the bank, they want to know just how much, and how much interest is comin’ on it, and everything else. It may be only two dollars, but if you got money in the bank, they want to know.”  – Arthur Botsford, Taxpayer

This week, millions of Americans will send Uncle Sam payment for their federal income tax, although, amazingly, millions of others, some 40 percent, will pay no income tax whatsoever.  And in an interesting symmetry, the richest 1 percent of Americans will pay about 40 percent of the collected income tax.

It wasn’t always so.  In their infinite wisdom the Founders ruled out a direct federal income tax.   Instead, they funded the government through excise taxes (indirect taxes) and duties on imports. Of course, during the debate over the Constitution’s ratification it was the anti-Federalists—those who opposed the Constitution because they thought it created a federal government that was too powerful—who feared that this government might one day impose a national income tax.   The pro-Constitution Federalists dismissed that fear as silly.

In any case, the federal government was funded by duties and excise taxes, and some property taxes, for more than 70 years, until the Civil War, when a temporary income tax was levied to cover the war’s massive costs.  Then in 1894, when the government ran the first budget deficit since that war, another income tax was enacted but later was declared unconstitutional.

To get around that roadblock Congress ratified the 16th Amendment in 1913, giving it the power “to lay and collect taxes on incomes …” and the rest is history.

As with most things, this tax started out small — in 1914 those making between $3,000 and $20,000 paid just 1 percent, while those with higher incomes paid 6 percent.   Then in 1917 America found itself in another war, World War I, and by 1919 the top tax rate was 77 percent, and the tax’s minimum income threshold was lowered to $1,000.

Granted, federal income tax rates have varied over the years, although the trend has been inexorably upward — as has the growth of the federal government, which is no coincidence.  Indeed, you could argue that the federal income tax has become the underlying foundation of our modern political system.  That is:  This income tax gives the federal government the power to siphon massive amounts of capital from the private sector. As a result, the government has assumed many of the powers and responsibilities that were once accorded that private sector.   Whether the government better uses those powers, and better fulfills those responsibilities, has become the central political question of our age.