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History Of Taxes In The United States

1740 words - 7 pages

Where Taxes Come From
There are four main sources of tax revenue in the United States. They are income tax, payroll tax, corporate tax, and “other” taxes. These taxes are collected by the Internal Revenue Service, or the IRS, which is a branch of the US Department of Treasury. The revenue generated from these taxes is used to fund government programs, both discretionary and mandatory.
Income tax is a tax on the income from an individual. This makes up the majority of the tax revenue generated. It is labelled as a progressive tax because as more income is generated, more taxes are paid. This means that individuals or families with higher incomes will pay a larger share.
The second largest portion of tax revenue comes from payroll taxes. Payroll taxes are the taxes taken from an individual’s paycheck. This type of tax is supposed to be split between both the employer and the employee. This includes things like Social Security, Medicare, and insurance. Payroll taxes are considered regressive because of the payroll tax cap that is in place for these programs.
Corporate tax is the same as income tax, except instead of an individual paying the tax it is a corporation. Other than the source, this tax is fundamentally the same, although it generates only a fraction of the revenue that individual income tax does. The tax is applied to the net profits for corporations operating in the country.
Finally, other tax sources estate taxes, excise taxes, and miscellaneous taxes. Estate taxes are reserved for assets, like real estate or stock. Excise tax is a form a sales tax used for things like gasoline, tobacco products, or alcohol. These taxes can be used to encourage people to avoid using these products while still generating revenue from them.

(“Center on Budget and Policy Priorities” CBPP.org)
The Early History and Effects of Income Tax
The first form of income tax was signed into effect by President Abraham Lincoln in on August 5th, 1861 to raise revenue for the Civil War. Previously the country was generating revenue from the taxes on alcohol and tobacco. The tax started off as a 3 percent tax on income between $600 and $10,000, along with a 5 percent tax on income more than $10,000. It wasn’t until 1868 when the taxes were finally changed again. With the war over, the economy did not need so much money poured into it anymore. The country went back to generating the majority of revenue from alcohol and tobacco taxes. (“Historical Highlights of the IRS” IRS.gov)
Income tax was finally brought back in 1894 with the Wilson Tariff Act. President Woodrow Wilson signed this into effect, making this the first income tax during peacetime in history. The Wilson Tariff Act was also the birth of the IRS in the form of the Bureau of Internal Revenue. This tax was brought into effect to help make up for the lost income at reducing the already high tariffs and excise taxes that the country had relied on so heavily. It wasn’t until the...

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