Death has nothing on taxes. Federal income tax receipts have grown by a shocking 267,869 percent in the 100 years of the tax. The tax, approved Feb. 3, 1913, was designed to tax the rich at a time when government coffers were already full.
Pete Sepp, executive vice president of the National Taxpayers Union, calculated the growth of receipts for MRC's Business and Media Institute. He found that the U.S. government estimates it collected $921 million in direct revenues for tax year 1912, compared to the $2.468 trillion it collected in 2012. That outlandish increase would be even bigger if you take out postal receipts, which accounted for about $250-$275 million for 1912.
"Pick whatever measurement you choose from government statistics, but the conclusion is inescapable. The early 20th century marked the beginning of the federal government's massive fiscal expansion, and the income tax itself played a key role in that expansion," said Sepp.
"Through the income tax and, later, withholding from citizens' paychecks, Washington at last had the infrastructure that gave it a much longer reach into the economy and into American's daily financial lives. How many of us think we as a nation are better off as a result?"
The numbers above are nominal and not adjusted for inflation. According to the Bureau of Labor Statistics CPI inflation calculator, $1 in 1913 was worth $23.19 in 2012. Even so, inflation-adjusted revenue for 1912 works out to only $21.4 billion (vs. $2.468 TRILLION in 2012).
The 100-year-old tax was enacted after the 16th Amendment was ratified. When it was introduced, the lowest bracket was a one percent tax on income above $3,000 and the highest rate was seven percent on incomes over $500,000. "But there were many deductions, bringing the effective tax rates down sharply from the marginal ones," according to author John Steele Gordon. The top rate is now 39.6 percent.
The first U.S. income tax had been enacted during the Civil War, but was repealed afterward. Another had been tried in 1894, but was ruled unconstitutional. "The income tax was dead," Gordon wrote in The Wall Street Journal. "But the pressure to tax the incomes of the largely untaxed rich only increased, especially as the Progressive wing of the Republican Party grew in strength under Theodore Roosevelt. By the time of the administration of President William Howard Taft (1909-13) the pressure was becoming overwhelming."
The New Yorker's Jill Lepore also attributed the creation of the income tax, at least partially, to class warfare. "In 1913, the income tax was introduced, not only to undergird the Treasury with a stable source of revenue, but also to answer populist rage at the growing divide between the rich and the poor," she wrote on Nov. 26, 2012.