Income Tax & The Internal Revenue Service

Income Tax & The Internal Revenue Service

By Chris Furguson

The coming of W-2 forms in late January brings about the most common question of taxpayers in the United States: “Why do we have to pay income taxes?”

It’s not a difficult question to ask, even as millions file their forms by the April 15 deadline (Due to the Emancipation Day holiday in the DC are). Most taxpayers groan at the idea of having to pay taxes at all, even as they hope for a refund.

William B., a business owner living in Calipatria, cringes in his coffee at a local restaurant at the thought of another filing period. “I believe I have paid my fair share and more,” said the businessman. “Not that anyone in Washington or Sacramento cares.”

Jenny P, an employee at a store within the Imperial Valley Mall, was more resigned than excited to pay. “I know that we need to pay our taxes,” said Jenny as she prepared for her shift. “I wish the money went to fund things around here, though, like better educational opportunities.”

History of Income Taxes

From 1776 to 1861, taxes that helped run the government were collected as tariffs on products of sugar, alcohol and slaves. The range of tarrifs increased to products like gold, silver and jewelry to help fund the War of 1812 against England and the restoration efforts afterwards.

Then, in 1862, with the American Civil War in full swing, President Abraham Lincoln and Congress enacted new tax laws to collect “internal revenue” to fund the Union fighting.

With a 3% tax on persons earning between $600 and $10,000 that went up the more money one earned, the country was able to collect around $300 million, the highest amount of tax collected in the United States to that point.

This was accomplished through the efforts of the newly minted “Office of the Commissioner of Internal Revenue.” In 1872, this income tax was abolished by Congress.

In 1894, income tax was reinstated by Congress until 1895 when income tax was declared unconstitutional by the Supreme Court, in the “Pollock v. Farmers’ Loan & Trust Co.” case

The legality of income tax collection came with the passing of the 16th Amendment to the U.S Constitution, which was passed by Congress in 1909 under the administration of President William Howard Taft and ratified in 1913 under Woodrow Wilson. This amendment gave Congress the legal authority to tax personal income and removed the restrictions of the Pollock case.

Since then, various reforms to income tax have come with each presidential administration, including rates at which taxes are collected.