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When Did Congress Start Taxing Income?

The U.S. government has been collecting taxes since the early parts of history. Progressive tax is imposed on the income of various kinds of groups and individuals. Bankruptcy estates, trusts and corporations pay their income taxes. The same way goes for corporations, partnerships and companies. To learn more about its other significant aspects, here’s a look at when Congress started taxing income and other related topics.

History

When did Congress start taxing income? It was on August 5th in 1861 when the federal government of the U.S. first imposed taxes on income. In relation to the Civil War during that time, the primary purpose of such practice was to gather funding to help finance the war. It was implemented right after the signing of the Revenue Act of 1861. It was stated at the first article, eighth section under the first clause of the U.S. Constitution.

After some time, the government stopped its implementation. It was later on resumed during the 1890s. In 1894, income taxes were collected even when there is no war to fund anymore. At some point, this practice stopped once again. It was re-imposed after the ratification of the Sixteenth Amendment in 1913. Today, the government follows the income tax provisions as stated under the amended Internal Revenue Code of 1986. The ability of the Congress to impose taxes is limited by the Constitution. The primary purpose of this is to prevent abuse.

Additional Information and Other Important Details

The history of tax rates is constantly changing. For instance, the tax rate on income was only 1 percent in 1913. This rule was applied to individuals with a net income of $3,000 or more. During that time, the exemptions and deductions were less. For individuals or groups with incomes of more than $500,000, the tax rate was set at 7 percent.

When the World War I escalated, people saw the tax rate balloon to a whopping 77 percent. Soon after the war was finally over, the government once again reduced the rate to a more manageable 25 percent. When the Great Depression arrived, the tax rate ballooned once again. The same thing happened during World War II. Under the Internal Revenue Code of 1939, the highest rate reached 75 percent. Things got even worse as the war continued. During this period, the tax rate even reached 94 percent.

Things changed a bit in 1964. People got a relief when the rate was reduced significantly to a much lower rate of 70 percent. In 1981, it plummeted to a much lower 50 percent. The top rate was 28 percent under the Tax Reform Act of 1986. The 1990s saw the top rate increase to 39.6 percent. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, it was reduced to 35 percent.

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