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Why Pay Taxes? A History And Timeline Of IRS Income Tax In The US

We can be forgiven, especially this time of year, for questioning a decision our predecessors made just over a century ago. In the 1910s, Americans decided to make personal and corporate income taxes a permanent feature of the US economy.

Why did they start us down this road? And given that the taxes they endorsed started out small in scope and size but have multiplied by a factor of eight as a share of our economy, have we gone off course?

After all, when an income tax was introduced in 1862 to fund the Civil War, it lasted just six years before being replaced by other taxes. It took another 50 years before the 16th Amendment, which allows Congress to levy a national income tax, was adopted in 1913.

The justification for a national income tax

One of the clearest statements of why Americans in the early 20th Century were willing to tax their incomes came from President Franklin Delano Roosevelt in the 1930s:

With the enactment of the Income Tax Law of 1913, the Federal Government began to apply effectively the widely accepted principle that taxes should be levied in proportion to ability to pay and in proportion to the benefits received. Income was wisely chosen as the measure of benefits and of ability to pay.

Here, FDR sounds very much like an economics professor. He identifies a principle, a “guide,” for policy that relies on abstract concepts like “ability to pay” and “benefits received.”

But FDR is also saying something quite simple: if people do well, it is only right that they should help to pay for the setup that made their success possible. More to FDR’s point, people who do better should pay for more of that setup.

FDR’s reasoning is far from obsolete; our current President seems to agree with him. In 2011, Barack Obama explained why he supported higher taxes on higher incomes:

As a country that values fairness, wealthier individuals have traditionally borne a greater share of this [tax] burden than the middle class or those less fortunate… [This is] a basic reflection of our belief that those who’ve benefited most from our way of life can afford to give back a little bit more.

Obama echoes Roosevelt’s sentiments

Like FDR, Obama wants us to see taxes not as a burden to be lamented but as a fair payment for benefits received. And as our society has grown more complex, the increasing size of taxes we are willing to pay reflects the greater benefits we gain from the activities of government required to support it.

President Obama disagreed on many policies with Mitt Romney, his opponent in the 2012 presidential election, but on this logic for taxation they are not so far apart. Lost in the press coverage of the president’s 2012 rebuttal to anti-government forces “You didn’t build that” was Romney’s reply:

[The President] describes people who we care very deeply about, who make a difference in our lives: our school teachers, firefighters, people who build roads. We need those things…You really couldn’t have a…

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