During the early days of our Republic, we imposed various forms of taxes to fund our new government, many of which had an eye to social policy – for example taxes on liquor were popular to depress the amount of drinking.
During the war of 1812, the first direct nationwide tax was imposed on property – including homes and slaves.
The government introduced a tax on income in 1861 to cover the cost of the Civil War. Driving this was the belief that the budget must be in balance. In 1862, with the Union’s debt growing at the rate of $2 million a day, a number of additional items were taxed, and the first “tax reform” bill passed Congress, establishing a two-tier system that would last for many years, with incomes below $10,000 taxed at 3% and higher incomes taxed at 5%. Interestingly, the bill also included some deductions.
With the war paid for, the income tax was abolished in 1872, and revenue was raised with high taxes on liquor and other goods.
In 1894, a flat rate federal income tax was enacted.
In 1895, the Supreme Court ruled the tax unconstitutional because it was a direct tax and not apportioned to the population of each state.
Lacking revenue, bonds were sold to fund the Spainsh-American war and taxes on goods were hiked significantly. To deal with the unconstitutionality issue, a new tax was conceived to tax business income and the 16th Amendment to the Constitution was proposed.
By 1913, 36 States had ratified the Amendment. In October of that year, Congress passed a new income tax law with rates beginning at 1 percent and rising to 7 percent for taxpayers with income in excess of $500,000. Form 1040 was introduced as the standard tax reporting form, which remains in use today.
By 1916, the highest was 15% and applied to those who were making more than $2 million a year
In 1918 the top tax rate was 77%, enacted to help pay for World War I
In 1945, to help pay for World War II, the top tax rate was raised to 94%. It stayed at over 90% until 1964, when it was lowered under President Johnson to 77%
In 1981, Kemp-Roth brought the top tax rate down to 50%
In 1986, the top tax rate was cut to 28. Over the ensuing years, Congress instituted an unprecedented number of tax breaks and loopholes as both parties sought help for “special interests” and wielded the tax code to enforce social policies.
In 1990, facing a shortfall, George Bush backed away from his infamous no new taxes pledge and Congress raised the top rate to 31%
In 1993, the top tax rate raised to 36% but with a surcharge that meant the rate was really 39.6%. Taxes were cut for the middle class and working families.
In 2001, George Bush cut the top tax rate to 33%
According to a Congressional report, in 2007, due to loopholes, the richest 400 Americans paid their taxes at a rate of 16.5%
— Jeff Kimball