100 Years: A Review of U.S. Income Tax Policy

• In Event: Taxation

Abstract

The first income tax was used in 1861 to finance the civil war. The first formal enactment of the individual income tax occurred in 1894, but it was ruled unconstitutional. In 1913, the constitution was amended to allow for the income tax. It has been 100 years since the 16th Amendment was ratified. This paper compares the income tax burden on taxpayers in 1913, adjusted for inflation with the income tax burden of taxpayers of today (2012). We look at the burden in both tax dollars and the compliance cost in terms of filing of forms and consulting professionals for help. We also review major trends in tax rate policy using correlation regression analysis. We find that increasing the low tax rate generates more tax revenue than raising the top tax rate. Moreover, no matter what the tax rate policy is the total tax revenue is limited to approximately 20% of GDP. This paper applies a positive approach to tax policy, describing how things are, as opposed to how they should be (normative).

Authors

• Heidi Tribunella, University of Rochester

• Thomas Tribunella, SUNY at Oswego