The History of Taxes

If you’re still fuming over taxes this year, take a look at Mike Duncan and Jason Novak‘s (slightly biased) cartoon explanation of the history of taxes. The income tax really got its start in 1913:

Congress immediately passes the Revenue Act of 1913, creating the first permanent income tax.  No one really notices because the vast majority of incomes are taxed at just 1%.  The mustache twirling robber barons get pretty grumpy, though.  Then Wilson plunges us into WWI and unleashes the awesome potential of the new income tax.  The top end rate jumps to 77% and revenue increases 635%.

(HT: The Big Picture)

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  1. Capitalist Carter says:

    Woodrow Wilson plunged us into World War One, not two.

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  2. Ken says:

    Were we really taxing people at 77%. Holy cow! Rich people should be luck to only get taxed 50% these days.

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    • Cory says:

      Yes, but if you look at incomes where the marginal levels kicked in, it was far higher than where they do today. I calculated it once, and one of the highest rates didn’t kick in until you reached something like $4.5 million in annual income. We’re talking .0001% of people make that kind of money (and those who do generally do through capital gains, not income).

      I wouldn’t be surprised if we were to apply those rates today, the “rich” would end up paying far less. Indeed, when you look at federal taxes, you see they have become more and more progressive over the years (despite what politicians would have you believe).

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    • Jason says:

      Who gets taxed even 50% these days? The wealthiest Americans are more likely to pay 15-20% in Federal income tax – see Mitt Romney, Warren Buffet, and President Obama as examples.

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  3. Chris H says:

    Taxing the rich at such a high rate makes sense. Why? Because most rich people are strongly motivated by money and will do everything they can to make more. If you tax poor people, most will not change their behavior at all; they’ll just starve. It isn’t fair, but damn, the ROI is there.

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    • Dave F. says:

      Curious that you think ‘strongly motivated by money’ equates to inelastic supply of rich person’s labor. I would think just the opposite. If someone is strongly motivated by money, they will work hardest when the gains are the highest.

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      • Jason says:

        I have never been able to connect with why billionaires get up and go to work each day. I understand Bill Gates leaving MS to focus on philanthropy. But just continuing to push forward in private equity for another billion dollars, I don’t get it. All I can picture is Scrooge McDuck swimming in gold coins. Is that the incentive? What do you do with your marginal billion dollars when you already have 2 or 3?

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      • Dave F. says:

        Eh, I figure they all have their own motivation, and I doubt it is all money. The fact is, I think a lot of these people think they are contributing to something significant, a lot of people probably love the power and prestige that come with their position (his wealth is the ONLY reason anyone listens to Buffet’s political ideas), and some probably just continue out of habit – the center of these people’s lives has been business for a long time…

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      • tmeier says:

        Money is all some people have.

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  4. Joe J says:

    And here we learn the lesson of when the gov’t passes a law with a harmless seeming tax or fee which is claimed to be nothing, it soon can beome giant and everlasting.
    Didn’t the supreme court rule recently that the non insurance penalty was ok since it wasn’t much, only 695. Well if it went up by the same amount as income tax, it would be $53000 per person.

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  5. Eric M. Jones says:

    The history of Texas?

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  6. tmeier says:

    He left out the history of tax loopholes, now that would be informative.

    The worst thing about the income tax is how it gives congress the power to monkey around with the code, giving to their favored constituents and screwing the ones who won’t vote for them anyway. It corrupts everyone and distorts everyone’s perception of economic realities.

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  7. Semi-Economist says:

    A seemingly quite tame history compared with the income tax in the UK which was only a temporary measure introduced to fund war with Napoleon in 1799. To this day parliament has to pass an annual
    Finance Act to ensure its continuing existence on April 5th of each year.

    http://www.hmrc.gov.uk/history/taxhis1.htm

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