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American’s Four United Republics: Discovery-Based Curriculum

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VERTICLE EQUITY

Who said all taxpayers are created equal? Vertical equity states that people in different income groups should pay different rates of taxes. Our current tax system is one of vertical equity. - Text from the IRS

 

16th Amendment
US Federal Income Tax

Far reaching in its social as well as its economic impact, the income tax amendment became part of the Constitution by a curious series of events culminating in a bit of political maneuvering that went awry. The financial requirements of the Civil War prompted the first American Income Tax in 1861. At first, Congress placed a flat 3-percent tax on all incomes over $800 and later modified this principal to include a graduated tax. Congress repealed the income tax in 1872, but the concept did not disappear.

After the Civil War, the growing industrial and financial markets of the Eastern United States generally prospered. But the farmers of the South and West suffered from low prices for their farm products, while they were forced to pay high prices for manufactured goods. Throughout the 1860?s, 1870?s, and 1880?s, farmers formed such political organizations as the Grange, the Greenback party, the National Farmers Alliance, and the People?s (Populist) Party. All these groups advocated many reforms considered radical for the times, including a graduated income tax.

In 1894, as part of a high tariff bill, Congress enacted a 2-percent tax on income over $4,000. The tax was almost immediately struck down by a five-to-four decision of the Supreme Court, even though the Court has upheld the constitutionality of the Civil War Tax as recently as 1881.


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Although farm organizations denounced the Court?s decision as a prime example of the alliance of government and business against the farmer, a general return of prosperity around the turn of the Century soften the demand for reform. Democratic Party Platforms under the leadership of three-time Presidential candidate William Jennings Bryant, however, consistently included an income tax plank, and the progressive wing of the Republican Party also espoused the concept.

In 1909 progressives in Congress again attached a provision for an income tax to a tariff bill. Conservative, hoping to kill the idea for good, proposed a constitutional amendment enacting such a tax; they believed an amendment would never receive ratification by three-fourths of the states. Much to their surprise, the amendment was ratified by one state legislature after another, and on February 25, 1913, with the certification by Secretary of State Philander C. Knox, the 16th amendment took effect. Yet in 1913, due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at a rate of only 1% of net income.

The full potential of the income tax for revenue and for the redistribution of wealth was realized for the first time during the New Deal. President Franklin D. Roosevelt declared ?our revenue laws have operated in many ways to the unfair advantage of the few, and have done little to prevent an unjust concentration of wealth and economic power.? The Revenue act of 1935 popularly called the Wealth Tax Act, went a long way toward remedying the evils described. It provided steeply graduated personal income taxes up to 75% on income in excess of $5 million. Wealthy Americans deplored the leveling effect of a graduated income tax and called President Roosevelt a ?traitor to his own class.? Almost immediately, income tax evasion became an important area of criminal activity.

FDR signing Act

President Roosevelt signing Social Security Act into law, August 14, 1935

The income tax did not directly affect most Americans until World War II: In 1939 only 5 percent of Americans paid federal income taxes. But the Revenue act of 1942 raised tax rates, lowered exemptions, and created the Victory Tax of 5 percent on incomes over $624, broadening the income tax base considerably. The new payroll withholding tax was the greatest change for the majority of Americans. The ?pay-As-You-Go? tax plan, developed by Beardsley Ruml, the treasurer of the R. H. Macy department store, was adopted in the Current Tax Payment Act of 1943. The result of the new tax plan was that over 74 percent of Americans were paying federal income taxes by 1945.

The income tax has become the most important source of federal revenue. Without it, the social reforms of the 1930?s, the financial costs of World War II, national defense during the cold war, and the programs of the ?Great Society? of the 1960s would have been impossible.? --- Published For the National Archives and Records Administration by the National Archives Trust Fund Board 1995

16the Amendment to the Constitution - National Archives

 

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Useful Tax Links

ALTERNATIVE MINIMUM TAX: Alternative Minimum Tax - text of the U.S. Government code establishing the AMT.

CAPITAL GAINS: Tax Topic 409, Capital Gains and Losses - IRS

CHILDREN TAXPAYERS: Publication 929, Tax Rules for Children and Dependents; Tax for Children Under Age 14 Who Have Investment Income of More Than $1,400

INDIVIDUAL TAX RETURN: 3.22.3 Individual Income Tax Returns

ESTATE TAXES: Estate/Wealth/Gift Statistics -IRS and Publication 559, Survivors, Executors, and Administrators; Income Tax Return of an Estate-- Form 1041 and Publication 559, Survivors, Executors, and Administrators; Other Tax Information

FAIR TAX: IRS Tax Interactive - what is a fair tax

GIFT TAX: U.S. Estate and Gift Tax Law

PAYROLL TAXES: [4.4.2] 5.6 Payroll Taxes

SOCIAL SECURITY: Social Security History Home Page - This is the history web site of the social security administration with information on the history of Social Security and the Social Security Administration.

TAX FORMS: ARE AVAILABLE THROUGH IRS LOCAL OFFICES, INTERNET, MAIL, COMPUTER, OR TELEFAX.

  • Internet: Browse and retrieve most Federal forms and publications from the IRS here.. These tax materials are available 24 hours a day, seven days a week.
  • Office: You may pick up forms or publications and even meet with IRS assistors for answers to your tax questions at your nearest IRS office - Where to File - IRS Offices. You can also call 1-800-829-1040 for recorded explanations that may answer your questions.
  • Phone: IRS forms line -- 1-800-TAX-FORM (1-800-829-3676) -- is open from 7:00 a.m. to 11:00 p.m., Monday through Saturday. You should know what forms you want by number, and the name or number of the publication. Taxpayers should allow up to 15 working days for telephone orders to be processed.
  • Telefax: available 24 hours a day, seven days a week 703-368-9694 -- offers 144 forms with instructions by return fax. You can request that the system fax a list of available items or you can find the order numbers in the various tax instruction booklets.

TAX HISTORY: Tax History Project at Tax Analysts - providing scholars, policy makers, and the media with information on the history of American taxation and Tax World - explanations of tax policy, history, courses, glossaries downloadable forms and a great menu of links to other important sites.

W-2 FORM: 21.3.6.4.7.1 Form W-2 Information

W-4 FORM: Part 3 Revenue, Returns, and Accounts Processing Chap. 29 ISRP System Sec. 92 SC Processing of Form W-4 Employees' Withholding Allowance Certificate

STATE INCOME TAX SITES

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Oklahoma

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Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas 

Utah   

Vermont  

Virginia  

Washington

West Virginia

Wisconsin

Wyoming

Start your search on VERTICLE EQUITY.


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America’s Four Republics
The More or Less United States

 
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