Income Tax History

Our current income tax regime dates to 1913 when the Revenue Act of 1913 was enacted into law by democratic President Woodrow Wilson. Before 1913 the government was financed by tariffs, and there was no income tax. The purpose of the income tax was to allow for tariff reduction which was seen by the democrats as an unfair tax on consumers. Average tariff rates did go down from 40 percent to 26 percent. The Act established a normal income tax rate of 1% on the first $17,000 for single filers and $16,000 for married filers equivalent to $374,400 and $352,300 in 2010 dollars respectively. Income between $20,000 and $500,000 was taxed at rates of 2% to 6%. Income over $500,000 was taxed at the top rate of 7%. The income tax started out as a tax just on very high income taxpayers, and only 357,588 individual returns were filed for 1913. It wasn't until the 1940's  that the income tax was expanded to torment the middle class and payroll withholding was invented.