Tax, 1/2

Let’s face it: people don’t like to pay taxes. That’s why when government tell you to “go shopping,” it always works. And it’s the same reason – “Taxation without representation is tyranny” – that led to the Independence War and the birth of America. If someone asks you why you pay income taxes and you reply, “I just kind of do,” you would probably disappoint the founding fathers. Yet the answer is a complex one, and you need first some historical perspective.

A history of Tax Innovation and Hikes.
From the Revolutionary era till the Civil War, there were no income taxes whatsoever. The government’s primary source of income was tariff, some exercise taxes on whisky, tobacco, sugar and whatnot. In 1794 some Pennsylvania farmers even rebelled to resist the whisky tax, only suppressed by the army sent by George Washington (I-VA). The first property tax had a transient debut in later 1790’s, soon rid of by Thomas Jefferson (DR-VA). Ironically, this was the period in which federal debt was for only once eliminated, a coup carried by Andrew Jackson (D-TN), the guy who jumped out of the White House window on his inauguration day.

The Civil War kick started personal income tax, only 3% on incomes above $800 (Union privates were paid $13 per month and later raised to $20). WWI upped the top bracket rate to 15%. Then WWII skyrocketed it to a bizarre 94% and widened the number of tax payers from 4 million in 1939 to 43 million in 1945 (1/3 of the population). War is the perpetual game-changer. Capital gain tax was treated akin to income tax at nascence and overtime complicated and its rate experienced a rollercoaster of ups and downs. Corporate tax originated in 1909 and has been mishmash since then, due to a variety of corporate forms and their affiliations.

After all those, this is what the federal government collected in 2007: Individual income tax, $1,163 mil (45% of total); Corporate income tax, $370 mil (14%); Pay Role (Social Security), $870 mil (34%); Exercise tax, $65 mil (3%); Others, $100 mil (4%).

History, however, can also by interesting, such as tax cuts. Two major tax cut happened under Reagan and Bush administration. Reagan slashed top bracket personal income rate from 70% to 50% (and bottom rate from 14% to 11%) in the Economy Recovery Tax Act of 1981 (a.k.a. Kemp-Roth Tax Cut), and further down to 28% (and rebalanced bottom rate to 15%) in the Tax Reform Act of 1986 (a.k.a. Kemp-Roth Tax Cut 2.0). Together with a series of tax bills to close loop holes, the accumulated revenue effect of the Reagan tax policies was $-0.95 billion annually.
Induced by a projected surplus of $284 billion in 2001, the Bush tax cuts reduced most individual tax rates including those on capital gains and dividends, with revenue impact of $-207.4 per year.

Next: Vote Right: Tax, part 2