Editing Taxation in the United States (section)

==History==
[[File:Total government spending on all levels (United States).png|thumb|upright=2.5|right|Total government spending on all levels (United States)]]
{{Main|History of taxation in the United States}}

Before 1776, the American Colonies were subject to taxation by [[Kingdom of Great Britain|Great Britain]] and also imposed local taxes. Property taxes were imposed in the Colonies as early as 1634.<ref>Jens P. Jensen, '''Property Taxation in the United States''', 1931, referring to a 1634 Massachusetts property tax statute.</ref> In 1673, the English Parliament imposed a tax on exports from the American Colonies, and with it created the first tax administration in what would become the United States.<ref>[http://www.taxhistory.com/www/website.nsf/Web/THM1660?OpenDocument Tax History Museum 1660–1712], [[Tax Analysts]].</ref> Other tariffs and taxes were imposed by Parliament. Most of the colonies and many localities adopted property taxes.

Under Article VIII of the [[Articles of Confederation]], the United States government did not have the power to tax. All such power lay with the states. The [[United States Constitution]], adopted in 1787, authorized the federal government to lay and collect taxes, but required that some types of tax revenues be given to the states in proportion to population. Tariffs were the principal federal tax through the 1800s.

By 1796, state and local governments in fourteen of the 15 states taxed land. Delaware taxed the income from property. The War of 1812 required a federal sales tax on specific luxury items due to its costs. However, internal taxes were dropped in 1817 in favor of import tariffs that went to the federal government.<ref>{{cite web|url = http://blog.bookly.co/academy/why-do-we-pay-taxes|title = Bookly Academy}}</ref> By the [[American Civil War]], the principle of taxation of property at a uniform rate had developed, and many of the states relied on property taxes as a major source of revenue. However, the increasing importance of intangible property, such as corporate stock, caused the states to shift to other forms of taxation in the 1900s.

Income taxes in the form of "faculty" taxes were imposed by the colonies. These combined income and property tax characteristics, and the income element persisted after 1776 in a few states. Several states adopted income taxes in 1837.<ref>Hellerstein, p. 928.</ref> Wisconsin adopted a corporate and individual income tax in 1911,<ref>Hellerstein, p. 431.</ref> and was the first to administer the tax with a state tax administration.

The first federal income tax was adopted as part of the [[Revenue Act of 1861]].<ref>Revenue Act of 1861, sec. 49, ch. 45, 12 Stat. 292, 309 (Aug. 5, 1861).</ref> The tax lapsed after the American Civil War. Subsequently enacted income taxes were held to be unconstitutional by the Supreme Court in ''[[Pollock v. Farmers' Loan & Trust Co.]]'' because they did not apportion taxes on property by state population.<ref>{{cite web|url=https://www.law.cornell.edu/supct/html/historics/USSC_CR_0157_0429_ZS.html |title=Pollock v. Farmers' Loan and Trust Company |publisher=Law.cornell.edu |access-date=2013-10-13}}</ref> In 1913, the [[Sixteenth Amendment to the United States Constitution]] was ratified, permitting the federal government to levy an income tax on both property and labor.

[[File:U.S. Federal Tax Receipts as a Percentage of GDP 1945–2015.jpg|thumb|U.S. federal government tax receipts as a percentage of GDP from 1945 to 2015. 2010 to 2015 data are estimated.]]
The federal income tax enacted in 1913 included corporate and individual income taxes. It defined income using language from prior laws, incorporated in the [[Sixteenth Amendment to the United States Constitution|Sixteenth Amendment]], as "all income from whatever source derived". The tax allowed deductions for business expenses, but few non-business deductions. In 1918 the income tax law was expanded to include a [[foreign tax credit]] and more comprehensive definitions of income and deduction items. Various aspects of the present system of definitions were expanded through 1926, when U.S. law was organized as the United States Code. Income, estate, gift, and excise tax provisions, plus provisions relating to tax returns and enforcement, were codified as Title 26, also known as the [[Internal Revenue Code]]. This was reorganized and somewhat expanded in 1954, and remains in the same general form.

Federal taxes were expanded greatly during [[World War I]]. In 1921, Treasury Secretary [[Andrew Mellon]] engineered a series of significant income tax cuts under three presidents. Mellon argued that tax cuts would spur growth.<ref>{{cite web|url= http://www.taxhistory.org/www/website.nsf/Web/THM1901?OpenDocument |title=Tax History Museum, 1901–1932 |publisher=Taxhistory.org |date=1906-04-14 |access-date=2013-11-15}}</ref> Taxes were raised again in the latter part of the [[Great Depression in the United States|Great Depression]], and during [[World War II]]. Income tax rates were reduced significantly during the [[Presidency of Lyndon B. Johnson|Johnson]], [[Presidency of Richard Nixon|Nixon]], and [[Presidency of Ronald Reagan|Reagan presidencies]]. Significant tax cuts for corporations and all individuals were enacted during the [[Presidency of George W. Bush|second Bush presidency]].

During 1936 the United States adopted the British system of deduction-at-source. This was extended to include dividends, interest, rent, wages and salaries paid by corporations. This system was short-lived as it was soon to be replaced by the system of information-at-source. As was found in Britain this proved to be one of the worst systems as it imposed a huge burden on revenue authorities to correlate large quantities of information. As had Britain, the United States returned to the deduction-at-source system thirty years after it was abolished.<ref>{{cite web|title=CORPORATE TAXES AND THE TAXATION OF DIVIDENDS|url=http://vital.seals.ac.za:8080/vital/access/services/Download/vital:890/SOURCEPDF}}</ref>

In 1986, Congress adopted, with little modification, a major expansion of the income tax portion of the IRS Code proposed in 1985 by the U.S. Treasury Department under President Reagan. The thousand-page [[Tax Reform Act of 1986]] significantly lowered tax rates, adopted sweeping expansions of international rules, eliminated the lower individual tax rate for capital gains, added significant inventory accounting rules, and made substantial other expansions of the law.

Federal income tax rates have been modified frequently. Tax rates were changed in 34 of the 97 years between 1913 and 2010.<ref>See changes in [[Revenue Act of 1916|1916]], [[War Revenue Act of 1917|1917]], [[Revenue Act of 1918|1918]], [[Revenue Act of 1921|1921, 1922]], [[Revenue Act of 1924|1924]], [[Revenue Act of 1926|1926]], [[Revenue Act of 1928|1928]],   [[Revenue Act of 1932|1932]], [[Revenue Act of 1934|1934]], [[Revenue Act of 1935|1935]], [[Revenue Act of 1936|1936]], [[Revenue Act of 1940|1940]],  [[Revenue Act of 1941|1941]], [[Revenue Act of 1942|1942]], [[Revenue Act of 1943|1943]], [[Individual Income Tax Act of 1944|1944]],  [[Revenue Act of 1945|1945]], [[Revenue Act of 1948|1948]], [[Revenue Act of 1950|1950]], [[Revenue Act of 1951|1951, 1953]], [[Internal Revenue Code|1954]], [[Revenue Act of 1964|1964]], [[Revenue and Expenditure Control Act of 1968|1968]], [[Tax Reform Act of 1969|1969]], [[Tax Reduction Act of 1975|1975]], [[Revenue Act of 1978|1978]], [[Economic Recovery Tax Act of 1981|1981]], [[Tax Reform Act of 1986|1986]], [[Omnibus Budget Reconciliation Act of 1993|1993]], [[Taxpayer Relief Act of 1997|1997]], [[Economic Growth and Tax Relief Reconciliation Act of 2001|2001]], and [[Jobs and Growth Tax Relief Reconciliation Act of 2003|2003]].</ref> The rate structure has been graduated since the 1913 act.

[[File:U.S.-income-taxes-out-of-total-taxes.JPG|thumb|right|Total tax revenue (not adjusted for inflation) for the U.S. federal government from 1980 to 2009 compared to the amount of revenue coming from individual income taxes]]

The first individual income tax return Form 1040 under the 1913<ref>{{cite web|url=https://www.irs.gov/pub/irs-prior/f1040--1913.pdf|title=Return of Annual Net Income of Individuals|work=Form 1040|publisher=United States Internal Revenue|access-date=December 20, 2023}}</ref> law was four pages long. In 1915, some Congressmen complained about the complexity of the form.<ref>[http://www.taxhistory.org/www/website.nsf/Web/THM1901?OpenDocument Tax History Museum] covering 1914–1915.</ref> In 1921, Congress considered but did not enact replacement of the income tax with a national sales tax.

By the 1920s, many states had adopted income taxes on individuals and corporations.<ref>Hellerstein, pp. 429, 431.</ref> Many of the state taxes were simply based on the federal definitions. The states generally taxed residents on all of their income, including income earned in other states, as well as income of nonresidents earned in the state. This led to a long line of Supreme Court cases limiting the ability of states to tax income of nonresidents.

The states had also come to rely heavily on retail sales taxes. However, as of the beginning of World War II, only two cities (New York and New Orleans) had local sales taxes.<ref>Hellerstein, p. 10.</ref>

The Federal Estate Tax was introduced in 1916, and Gift Tax in 1924. Unlike many inheritance taxes, the Gift and Estate taxes were imposed on the transferor rather than the recipient. Many states adopted either inheritance taxes or estate and gift taxes, often computed as the amount allowed as a deduction for federal purposes. These taxes remained under 1% of government revenues through the 1990s.<ref>Federal Budget 2012 [https://trumpwhitehouse.archives.gov/omb/budget/Historicals historical tables] 2.4 and 2.5. Census Bureau [http://www2.census.gov/govs/statetax/00staxss.xls state tax summary table, year 2000].</ref>

All governments within the United States provide [[tax exemption]] for some income, property, or persons. These exemptions have their roots both in tax theory,<ref>See, ''e.g.'', Martin, James W. ''et al'', ''Tax Exemptions'', Tax Policy League, New York, cited in Hellerstein, pp. 1013–17.</ref> federal and state legislative history,<ref>The 1861 federal income tax exempted religious, charitable, educational, and scientific organizations.</ref> and the United States Constitution.<ref>The Supreme Court ruled that the federal government is immune from state taxation in [[McCulloch v. Maryland]], 17 U.S. 316 (1819).</ref>