Saturday, May 29, 2010

6 Surprising Facts About The Early Days Of Income Tax

When thinking about the word “taxes,” most taxpayers think about the money being taken out of their paychecks, rather than the early history of American taxation. However, some of the facts in this article from on the early days of the income tax are very interesting, so I though I would share the information with all of my blog readers. Check out a few of the facts below, or head over to for the full list.

Fact One: Taxes Were Simple

The first 1040 form produced by the Bureau of Revenue, as it was called then, totaled only four pages, with three pages to be filled out by the taxpayer, and one page of instructions. The tax system was so simple.

Fact Two: The Tax Base Was Small

The first $3,000 of income for an individual taxpayer, or $4,000 for a married couple was exempt from tax. In 1913, the tax only applied from income between March 1 and the end of the year, so these exemptions were adjusted to $ 2,500 and $3,333 for that year. This meant that most Americans didn't have to pay any tax. If you adjust $3,000 in 1913 for inflation, it is equivalent to $66,000 in today's dollars.

Fact Three: The Tax Rate Was Low

The tax rate for those who had to pay was minuscule - 1% of taxable income, less the exemptions above and the deductions that were allowed at the time. High-income earners paid more, however, as a 1% surcharge was levied on taxable income between $20,000 and $50,000. The surcharge went as high as 6% for taxable income above $500,000. A taxable income of $500,000 in 1913 is equal to approximately $11 million in today's dollars. (For more, see A Concise History Of Changes In U.S. Tax Law.)

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