The Dumbest Financial Laws Of All Time

As we all know, lawmakers do not always get it right when they draft and support new financial laws. However, as this Forbes.com article shows, some times the bills they pass are so ridiculous that it is surprising they ever become law. In a new “Gallery of Pain,” Forbes.com has collected a slideshow of the dumbest financial laws of all time. You can find the text regarding some of the laws included in their list below, but be sure to view the slideshow at Forbes.com.

How worried should the world be about the new regulatory reform bill wending its way through the U.S. Congress? Given the country's track record on looking after the financial services industry, the answer is: plenty worried.

Even the staunchest believers in free enterprise would agree that a modicum of regulation is necessary for a functioning economy. The new bill, which Congress aims to get on President Obama's desk before the July recess, looks to be chock full of ways to ward off yet another financial crisis. These include: audits of the Federal Reserve; the dismantling of lucrative banking divisions devoted to crafting and trading complex securities called derivatives; an agency that would take quick control of troubled financial institutions; and the so-called Volcker rule, after former Federal Reserve chairman Paul Volcker, that would prohibit banks from making speculative trades with depositors' money.

Whatever ideas end up on the books, three things are certain.

First, regulation--no matter how well intended--comes with a whole heap of unintended consequences. Some laws have invited, or at least exacerbated, full-blown financial crises. (For a round-up of the most ill-fated legislation, see our slide show.) "Regulations are fixed in time and can't adapt," says David Weiman, a professor of economics history at Barnard College.

The second certainty: No matter what the rules are, the financial industry will figure out how to innovate around them. "New regulations often let people find ways within the letter of the law to do whatever they wanted to do in the first place," says Edward Kane, a professor of finance at Boston College.

Federal Income Tax Increases Throughout U.S. History

With all the attention being given to Obama’s health care reform campaign, and Congress’ bill that includes a hefty tax increase to pay for it, I began thinking about tax rates and increases throughout American history. To put the pending tax rate changes into perspective for all of my readers, I have put together the following outline of tax increases in U.S. history.

The Revenue Act of 1916

Nearly a hundred years ago, one of the earliest major tax increases in America was under the Revenue Act of 1916. Prior to the act, only 2% of citizens paid income taxes, and those who did have to pay only paid a mere 1-5%. In order to pay for war expenses, and stabilize the U.S. economy, the new act raised the lowest tax rates by 1%, and the top tax rate by a staggering 15%. However, these increases were not exclusive to income taxes, as rates levied on businesses and estates were also raised. Although experts at the time predicted these taxes would be enough, the First World War quickly became more costly than expected.

The War Revenue Act

Just one year later, in 1917 the properly named War Revenue Act increased taxes yet again. As part of the act, the cutoff for the U.S.’s highest income tax rate went from $1.5 million to only $40,000. Keep in mind that this was “1917” dollars, and citizens making $40,000 per year would be considered wealthy by today’s standards. Only a few months after the War Revenue Act passed, another act was passed to collect additional revenue from taxpayers. All in all, personal income taxes reportedly paid for over a third of all the Word War I related expenses the U.S. incurred.

The Great Depression

As we all know, the 1920’s were a great time in America. The economy was great, tax rates were low, and Federal revenue was flowing. That is until the stock market crash of 1929, which triggered the start of the great depression. Between 1932 and 1936, taxes were increased several times to support economic recovery. By 1937 the lowest income tax rate in the country was 4% and the highest was an astounding 79%. Comparatively, the highest 2009 tax Federal income tax rate is only 35%.

The "Victory" Tax

Often referred to as the biggest tax increase in more than 20 years, the US Revenue Act of 1942 – also known as the "victory" tax – was more than just one little tax increase. Although it's name may lead you to think the act was meant to bump the economy, the money was actually used to prepare for World War II.

Another reason this particular act was so upsetting to many was because up until it passed, only about 5% of Americans had to pay Federal income taxes. However after it was enacted, the act raised the percentage of Americans paying income taxes to 75%. In addition to raising income taxes, the act also increased corporate tax rates by nearly 10%, decreased personal exemptions from $1,500 to $1,200, and decreased dependent exemptions from $400 to $350.

The Revenue Act of 1951

Only 9 years after the last large tax increase bill, the Revenue Act of 1951 was introduced to generate even more Federal revenue. However, although both personal and corporate tax rates were raised by as much as 5%, the government’s total tax revenue actually dropped in the years following the Revenue Act of 1951.

The Tax Equity and Fiscal Responsibility Act of 1982

In 1981, the Economy Recovery Act became law and contained some of the biggest tax cuts of modern American history. However, just a year later, Congress passed the Tax Equity and Fiscal Responsibility Act, which raised the federal unemployment base wage and the FUTA tax rate. The act also setup new excise taxes on airports, airways, telephones and cigarettes. Finally, the act also reduced the limit on tax-free contributions to defined-contribution pension plans by $15,475, and reduced limits on benefits from a defined-benefit plan from $136,425 to $90,000.

The Omnibus Budget Reconciliation Act of 1993

Signed into law by President Bill Clinton, the highly controversial Omnibus Budget Reconciliation Act of 1993 drastically increased personal income tax rates. Just three years prior, the Omnibus Budget Reconciliation Act of 1990 had increased the top U.S. income tax rate to 31%, but under the new act it was further increased to 39.6%. Corporate tax rates also increased to 35%.

Expiration of the “Bush Tax Cuts”

Although they have not expired yet, in 2001 and 2003 Congress passed significant income tax cuts that became known as the “Bush Tax Cuts.” The acts reduced the top Federal income tax rate to 35%. However, both Congress and the Obama administration have vowed to let these cuts expire next year, which will result in a nearly 5% increase for taxpayers in the top tax bracket.

The Four R’s – The Reasons We Pay Taxes

The concept of taxation dates back to ancient times and it had a large impact on the creation of the United States. I mean, who hasn’t heard the phrase “no taxation without representation,” at least a dozen times in grade school? But how often do we stop and think about the real reasons we pay taxes? In fact, there are four main ideological reasons we pay taxes, and in this entry I have examined each of those four reasons.

1. Revenue

The most important purpose, taxes raise revenue for the government to spend on education, transportation, jobs, local governments, military, and judicial systems. Without taxes finding funding to build schools and buy books for them would be incredible difficult. Our country, as well as many others, is literally funded by our own taxes. Individuals, companies, and small businesses all get taxed for certain endeavors and those funds then go back into our economy.

As long as a country is thriving, there should be revenue coming in through taxes. However, concerns have arose in the past few years as to whether or not the United States is meeting expected revenue. Experts claim the economy is protected enough to let the low revenue affect taxpayer’s day to day lives.

2. Redistribution

Many debate the purpose of using taxes for redistribution, but the main idea is to tax those who can afford it (i.e. the wealthy) and use the money to fund programs for lower income families. Debate rages on as to whether or not this tactic is fair or if our government is even properly redistributing in the first place. Current presidential candidates disagree on the President Bush tax cuts in particular, which democratic candidates Sen. Barack Obama and Sen. Joe Biden feel give tax cuts to the wealthiest Americans, completely defeating the purpose of redistribution in our tax system.

3. Re-pricing

The tax system is also used to discourage and encourage. Taxes on things such as cigarettes and liquor discourage the intake of substances. The idea of implementing a carbon tax encourages fuel efficiency, but again is much like a penalty. Re-pricing is another main purpose of the inner workings of our tax system, because it is a large and equal flat tax, given to any and everyone indulging in such taxable items. Re-pricing happens all over the market in multiple ways in order to keep a sort of balance and subtle control on spending.

4. Representation

American revolutionists often coined the phrase “no taxation without representation,” so taxpayers know the government may be able to tax them, but accountability is mandatory. It is important for United States citizens and the government to be on even terms with taxes, and that all reasons and uses for said collected taxes are available to the public in multiple forms. It’s hard to remember that taxes are there to help us, but representation will always keep the information available.