Potus Geeks Photo: 100 Years Later We Have Woody to Thank
Today Author Michel Beschloss tweets this photo, with the caption "Here is Woodrow Wilson exactly 100 years today--fighting, of all things, for Senate passage of a federal income tax."
But it's probably unfair to place the blame for income tax on Woody. The first time Americans has there income taxed, it was in order to help pay for its war effort in the Civil War. The federal government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861. It taxed 3% of all incomes over US $800. I'm told that is about $20,441 in 2013 dollars.
In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000 ($106,138.46 in 2013 dollars), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue expected to be lost by tariff reductions. In 1895 the United States Supreme Court, in its ruling in Pollock v. Farmers' Loan & Trust Co., held a tax based on receipts from the use of property to be unconstitutional. The Court held that taxes on rents from real estate, on interest income from personal property and other income from personal property were treated as direct taxes on property, and therefore had to be apportioned (i.e. distributed proportionately). Since apportionment of income taxes was impractical, this had the effect of prohibiting a federal tax on income. This made federal income tax impractical from the time of the Pollock decision until the time of ratification of the 16th Amendment in 1913.
In 1913, the Sixteenth Amendment to the United States Constitution made income tax a permanent fixture in the U.S. tax system. It wasn't until early 1913 when West Virginia and Delaware ratified the amendment, meaning that 3/4 of the states had ratified the amendment, making it law. Wilson had been campaigning for ratification and 6 other states ratified the amendment later that year. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. The withholding tax on wages was introduced in 1943 and was instrumental in increasing tax collections to $43 billion by 1945.