A Little History On Taxes

Peter VanderWoude, CPA, CGMA

February 1, 2017

Taxes have been around as long as…well, thousands of years! Some are simple to calculate, others, like income tax, are much more complicated. In the United States of America, we had our first income tax in 1861 during the Civil War, which was repealed in 1872. We got another round in the mid-1890s. Then in 1913, the 16th Amendment to the Constitution was ratified which ushered in a permanent income tax.

If you are so inclined, you can find the 1913 Form 1040 in PDF format on the Internet. One needed to file the 1040 by March 1 in those days. Back then the Form 1040 calculated taxable income and income tax due in much the same way as it does today, although the numbers and tax rates are much smaller. Imagine one to six percent income tax rates!

Up through the 1950s the Internal Revenue Service used to prepare income tax returns at no charge to taxpayers. When the IRS began to discontinue that practice, Henry and Richard Bloch replaced their bookkeeping firm, United Business Company, with H&R Block, Inc., specializing in income tax preparation.

Much of the rest of western civilization uses a value added tax or VAT (consumption tax) to primarily raise revenue. There have been some rumblings of changing our income tax system to VAT over the years, most notably by Steve Forbes of Forbes magazine while he was campaigning for President in the Republican primaries of 1996 and 2000. Many academics have also published research on the economic benefits of moving to a VAT system. 

Will we ever change the complexity of our much maligned income tax system? Some acts of Congress dealing with income taxes have started with talk of simplifying some aspects of the tax code, but fell far short of actually doing so. When I was a tax associate in the tax department of one of the “Big Eight” CPA firms in the late 1980s, we euphemistically referred to President Reagan’s Tax Reform Act of 1986 as the “Tax Accountant and Tax Attorney Full Employment Act.” That tax act was a doozy! So much for talk of tax simplification. During our lifetimes I doubt that the Internal Revenue Code will ever truly be simplified.

So here we are, at the beginning of the another tax season. Soon you will gather your W-2s, 1099s, 1098s, 1095s and other official tax documents for 2016, compile your deductions and information for tax credits and then head to your tax professional or use a tax program.

P.S. Make sure this year to bring your driver’s license. New York State is requiring tax professionals to enter your license ID number, issue date, expiration date and document number in our tax software.

Best of success!

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