Taxes

The story of income tax in the US is informative. The 16th amendment was passed in 1913 and the tax rate was one percent of all income over $4,000 (per working family) and a 7% surtax on income over $500,000. At that time the average annual income was $750 and the idea was sold on the basis of taxing the rich. The first year the government collected $28 million but almost all of it came from the general population because the rich had so many exemptions. The government collected $43 million from corporate income tax. Only 4% of families earned over $4,000 so 96% paid no tax. Over the years the tax brackets have become more progressive and today the top 4% pay almost 60% of the tax and the bottom 50% less than one percent. Today the top 5% earn 38% of the income and pay 61% of the tax. This is considered less than their fair share by many and there is pressure to enact a wealth tax in addition to income tax. There is some doubt that this can continue because states with the highest taxes have the highest debt. The answer is to cut spending but no one wants to lose a benefit. Ben Franklin famously said, “When the people find out they can vote themselves money, that will be the end of the republic”.