Carpe Diem

Tax deadline is approaching: Bring us back to 1913 (or better yet, bring us back to pre-income tax 1912)


In its 2012 annual report to Congress, the National Taxpayer Advocate estimated that American taxpayers spend 6.1 billion hours a year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out tax forms. That amount of time spent for income tax compliance would be the equivalent of more than 3 million Americans working full-time, year-round (2.22% of payroll employment). By way of comparison, the federal government employed 2.78 million full-time workers in 2012, and Wal-Mart, the world’s largest private employer, currently employs 1.4 million workers in the US (both full-time and part-time).

“In the beginning,” when the income tax was first introduced in 1913, it used to be a lot, lot simpler and a lot easier, basically like filling out a tax return on a postcard.

For example, page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including: two pages of worksheets, the actual one-page 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions for 2012, without any forms, runs 214 pages.

Individual income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 ($11.725 million in today’s dollars). The personal exemption in 1913 was $3,000 for individuals ($70,350 in today’s dollars) and $4,000 for married couples ($93,800 in today’s dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 2013 here.

9 thoughts on “Tax deadline is approaching: Bring us back to 1913 (or better yet, bring us back to pre-income tax 1912)

  1. Maybe it would be more economically efficient to give a 1% subsidy to people as a reward for declaring their “incomes”, rather than charging them a 1% tax for it.

  2. The Federal Income Tax has actually been with us since 1862; since the start U.S. Civil War. It is obvious that war is expensive, and the government needed additional sources of revenue as a result. Since that time, “Income” as defined by the Supreme Court, cannot be “all that comes in.” So. Pacific v. Lowe (1918).

    Congress passed the Sixteenth Amendment in 1913 as a result of the 1895 Supreme Court ruling Pollock v. Farmers Loan. Pollock contended that since he was using his private funds as a source to invest in federal railroads, taxing the profits from his investment would be a capitation. The Supreme Court ruled in Pollock’s favor.

  3. The cost of tax and regulation compliance per employee is higher for small businesses than large businesses:

    Federal Regulations Costly for Small Businesses
    Sep 27, 2010

    Because many costs are fixed, small businesses pay about a third more per employee than larger companies, finds the SBA.

    The cost of tax compliance is 206 percent higher for small firms.

    Complying with environmental regulations was the biggest wallop to small business’s wallet: It costs 364 percent more for small firms than large ones, or about 4 times more per employee. Small companies spend $4,101 per employee, compared to $1,294 at medium-sized companies (20 to 499 employees) and $883 at the largest companies.

    The SBA adds: “All of these effects, of course, would have negative consequences for the U.S. labor market and national income.”

    • And since 2010, taxes and regulations for small businesses increased substantially:

      Obama’s Tax Hike Plan Punishes Small Businesses
      July 13, 2012

      Many of these so-called “rich” are actually small business owners…often unfairly grouped with the extremely affluent because of the way they file their taxes.

      Due to their size, most small businesses file as sole proprietors or partnerships—in fact, approximately 85 percent of small businesses file income taxes as individuals.

      This means that, while a small business owner’s personal income may seem large, the majority of the money is actually funneled directly back into the business.

  4. Yes, let us go back to the days when the federal government was funded by tariffs on imports. The first act of the first Congress was to impose a tariff. Low taxes and a good paying job to boot!

  5. I’ve long held that there is a externality involved the complexity of the tax code: the people responsible for writing the thing don’t pay the costs of compliance.

    My silly but completely serious suggestion is to require that every elected member of the federal government plus the Secretary of the Treasury and the Commissioner of the IRS do their own taxes with no more resources than a four-function calculator and the official forms and instructions.

    No CPA. No software. No getting $SPOUSE to do it.

    Work it yourself from the official instructions.

    Why? Because these are the people who can actually get changes made, and if they find it to be confusing or mind-numbing or frustrating or inane, then they can save millions of people the same pain by doing something about it, you asshole!.

    Similar consideration apply at the state level where states have the “voluntary compliance” taxes.

  6. As this page shows in a graph

    Notes, a century ago before it was enacted local governments spend 60% of total government spending, and the federal government spent half that. Now the ratio is reversed. Of course they all spend far more money than they did back then, federal spending merely grew faster. The income tax wasn’t the only factor as that points out, e.g. the rise in mass media helped centralize things.

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