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History of the Federal Income Tax
The federal income tax, in its modern form, was first imposed by Congress in 1913, following ratification of the 16th Amendment of the U.S. Constitution. Before then, the federal government was prohibited from imposing taxes on the states unless it was apportioned by population.
Until that time, federal revenues came from bond sales and taxes on tobacco and alcohol. Earlier wars, including the Spanish-American and the Civil War were financed partially by short-term surtaxes.
Congress passed the federal income tax in 1913. Tax rates ranged from 1% to 7%. The top 7% rate applied to taxpayers with income over $500,000 (the equivalent of $7,300,000 in today's dollars!).
Government quickly came to love the income tax. To pay for World War I, the top tax rate was increased to 77% in 1918, although the top rate applied to income over $1,000,000 (about $14,000,000 today).
One trend that appears in the Historical rates is the increase in federal taxes during and after wars. Roughly, rates following WWI were around 70%; during WWII: 94%, and decreasing to the 80% range in 1946 through 1950. The years following the Korean War - 91%. Vietnam's rates were 77% to 70%.
Since Vietnam, marginal rates have fallen, from 50% in the early 1980s, to 40% in the 1990s, down to 35% currently.
Some interesting websites with information about the federal income tax:
