page_title: History of taxation in the United States
section_title: Development of the modern income tax
hierarchical_section_title: History of taxation in the United States / Income tax / Development of the modern income tax
caption_attribution_description: English: Historical graph of the marginal tax rates for the highest and lowest income earners, 1913-2015.
context_page_description: The history of taxation in the United States begins with the colonial protest against British taxation policy in the 1760s, leading to the American Revolution. The independent nation collected taxes on imports, whiskey, and on glass windows. States and localities collected poll taxes on voters and property taxes on land and commercial buildings. In addition, there were the state and federal excise taxes. State and federal inheritance taxes began after 1900, while the states began collecting sales taxes in the 1930s. The United States imposed income taxes briefly during the Civil War and the 1890s. In 1913, the 16th Amendment was ratified, permanently legalizing an income tax.
context_section_description: Congress re-adopted the income tax in 1913, levying a 1% tax on net personal incomes above $3,000, with a 6% surtax on incomes above $500,000. By 1918, the top rate of the income tax was increased to 77% (on income over $1,000,000) to finance World War I. The top marginal tax rate was reduced to 58% in 1922, to 25% in 1925, and finally to 24% in 1929. In 1932 the top marginal tax rate was increased to 63% during the Great Depression and steadily increased.
  During World War II, Congress introduced payroll withholding and quarterly tax payments. In pursuit of equality (rather than revenue) President Franklin D. Roosevelt proposed a 100% tax on all incomes over $25,000. When Congress did not enact that proposal, Roosevelt issued an executive order attempting to achieve a similar result through a salary cap on certain salaries in connection with contracts between the private sector and the federal government. For tax years 1944 through 1951, the highest marginal tax rate for individuals was 91%, increasing to 92% for 1952 and 1953, and reverting to 91% for tax years 1954 through 1963.
  For the 1964 tax year, the top marginal tax rate for individuals was lowered to 77%, and then to 70% for tax years 1965 through 1981. In 1978 income brackets were adjusted for inflation, so fewer people were taxed at high rates. The top marginal tax rate was lowered to 50% for tax years 1982 through 1986. Reagan undid 40% of his 1981 tax cut, in 1983 he hiked gas and payroll taxes, and in 1984 he raised tax revenue by closing loopholes for businesses. According to historian and domestic policy adviser Bruce Bartlett, Reagan's 12 tax increases over the course of his presidency took back half of the 1981 tax cut.
  For tax year 1987, the highest marginal tax rate was 38.5% for individuals. It was lowered to 28% in revenue neutral fashion, eliminating many loopholes and shelters, along with in corporate taxes, (with a 33% "bubble rate") for tax years 1988 through 1990. Ultimately, the combination of base broadening and rate reduction raised revenue equal to about 4% of existing tax revenue
  For the 1991 and 1992 tax years, the top marginal rate was increased to 31% in a budget deal President George H. W. Bush made with the Congress.
  In 1993 the Clinton administration proposed and the Congress accepted (with no Republican support) an increase in the top marginal rate to 39.6% for the 1993 tax year, where it remained through tax year 2000.
  In 2001, President George W. Bush proposed and Congress accepted an eventual lowering of the top marginal rate to 35%. However, this was done in stages: with a highest marginal rate of 39.1% for 2001, then 38.6% for 2002 and finally 35% for years 2003 through 2010. This measure had a sunset provision and was scheduled to expire for the 2011 tax year when rates would have returned to those adopted during the Clinton years unless Congress changed the law; Congress did so by passing the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed by President Barack Obama on December 17, 2010.
  At first, the income tax was incrementally expanded by the Congress of the United States, and then inflation automatically raised most persons into tax brackets formerly reserved for the wealthy until income tax brackets were adjusted for inflation. Income tax now applies to almost two-thirds of the population. The lowest-earning workers, especially those with dependents, pay no income taxes as a group and actually get a small subsidy from the federal government because of child credits and the Earned Income Tax Credit.
  While the government was originally funded via tariffs upon imported goods, tariffs now represent only a minor portion of federal revenues. Non-tax fees are generated to recompense agencies for services or to fill specific trust funds such as the fee placed upon airline tickets for airport expansion and air traffic control. Often the receipts intended to be placed in "trust" funds are used for other purposes, with the government posting an IOU ('I owe you') in the form of a federal bond o
caption: Historical federal marginal tax rates for income for the lowest and highest income earners in the US.[29]
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