TAX Day is April 15, but another momentous Tax Day has already come and gone.
Sunday was the 100th birthday of the federal income tax system. Neither Washington, which takes so much money from Americans, nor the taxpayers themselves, are likely aware that on Feb. 3, 1913, the 16th Amendment was ratified, giving Congress the power to tax personal incomes.
Over the next century, the income tax went through cycles of growth and shrinkage. The personal income tax became part of the public financing system at state and local levels as well. Fortunately, Oklahomans aren't faced with paying a tax on incomes to City Hall. But the income tax they pay to the federal and state governments remains the subject of endless discussions over fairness.
President Barack Obama succeeded in raising taxes on “the wealthy” as part of the fiscal cliff settlement. On the very day the 16th Amendment's ratification turned 100, Obama blew out the candles and said that his wish is for “the wealthy” to pay even more income taxes. No surprise there.
In the states, though, many leaders are talking about lowering the income tax, not raising it. Oklahoma Gov. Mary Fallin is one of them. Fallin wants to cut the top personal income tax rate from 5.25 percent to 5 percent. She'd like to cut it even more, but political reality has forced her to keep a proposed cut to a minimum.
More than a hundred years ago, the members of Congress who sent the 16th Amendment to the states figured it wouldn't be ratified because those most affected by a personal income tax — “the wealthy” — would successfully oppose the move. They were wrong.
Still, it took 3½ years to get ratification by the requisite 36 states. Oklahoma, known today for its tax-cutting impetus, was the sixth state to ratify. Most of the early ratifiers were states that today are led by Republicans thought to be averse to higher taxes. Perhaps lawmakers assumed an income tax would only ever affect “the wealthy.” If so, they were wrong.
Union states had an income tax during the Civil War, but it was dropped post-bellum. A late 19th-century federal income tax system was declared unconstitutional by the U.S. Supreme Court. Thus, the 16th Amendment was proposed, passed by Congress and sent to the states for ratification.
During the first couple of years, the income tax rate was 1 percent for most Americans and 7 percent for the richest ones. Within five years, the top rate hit 77 percent. In 1953, when the income tax turned 40, the top rate was officially above 90 percent. As of January, the top rate is 39.6 percent — a 465 percent increase from the original 1913 level.
Obama made political hay with his promise to raise taxes only on the wealthiest Americans, thereby dividing the populace into those who should be happy they didn't get a tax increase and those who should not (in Obama's view) complain about being overtaxed. But the lesson from 1913 is that what initially affects the few will eventually affect the many.
Washington's appetite for revenue won't stop with higher taxes on “the wealthy.” It certainly won't stop with the latest rate adjustment for those Americans. The definition of “wealthy” will continue to be elastic. If you think Obama has no plans to increase taxes on more Americans who are now in a lower tax bracket, you are wrong.
The recent tax hike was but the icing on the birthday cake.