The amendment states the congress shall have power to

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became law on February 3, 1913. The amendment states, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” It was not until the passage of the Revenue Act of 1913 that the income tax was actually imposed on incomes of the American individual. The Wilson-Gorman Tariff of 1894 was declared unconstitutional by the Supreme Court due to the tariff being ‘deemed a direct tax not apportioned by population.’ The direct tax was levied on dividends, interest, and rents. With the passage of the 16 th amendment, Congress
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did not have to worry about the phrase “apportioned by population” thus the passage of the Revenue Act of 1913. The Act set up the system that we know today as income tax: “subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source.” The first income tax was 1% on individuals whose incomes were over $3,000 ($4,000 for married couples). 1914 was the first time that the American public saw the Form 1040 ( ). The Revenue Act of 1916 raised the income rate for those making over $3,000 ($4,000 married) from 1% to 2%. The 1916 act also saw an increase in the corporation tax from 1% to 2%. As mentioned earlier, the year 1916 was also the beginning of the modern estate tax that we know today. There was an exemption of $50,000 with tax rates that ranged from 1% to 10% on estates of the deceased. The year 1917 brought with it the addition of a corporate excess profits tax. The idea of this tax was to levy a tax on profits of companies that were deemed to be above a reasonable amount. The initial rate was 8% and for amounts that were more than that, they were subject to steep tax rate. The new excess profits tax was a big revenue provider for the government during World War I ( , ). The next monumental event in the history of United States taxation happened in 1924 with the passage of the Revenue Act of
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1924. The Act, also known as the Mellon Tax Bill, brought with it a reduction in Federal tax rates across the board and the introduction of the gift tax, a tax on those individuals who gave gifts. The other major aspect of the Act was the establishment of the U.S. Board of Tax Appeals (modern day United States Tax Court).
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  • Spring '13
  • Brodie
  • Taxation in the United States

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