A Brief History of Why We Pay Taxes

As a reputable tax attorney in Philadelphia, our expert team of professionals can help anyone that requires a tax lawyer, even at short notice. With the new tax season on the horizon, we’d like to take this time to shed a little light on taxes and why we pay them.

When Did Taxation Start?

Since the 1950s, income taxes have been the main source of revenue for the U.S. federal government. Combined with payroll taxes, income taxes amount to around 80 percent of total federal revenue. This money is the essential fuel on which the U.S. government operates.

The history of income taxes in the U.S. also dates back to the Civil War; this was the time when Abraham Lincoln signed tax on personal income into the law to fund the Union war effort. This law was repealed ten years later, but congress pushed for a flat rate federal income tax in 1894. The following year, the U.S. Supreme Court ruled this tax as unconstitutional because it failed to account for the population of each separate state.

In 1909, Congress passed the Sixteenth Amendment, and this allowed the federal government to tax individuals regardless of their state population. The amendment was ratified in 1913, and since then, Americans have been required by law to pay federal income taxes.

Who Pays Taxes? And When?

Legally, any American citizen who resides in the U.S. and has a gross income of over $10,000, or who has earned over $400 as a self-employed individual must file a federal income tax return. 

Several circumstances might also require you to file a tax return. These include selling your property, or any taxes that you may owe from money withdrawn from a retirement account. 

How Are Taxes Calculated?

The rates for tax calculations have varied tremendously over the years, especially for America’s top earners. These figures range from an initial low of roughly 7 percent in 1913 to a maximum rate of 91 percent in the 1960s. In 2016, taxpayers that were classified in the top tax bracket paid a tax rate of 39.6 percent.

If you need legal advice regarding a tax issue or want to discuss Chapter 7 bankruptcy with an attorney in Montgomery County, click here to contact a member of our team now.

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