Another angle on how income taxes have gotten steadily more regressive..

[Statistical]

So everyone always looks at the bottom line changes to income taxes, the income tax rates and brackets. Looking at the rates one can see them get "flatter" and less progressive over time, however there is another more regressive aspect. The personal exemption; the personal exemption is essentially tax free money. The personal exemption for 2010 is $3,650 per person on the return. Regardless of if you itemize or use standard deduction you get the personal exemption. Everyone in American gets $3,650 in "free income" each year.

Would it surprise you to know that the personal exemption in 1894 (thats right 1800s) was $4,000, adjusted for inflation thats $80,000 per person tax free? Not only would people making <$80K not pay income taxes they wouldn't need to file either. Hell they wouldn't even take income taxes out of your paycheck. Why take out income taxes for 99% of Americans is 95%+ will get 100% of it back. Even in 1913 when the "income tax" as we know it today was created the personal exemption was $3K for single filers and $4K for married filers (thats $57,000 and $76,000 adjusted for inflation).

Imagine how much larger your paycheck would be if the federal income tax line was completely removed. That was the intent with creation of income tax in 1894. It was a tax only on the most prosperous. 99% of Americans not only didn't pay it, most were completely unaware of it because they had no withholdings and had to file no return.

The tax code was also a lot simpler. Not need to provide a host of exemptions, deductions, credit, and offsets because 99% of people didn't even file a return. Imagine the savings in terms of witholdings, and filings, and IRS processing, and audits.

[sinkingfeeling]

1. It was also unConstitutional in 1894.

However, in 1894 Congress enacted a flat rate Federal income tax, which was ruled unconstitutional the following year by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state.

http://www.loc.gov/rr/business/hottopic/irs_history.html

[Statistical]

2. True. However after the 16th amendment (1913) the income based tax was Constitutional.

Thanks: I expanded on my post above.

The mordern income tax system as we know it today was actually born in 1913. In 1913 legislation the personal exemption was $3,000 for single filer and $4,000 for married filers. That would be $57,000 and $76,000 in inflation adjusted dollars.

The larger issue is that if the system worked today as originally intended not only would the vast majority of Americans not pay taxes they wouldn't have witholdings, or even filings. The income tax system was designed as a supplemental tax on most prosperous 1% of the country. Most Americans didn't "participate".

[Gaedel]

3. At the time.....

The feds got most of their income from taxes on imports. Maybe we should do that. We eliminate the income tax and tax hell out of the crap coming from China.