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Happy Centennial, Income Tax!

2 min readBy: Benjamin J. Gehlhausen

Though it sounds like the answer to an obscure trivia question, a significant event recently occurred in the United States that doesn’t involve the government shutdown or the looming debt ceiling. On October 3rd, 1913; The United States Revenue Act of 1913, known for supplementing lower tariffs by implementing personal income taxes, was signed into law by President Woodrow Wilson. Over 100 years later, some Americans remain uncertain about the soundness and application of income taxes.

The income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , as it exists today, has grown far beyond its original confines as a source of revenue for the federal government. The tax code has extended into industrial and social policy and, as a result, it has grown wildly complex.

Income tax reform is an undying topic of discussion. America’s income tax code has been in a constant state of change; whether it is Occupy calling for fair wealth distribution, the Tea Party’s call for a “fair tax” plan, FDR proposing 100 percent top marginal tax rates, Kennedy and Johnson lobbying for lower rates, or the Reagan/Clinton/Bush/Obama administrations’ search for improved tax reformation. This incessant debate has resulted in an enormous 73,954 page, 25 volume, amorphous blob that started out as a seemingly minuscule 400 pages with a relatively simple and transparent 1 percent to 7 percent progressive rate structure.

There is nothing simple about a work that approaches 74,000 pages and currently requires 6 billion hours of work by professionals to prepare return forms and comply with tax laws. Clearly, America’s attempts at egalitarianism have been a constructive process that never seems to satisfy the demands of citizens or their elected officials.

It is human nature that we will look to improve our living conditions through all means possible, so it is safe to assume that we will continue to seek tax code improvement and reform.

On one hand, we can continue to make progressive changes through sophistication that, extrapolated based on past growth data, will lead to a multi-million page skyscraper. On the other, it is possible to attain growth through subtraction by putting forth the effort towards improving tax policy through simplification. At the Tax Foundation, we promote any move towards simpler, more transparent, and more neutral tax policy. Those are the principles tax reformers should keep in mind.