Thursday, Oct. 3, is the 100th anniversary of the federal income tax. That is the day that President Woodrow Wilson signed the legislation into law in 1913, concluding a process begun four years earlier by President William Howard Taft.

There had been an income tax during the Civil War that Congress allowed to expire in 1872. Republicans, who controlled Congress and the White House throughout much of the second half of the 19th century, preferred to raise the federal government’s revenue through tariffs and excise taxes.

Democrats thought these taxes weighed too heavily on the poor and working class. In 1890, virtually all the federal government’s revenue came from just three sources: 60 percent from tariffs; 27 percent from taxes on alcohol; and 8 percent from tobacco taxes.

Enactment of the McKinley Tariff in 1890 raised tariff rates even higher, principally for protectionist purposes, rather than revenue.

In 1892, Grover Cleveland, a Democrat, was elected president, bringing in with him a Democratic Senate, which had previously been under Republican control. Democrats held on to a large majority in the House of Representatives. Tariff reform was their No. 1 priority.

In 1894, Democrats enacted a modest income tax, with a flat rate of just 2 percent on incomes over $4,000 – the equivalent of $110,000 today. The revenue would help finance a reduction in tariff rates. But the next year, the Supreme Court ruled the income tax unconstitutional in Pollock v. Farmers’ Loan and Trust Company, on the grounds that it was a direct tax that must be apportioned.

Critics of the ruling pointed out that the court had found the Civil War income tax to be constitutional in Springer v. United States in 1880. While many constitutional scholars thought the Pollock decision was idiosyncratic, unlikely to be upheld should another income tax be enacted, it nevertheless created an insurmountable political impediment.

In his State of the Union address in 1907, President Theodore Roosevelt asked Congress to consider an income tax again. “A graduated income tax of the proper type would be a desirable feature of federal taxation, and it is to be hoped that one may be devised which the Supreme Court will declare constitutional,” he said.

No action was taken during Roosevelt’s administration, but political pressure for an income tax and major tariff reduction increased under his successor, Taft. To deal with the constitutional question and to placate opponents of an income tax in the Republican Party, he asked for a constitutional amendment that would permit a tax on incomes without apportionment.

Taft’s request was made on June 16, 1909. The Senate voted for the amendment unanimously on July 5 and the House vote of 317 to 14 came on July 12. In an editorial, The New York Times said that the overwhelming vote for the amendment did not represent actual support and that many opponents voted for it just to head off immediate enactment of an income tax.

It took several years to gain the ratification of three-fourths of the states. Delaware became the final state to approve the 16th Amendment to the Constitution on Feb. 3, 1913. This was just weeks before Woodrow Wilson, only the second Democratic president since the Civil War, was inaugurated on March 4.

Having dispensed with the constitutional barrier to an income tax, Congress quickly went to work on legislation creating one. As with previous income tax debates, this one was very closely tied to tariff reform. The tariff and income tax legislation passed the House on May 8, 1913, by a vote of 281 to 139. Only two Republicans voted “yea.”

The Senate vote came on Sept. 9, 1913, and the income tax was supported by a vote of 44 to 37 – better than expected. A House-Senate conference was necessary to iron out differences between the two bills, but final action was completed by the end of the month.

The new tax applied only to those with very high incomes. There was a personal exemption of $3,000 for individuals (equivalent to $71,000 today) and $4,000 for married couples (about $94,500 today) but none for dependents. Additionally, all interest and state and local taxes were deductible. After that, the following rate schedule applied to both individuals and couples.


Internal Revenue Service and Bureau of Labor Statistics

It was estimated that only 425,000 people in a population of more than 97 million would owe any income tax.

Even before the income tax was enacted, the issue of loopholes came up. An article discussing them appeared in The New York Times as early as April 13, 1913. By 1915, one congressman complained: “I write a law. You drill a hole in it. I plug the hole. You drill a hole in my plug.”

The 1913 income tax did not remain unchanged for long. The next year, World War I broke out in Europe. The United States entered the war in 1917, leading to a huge increase in income taxes. By 1918, the personal exemption was reduced to $1,000 ($15,500 today), the bottom tax rate rose to 6 percent on taxable incomes up to $4,000 ($62,000 today) and the top rate was 77 percent on incomes above $1 million ($15.5 million today).

Although tax rates were sharply reduced by Republican presidents and Congresses in the 1920s, they never got back to where they were before the war. At its low point, the top rate fell only to 24 percent, more than three times than the prewar rate.

It is important to remember that until World War II, the income tax was paid only by a very small number of people – fewer than four million people in a population of more than 130 million in 1939. By 1943, however, the number of taxpayers had increased more than 10-fold.

Today, the income tax of 1913 is still with us and is likely always to be despite quixotic efforts to abolish it. We will be wishing it many happy anniversaries to come.


Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the forthcoming book “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take..”