Tax Reform Act 1986

1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation 's first income tax (Internal Revenue Service, 2013).

People do not enjoy talking about taxes because they are too political, confusing, and depressing. It is no secret that the American tax code is a mess and something many economists describe as too broken to fix. Despite this, politicians have never stopped from trying to “fix” the code, yet they have had very little success. The U.S. Government’s tax code currently comprises “more than 67,000 pages of complexities” (Boortz, Linder, & Woodall 14). The Americans for Fair Taxation (AFFT) was founded in 1995 with one goal: create the simplest and best tax reform plan that would work in the modern market and economy. The AFFT’s best solution was a bill which they promptly called the FairTax.

The first proposal to impose an income tax on Americans occurred during the War of 1812. After two years of war, the federal government had accumulated a whopping $100 million of debt. To fund the war against Britain, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates. At the height of the war, excise taxes were imposed on goods and commodities, housing, slaves and land were taxed. Finally when the war ended in 1816, these taxes were abolished. A high tariff was then passed to retire the accumulated war debt. Thankfully, the notion of an income tax was conquered (Young, 2004). However, the thought of the income tax reappeared as an idea to fund the Union armies in the war to prevent the secession of the Confederacy. The war was expensive, costing on average $1,750,000 a day. Struggling to meet these expenses, the Republican Congress borrowed heavily, doubled tariff rates, sold off public lands, imposed a maze of licensing fees, increased old excise tax rates and created new excise taxes. But none of this was enough to fund the debt (Young, 2004)..

In 1861, Lincoln levied the first federal income tax by signing the Revenue Act. Needing cash with which to fund the Civil War, Abraham Lincoln and the Congress agreed to impose a 3 percent tax on annual incomes over $800.00. The wording of the Revenue Act was broadly written to define income as a monetary gain derived from any kind of property, or from any specialized trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever. (A&E Television Networks, 2014)

The origin of the income tax on individuals is generally mentioned as the passage of the 16th amendment, which was passed by congress on July 2,1909. The history of individual income tax in the U.S.A goes back to 1861. During the civil war, congress passed the revenue act of 1861, which included taxing on personal incomes to help pay the expenses of the war. This tax was repealed after the war. In 1894, congress made a flat rate federal income tax, but the U.S Supreme Court ruled it unconstitutional. During the following

Within the United States, there is an unequal collection and distribution of resources. The current unequal or socially unjust tax system is a direct contrast to the social justice theories of John Rawls. The taxation discrepancy has ramifications on many important aspects of our society, such as health care, employment, old age security, and education. These issues affect everyone in our society, regardless of age, race, gender, or sexual orientation. Thorough more equal taxation, we have the potential to create a more society as a whole.

As a way to help support the war effort the progressives passed “The Revenue Act of 1917” which “imposed taxes on incomes as low as a thousand dollars a year.”(303). This Law

With the advancements in the globalization of the economy, corporations are finding more ways to avoid the extraordinary tax rates set in place of The United States Of America. With the loss of revenue from large companies dodging taxes the government must make up for the loss by either raising taxes or changing the tax code. A recent company to avoid american taxes is Johnson Controls, a company that “…would not exist as it is today but for American taxpayers, who paid $80 billion in 2008…”(The Editorial Board). This use of American resources to get through tough times, and run to another county during an economic incline is an act that calls for reform in the American tax system. However congress has not passed any legislation to fix the

The current tax legislation that needs reform are the tax rates for families, individuals, businesses, and investors. America needs tax reform because the current tax code prevents economic freedom and reduces the strength of the economy. The current tax base causes double taxation of investment and savings, which discourages the amount of investment in the society. Less investment reduces productivity growth, employment, and real wages. We need a constitutional tax reform that is followed by everyone to relieve the harm of the current tax system and to strengthen our economy. The reform is necessary because the strengthened economic growth would essentially improve the incomes of Americans and enhance economic opportunities.

It had usually been during war time; the income tax was the first peacetime income tax. During the War of 1812, Secretary of Treasury Alexander J. Dallas made the first demand to levy an income tax, but it was never put into effect. During the Civil War, the Revenue Act of 1861 was ratified. At first, anyone earning more than $800 would pay a tax of 3%. Eventually, people making more than $600 would have to pay up to 5%. This income tax stopped in 1866, after the war ended. Before the 16th amendment, there were only excise taxes and custom duties. There were also federal taxes, such as taxes on imports, liquor, tobacco, and other related goods, as well as state taxes, such as poll, real estate and sales taxes. But income taxes were a more stable source of

In 1862, in order to support the Civil War effort, Congress enacted the nation 's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut. In 1866, internal revenue collections reached their highest point in the nation 's 90-year history—more than $310 million, an amount not reached again until 1911.

The current federal income tax system in the United States (U.S.) is progressive based on the vertical equity principle. However, the tax code is getting increasingly complex and the wealthy are able to avoid paying taxes through loopholes. Hence, more people are yearning for fairness in taxation. With the looming 2016 presidential election, Senator Rand Paul’s proposal of ‘Fair and Flat Tax’ appears to have the most significant change to the current tax policy and I will now analyze if this proposal will improve the efficiency and equity of the U.S. tax code.

Conservatives argue that current corporate tax is burdensome to US business and restrict economic growth. If taxes are reduced, then company will have more post-tax profits for investment and job growth. Companies with more liquid cash might spend more on expansions. Still, reduction in the tax rate may not guarantee job growth or more investments. As per Klinger & McFate, US corporation in S&P 500 Index had approximately $1 trillion cash on hand. (2013). If the companies wanted to expand their business, they had enough cash to do so. In 2004, the Congress reduced the tax rate from 35% to 5.25% on repatriated earnings with an intention that saving could be spent on domestic investments or employment. However, in a study of an impact of the reduction in tax on repatriated earnings, researchers found that it did not increase domestic investments or employment and much of the post-tax earnings were returned to shareholders through stock repurchases. In fact, these companies downsized their workforce between 2004 to 2007 (Marples & Gravelle, 2011). It is evident from the past that tax rate reduction has not created employment.

The current wave of “Tax reform” has created a huge debate whether lowering taxes will boost economic and employment growth. The US has the highest Corporate tax rate among the advanced countries; thus, it is argued that it is disadvantageous to US corporation in terms of global competitiveness. The corporate tax cuts can be an engine for job creation in the US. Several corporates have moved their operations overseas in the past few years; Indeed, it has raised concern whether these companies are fleeing abroad due to higher tax rates in the US? Is higher tax creating unemployment? Or will tax cut bring overall economic growth? Close study of top companies’ financial reports and the US history events shows that corporate tax cuts will not

The United States is in a recession; it has been facing some of the worse economic times since the Great Depression in the 1930’s. One option to fix the economy is to change the corporate tax rate. To lower it or to raise it, that is the question economists have been speculating. America's high corporate tax rate and worldwide system of taxation discourages U.S. companies from sending their foreign-source revenue home, which makes U.S. companies defenseless to foreign acquisition from the international opponents (Camp). Corporations and United States citizens have been fighting for a tax reform, which would hopefully help the American economy; either by lowering the corporate tax, or by raising the tax.