It’s tax day – the day when every American becomes a fiscal hawk as they realize how much money they send to federal and state governments to waste on their behalf. But, it hasn’t always been this way. The American Enterprise Institute‘s Mark Perry shared some sobering perspective on how overly onerous our taxation has become since the federal income tax was initiated in 1913. Here are three things you should know about just how far we’ve fallen since the advent of the income tax.
Yearly income taxes used to be easier to complete: In 1913, the IRS 1040 income tax form was a total of four pages, which included two pages of worksheets, one page of 1040, and one page of instructions. Today, the current instructions to complete the 2016 version of the 1040 is a whopping 106 pages. Either we’ve gotten dumber or this is too complicated.
Yearly income taxes used to be a lot less: In 1913, federal income tax rates started at one percent and the maximum marginal tax rate was only seven percent on incomes above $500,000, which equates to $12 million when adjusted to today’s dollars. The personal exemption in 1913 was $3,000 (or $72,850 in today’s dollars) for individuals and $4,000 (or $97,000 in today’s dollars). Most Americans didn’t have to pay income taxes as the average income in 1913 was $750. That means that, unlike today, much of the middle and upper middle classes paid no income taxes, allowing them to save and grow their personal net worth.
Americans could spend time being productive: Because income taxes were so simple back in the day, Americans and businesses did not have to spend time and money filing taxes. Today, the amount of time spent trying to navigate this complicated mess is the equivalent of three million people working year-round full-time, and Americans spend $10 billion on tax preparation services. Don’t you have better things to do with your time and money?
So, this year, when politicians claim that they want to “help” the middle class, perhaps we can all chime in and ask them to make the federal and state income taxes easier and cheaper so we can better enjoy our earnings and our lives.