It seems as though income taxes have been a part of our lives forever, but how did this system start and why? Our economy depends on the tax system to thrive and with our contributions, we can ensure the fate of our nation’s economy for years to come. If you weren’t aware, income taxes date back far longer than you may have expected. Let’s delve into the history of income taxes and explore why the system exists and how income taxes benefit our economy.
In the Beginning…
Income taxes are older than you may think. Dating back to the Civil War, income taxes were used to fund the Union war efforts, with President Lincoln imposing the very first tax on personal income. This was repealed ten years later, and at this time, Congress introduced a flat rate federal tax system. This too was repealed a year later, due to Congress finding it to be unconstitutional. The reason why? This flat rate system didn’t take into account the various state population differences.
Fast forward to 1909 when Congress passed the 16th Amendment, allowing for the collection of individual personal income by the government without regard to the population of each state. In 1913, many states ratified this amendment, and ever since, the American people have been paying into the tax system.
How Income Taxes Help Our Economy
Taxes have been used to fund our government for many years now, with about 80% of federal revenue used to aid the government in various programs. Income taxes help to fund areas of our economy to help aid the American people. These areas include:
Programs, such as Social Security, Medicaid & Medicare
The money that tax payers put into the tax system helps to provide the means necessary to benefit our population as a whole. Income taxes also help with Safety Net Services, such as food stamps, low-income housing assistance and programs for abused and neglected children.
Who Pays Income Taxes?
If you’re a U.S. citizen, making over $10,000 (single filer) or $25,000 (married, filing jointly) and those who have earned over $400 as self-employed workers, you will need to file a federal income tax return. Some states also require a state income tax return. The laws vary by state. Generally, the IRS will begin accepting returns in late January and the deadline to file your return is in mid-April. There are, of course, extensions to filing, and depending on your unique situation, you may opt for an extension.
Other circumstances that may require you to file a federal income tax return include selling a home or owing money on funds withdrawn from a retirement account.
Why Income Taxes Are Important
Our country works as a team, which means that we try our best to provide the means necessary for our economy to work properly. Without income taxes, the funding of many programs would be cut short, resulting in various issues for the American people. Without taxes, our government couldn’t provide us with top-level defense strategies to help protect us from harm. And without taxes, our country wouldn’t thrive and grow the way it should, which makes the income tax system a valuable piece of our society.
The tax experts at Bodine Perry are here to help you with your financial needs. Call (855) 851-8318 or visit www.bodineperry.com to learn more about our services.