How Our Taxation System Screwed Everything Up

On April 15, 1865, President Lincoln died. He was shot the night before in Ford’s Theater.

On April 15, 1912, the Titanic sank. It struck an iceberg the night before. Among the 1,514 lives lost were millionaires John Jacob Astor IV, Benjamin Guggenheim and Isa Strauss, all of whom were vocal opponents of the Federal Reserve Act.

In 1954, April 15 became the deadline for filing income tax returns.

Originally, Article I, Section 9 of the U.S. Constitution prohibited a direct federal income tax on American citizens: “No capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken.”

The federal government’s revenue was derived from excise taxes on specific items like salt, tea, tobacco, etc., and tariff taxes on imports. Prior to the Civil War, most tariff taxes were collected at Southern ports, like Charleston, South Carolina. Tariffs made foreign goods more expensive, motivating people to buy domestically produced goods, made mostly in Northern factories. The South had few factories, as its economy was based on agricultural crops, mostly cotton and rice, which unfortunately relied heavily on slave labor. Thus, the tariff taxes that helped the North, hurt the South.

During the Civil War, Republican President Abraham Lincoln passed an emergency “Revenue” income tax to help fund the Union. It was repealed in 1873.

The first non-emergency “peacetime” income tax was attempted in 1894, but the Supreme Court declared it unconstitutional in Pollock v Farmers’ Loan.

Justice Stephen J. Field concurred: “The income tax law under consideration … is class legislation. Whenever a distinction is made in the burdens a law imposes or in the benefits it confers on any citizens by reason of their birth, or wealth, or religion, it is class legislation, and leads inevitably to oppression and abuses. …”

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How our taxation system screwed everything up