The History of Payroll Taxes in the United States, Part 1

The United States currently has one of the most progressive tax systems in the industrialized world…but it wasn’t always that way. Currently, taxes from all sources (federal, state and local) add up to 24.8% of GDP and are based on net income of individuals and corporations.

Before 1776, taxes were paid to the United Kingdom by the Colonies who also imposed local taxes. Originally, when the United States was formed, the Articles of Confederation did not give the federal government the power to tax and left that to the States. However, in 1787, the US Constitution did give the federal government that power BUT a portion of those taxes had to be given back to the states based on population. Tariffs were the primary form of taxation during this time and throughout the 1800s.

Property taxes became the primary source of tax income, however a shift needed to occur to tax intangible property such as corporate stock…

In 1837, some states added income and property taxes. (In 1911, Wisconsin became the first to adopt individual and corporate tax). The Revenue Act of 1861 allowed a federal income tax until after the Civil War but was then found unconstitutional. It wasn’t until the 16th Amendment in 1913, that the federal government was granted the power to levy income tax on both property and labor and included corporate and individual income tax.

Next week: Payroll tax’s journey from 1913 to present day

Research from Wikipedia.