The United States Income Tax had an anniversary last month that went off without any fanfare. On February 25, 1913 the U.S. ratified the 16th amendment to the Constitution, making the income tax the law of the land. Interestingly enough in 1913 a couple making $4,000.00 after deductions was taxed at 1 percent. Indexed for inflation $4,000.00 I compared to $93,000.00 today. Instead of finding themselves in the 1 percent tax bracket like they would of in 1913, couples would not find themselves in the 25 percent tax bracket. Tax brackets aren’t the only thing that has changed since 1913. In 1913 the Tax Code was 400 pages. Today it is 73,608 pages long.
The majority of this change is due the fact that in 1913 the purpose of the income tax was to raise money to operate the government and nothing else. Today the Code is so vast that Congress has enacted laws that encourage charitable giving, reward home ownership, even punishing certain behaviors such as investment and the deduction of fines and penalties. The Internal Revenue Service now estimates that that taxpayers and businesses spend 7.6 billion hours complying with the Tax Code.
Despite the large amount of time complying with the Tax Code, big businesses pay a substantial amount in income tax each year. Today debates range about large corporate tax loopholes, but to be fair large corporations pay more than their fair share in income tax.
For example, last year Exxon Mobil paid $27.3 billion in corporate income tax, at an effective rate of 42 percent. Chevron paid $17.4 billion in taxes effectively paying at 42.3 percent. ConocoPhilips paid $10.6 billion in corporate income tax or effectively 45.6 percent in income tax. Moving to the financial sector JP Morgan Chase paid $8.2 billion in corporate income tax at an effective rate of 29.1 percent. Wal-Mart had a tax bill of $5.9 billion or effectively paid at 32.6 percent.
A lot has changed since the days of 1913, and more changes are on the way. I guess that wishing the Tax Code a Happy Birthday would be anti-climatic.
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If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses, The Ultimate Real Estate Investor Tax Guide, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax, The Complete Guide to the Affordable Care Act’s Tax Provisions, The Complete Guide to Retirement Plans for Small Businesses, The Complete Guide to Estate, Gift and Trust Taxation, The Complete Guide to Hiring an Accountant, The Complete Guide to Subchapter S-Corporations,, and Free Money. All available exclusively on Kindle