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The Rushmore Report – A Surprising History of the National Income Tax

As tax day approaches, a review of the history of the American tax system is in order. The U.S. government has been taxing its citizens for most of its history. However, during the early years, the tax was minimal and applied only to the affluent. Beginning with the Great Depression and FDR’s New Deal, that all changed.

Since FDR, the government has been growing larger and requiring more and more revenue. Let’s review the individual income tax and the corporate income tax.

A Brief History of the U.S. Income Tax

During the American Revolution (1775-1783), most states levied a faculty tax, which was a tax on a person’s property and ability to earn income from commerce or trade. For several years after the Revolution, there was no national tax and the government provided very little for its citizens. The Constitution of 1789 gave taxation powers to the federal government to “pay the debts and provide for the common welfare of the United States.”

Because of the Civil War (1861-1865), the U.S. government levied a temporary income tax on individuals. Decades later, in 1894, Congress enacted the Wilson-Gorman Tariff Act, which included a two percent flat tax on incomes over $4,000 ($115,000 in today’s dollars). This tax affected fewer than 10 percent of households and was the first tax levied during peacetime.

The modern tax era was birthed in 1913, with the passage of the 16th Amendment, allowing for a federal income tax. This applied mostly to high wage earners.

The top marginal bracket was raised to 77 percent to pay for World War I. By the 1920s, the top bracket was back down to 25 percent. This fueled the “Roaring Twenties,” a bubble in the financial markets, followed by the Great Depression of 1828.

Corporate Income Tax

The corporate tax has ranged from six to 15 percent. Beginning in 1943, the percentage collected via corporate tax began to deline. But the personal income tax has not wavered much. Today, the corporate tax generates far less revenue for the government than does the personal income tax.

Conclusion

Today, we have a tax code of over 700,000 pages. It is unwieldly, cumbersome, and entirely too complex. Moreover, the individual income tax is the largest source of federal revenue. With an ever-expanding federal government, it seems plausible that future taxes will be more creative and less obvious to the casual observer. However, because government’s primary targets are individuals and corporations, any additional tax on businesses will only serve to drive companies away.

As companies leave the U.S., the country could become like Detroit, once a beautiful city with a strong tax base. Today, its tax base has migrated to other localities, leaving the city with a severe tax shortage. Could the U.S. become like Detroit on a larger scale? Yes, if politicians continue to attack the golden goose. The prudent path would be to cut spending and implement greater fiscal control in Washington. It is no longer acceptable to give politicians a blank check to use for personal gain. We need the George Washingtons of this nation to step forward, serve the country, and return to private life to live under the rules and regulations that they helped to enact.

About the Author

Mike Patton is a contributor to Forbes.

The Rushmore Report – Ted Cruz Makes Hilarious Offer to Senate Democrats

Last month, without a single Democratic vote, the United States Senate passed massive tax cuts. Democrats protested: while corporate tax cuts were made permanent, middle class cuts were only temporary. If Republicans really cared about regular people, these cuts would have been made permanent. Sen. Ted Cruz (R-TX) has called their bluff. His offer to Democrats and their response is priceless.

Of course, what the Democrats failed to mention was that the archaic rules of the Senate did not allow for these tax cuts to be made permanent at that time. Had they passed tenth grade civics class, they would have known that.

And of course, if the Democrats really wanted to offer tax cuts to “average Americans,” as they now say, they could have done that in 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2009, 2010, 2011, 2012, 2013, 2014, 2015, or 2016. For those 16 years, a Democrat sat in the White House. And for most of those 16 years, Democrats controlled Congress. But not one time – not once – did they offer a single bill to cut taxes for the “regular Americans” for whom they have such heartfelt affection now.

But let’s get back to Sen. Cruz.

On December 24, appearing on CNN’s State of the Union, Sen. Bernie Sanders told host Jake Tapper, “We should have made the tax breaks for the middle class permanent. [Again, these are the same tax breaks he never sponsored himself when he could have.] But what the Republicans did is make the tax breaks for corporations permanent and the tax cuts for the middle class temporary.”

Three days later, Cruz tweeted, “I agree with Bernie Sanders. Let’s make the middle class tax cuts permanent. Join me, Bernie, and we’ll co-sponsor legislation. I’ve already drafted legislation that does just that. Join me, Bernie, and we’ll get it passed in January!”

Last Monday, Cruz officially introduced legislation that would make the middle class tax cuts permanent. In a press release he invited Sanders and all Democrats to join him:

“These historic tax cuts are already benefiting our schoolteachers, firefighters, and truck drivers – people from all walks of life – by cutting rates for individual taxpayers in all brackets. By February, Americans in every tax bracket will see their taxes go down and their take-home pay go up. I invite Senator Sanders and all of my Democratic colleagues to join me today and make tax rate cuts for hard working middle class families permanent.”

Shockingly, neither Sen. Sanders nor any of his 48 Democratic colleagues have taken Cruz up on his offer.

Democrats like to say President Trump is inconsistent in his positions. They say negotiating with him is like nailing jello to the wall. Perhaps that’s true. But let’s consider the Democrats’ position on middle income tax cuts.

First, they never proposed middle class tax cuts when they could have.

Second, they opposed middle class tax cuts when Republicans proposed them.

Third, they agreed with the tax cuts but said they should have been made permanent.

Fourth, when asked to co-sponsor legislation to make the tax cuts permanent, all 49 Democratic senators declined.

Sen. Cruz was quite clever in reaching out to Sen. Sanders as he did. Of course, no one really expected Sanders to come alongside Cruz in sponsoring the permanent tax cuts he said we needed. That would have meant putting the needs of the American people ahead of partisan politics.

So let’s review. Democrats are opposed to legislation in January that would do what they said should have been done in December, which they opposed in November.

Only in Washington.

The Rushmore Report: Dem’s Worst Nightmare – Middle Class Is Doing Well

It’s a sad day when one of America’s two major political parties is rooting against the middle class. But that is the position staked out by the party that has built its reputation on being the champion of the middle class – the Democrats. Case in point – Sen. Claire McCaskill (D-MO). One of the most vulnerable Democrats running for reelection in 2018, McCaskill was left speechless when asked about the $1,000 bonuses given out by a Springfield-based bank, in response to the Republican-passed tax cuts.

McCaskill sang the same song as everyone else in her party. Every single House and Senate Democrat voted against the tax bill because they said it would only benefit the rich. But now that over 100 U.S. companies, including the one in Springfield, Missouri, have given their employees $1,000 bonuses, it’s hard to make this case with a straight face.

When asked if she was happy that middle-class citizens in Missouri were receiving these bonuses in direct response to the tax reform, McCaskill offered no comment. The bonuses went to 1,200 people. That is $1.2 million put directly into the pockets of the middle class. And that elicited no comment.

Even the Washington Post, considered among the most liberal of all media outlets, had to admit the latest jobs report was excellent. Under Trump’s watch, the Post noted, we just had our biggest year for job creation, stock market growth, and unemployment decline in history.

I remember the days when anything good for America was celebrated by both political parties. Those days are gone. To be fair, Republicans weren’t exactly leading the celebration when economic recovery took its footing under President Obama.

But you’d think we’d hear one leading Democrat – just one – celebrate something. But this is what we heard from Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi, when the following news broke . . .

  1. Record jobs numbers: silence
  2. Record stock market: silence
  3. Victory over ISIS: silence
  4. Record low unemployment for black Americans: silence
  5. $1,000 bonuses for middle-class Americans: silence
  6. Record drop in food stamps: silence
  7. Drop in illegal immigration: silence
  8. Highest consumer confidence in 17 years: silence

No one could expect Sen. McCaskill to call a press conference to praise the policies of President Trump. No one could expect Democrats to cave on their principles. But one would hope that when we are winning the war on terror, when tax breaks put thousands of dollars into the pockets of average Americans, when more Americans are working than at any point in our history . . . one would hope that we can all be Americans and celebrate the progress that has been made for the American people.

When the middle class does better, all Americans should rejoice, regardless of which political party is in charge. There was a day when we didn’t even have to say that.

In Sen. McCaskill’s world, the prosperity of the middle class is apparently a bad thing. That is a really sad world in which to live.

The Rushmore Report: Philadelphia’s Hilarious Experiment with the Soda Tax

Philadelphia’s city council had a revolutionary idea. Let’s tax the poor to increase revenue – and the soda tax was born. After its implementation, you could have probably guessed the results: soda is now more expensive than beer. Also, the tax on diet soda that was meant to raise money for education hasn’t been fully allocated for children. Only half the money designated for Pre-K programs ever got there.

The study finds that the tax is 24 times higher than the Pennsylvania tax rate on beer.

“Purchases of beer are also now less expensive than nonalcoholic beverages subject to the tax in the city,” according to the study, written by Courtney Shupert and Scott Drenkard. “Empirical evidence from a 2012 journal article suggests that soda taxes can push consumers to alcohol, meaning it is likely that consumers are switching to alcoholic beverages as a result of the tax.”

The Tax Foundation points out that unlike most cities, Philadelphia passed the tax specifically to raise revenue, not to fight obesity. The city even includes diet sodas in its tax, as a way to raise money for pre-kindergarten programs.

However, less than half of the $39.4 million collected since the tax went into effect on January 1 has gone to education funding.

“The tax was originally promoted as a vehicle to raise funds for pre-kindergarten education, but in practice it awards just 49 percent of the soda tax revenues to local pre-K programs,” Shupert and Drenkard write. “Another 20 percent of the soda tax revenues fund government employee benefits or city programs, while the rest of the money will go towards parks, libraries, and community schools.”

Collections from the soda tax are also well below original projections of $92 million per year, due to tax avoidance.

Cheers, Philly city council. What a top-notch policy – said by no one.

About the Author

Matt Vespa is a writer for Townhall.