From War Measure to Daily Burden: Evolution of the Federal Income Tax

the federal income tax has deviated from its original goals

Born over a hundred years ago, the federal individual income tax has grown from around 5% of federal revenues in 1915 to nearly 50% today. Moreover, a small subset of Americans pays a growing and disproportionate share of the income tax, with the top 1% of income earners paying 40% of the tax, and the top 50% paying 97%, Given the government’s reliance on the income tax, questions persist over whether it is the best mechanism for funding government services without excessively burdening taxpayers or stifling the economy.  

AFPI’s core principles are liberty, free enterprise, and prioritizing the interests of American families and workers. Tax policies that are consistent and maximize individual autonomy–instead of ones that enable government excesses and discourage productive activity–are the best (or least disruptive) revenue-raising measures to achieve these ends.

How does the federal income tax Work?

The federal income tax is applied to an individual’s Adjusted Gross Income (AGI). Tax thresholds vary depending on filing status (e.g., single, married filing jointly, married filing separately, or head of household). To arrive at AGI, an individual’s gross income is subtracted by “above the line” deductions, such as student loan interest or health savings accounts. A filer can then claim either the standard deduction, which is $15,750 for single filers in 2025, or the sum of authorized itemized deductions. From this amount, credits may be applied to further reduce tax liability.

Individual income taxes are both progressive and marginal, meaning that higher income earners are taxed at higher rates and at every dollar earned at the corresponding rate. The top rate today is 37%, applied to income for single filers earning above $609,351 and married filing jointly above $731,201.

Income from capital gains and dividends is also subject to tax. Short-term capital gains, applying to assets owned for one year or less, are taxed at the same rate as ordinary income. Long-term investments are taxed at lower marginal rates of 10%, 15%, and 20%.

origins and history of the federal income tax

• In 1862, President Abraham Lincoln first signed the Revenue Act passed by Congress to fund Civil War expenses. The tax was repealed in 1872.
• The ratification of the 16th Amendment enabled Congress to impose a 1% levy on individual incomes above $3,000 (or $98,000 in 2025 dollars). By 1918, Congress raised the top rate to 77% to help finance the cost of World War I.
• The Revenue Act of 1942 reduced the income threshold to increase the number of individuals subject to an income tax from 13 million to 50 million, transforming the measure from a tax largely on the highest earners to a broad-based tax on workers.

The federal income taX contributes significantly to an increasing tax burden for Americans

• In 1915, the income tax accounted for just 5.9% of federal revenue. Today, that figure is over 50%.

• Income tax revenues have become more dependent on wealthier Americans in the past few decades:

• In 1980, the top 1% of Americans by income paid 25% of the tax revenue and the top 10% of income-earners paid 55%.

• Today, they pay 40% and 72%, respectively.  

The federal government has become more dependent on the income tax and less reliant on other sources of revenue

• Between 1868 and 1913, 90% of all federal tax revenues came from liquor, beer, wine, or tobacco.

• Customs duties also comprised at least half of federal revenue until the passage of the 16th Amendment.
• Federal excise taxes, taxes on a certain category of goods and services, have decreased from a peak of 3.1% of gross domestic product (GDP) in 1946 to 0.4% today.

Significant Expansion of the Tax Bureaucracy necessary to support the income tax has been intrusive

• The Revenue Act of 1962 created the Internal Revenue Service (IRS) to help collect the temporary wartime tax. In 1913 (the year the 16th Amendment was ratified), the IRS employed under 5,000 employees. By the end of the 2024 fiscal year, the IRS workforce grew to over 90,000 employees.

• Concerns about the IRS today involve its impartiality, competency, and security.

• The IRS settled in 2017 for excessively scrutinizing conservative political organizations during the Obama Administration.

• Department of Government Efficiency representatives found that the agency’s IT modernization programs were 30 years behind schedule and $15 billion over budget.

• Outdated infrastructure is a potential factor in the vulnerability of private data, with several breaches leading to the leak of sensitive information on hundreds of thousands of people.

conclusion

The federal income tax has expanded dramatically from a temporary wartime tax at its inception to the single greatest revenue source for the federal government. The byproduct of an increased reliance on the income tax has been greater dependence on fewer people to pay the tax and the creation of a vast and permanent tax collection bureaucracy. These trends conflict with the identified optimal tax source, one that is consistent and minimizes government abuse. Additionally, studies repeatedly show that personal and corporate income taxes have an inverse relationship with economic growth, raising questions about the practical benefits of the tax. Thus, a rethinking of both the theoretical underpinnings of income tax and its economic impact is necessary.