100 Years Old & Still Killing Us: America Was Much Better Off Before The Income Tax

Tyler Durden's picture

Submitted by Michael Snyder of The Economic Collapse blog,

Did you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax?  Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since.  Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old.  But there was no fanfare, was there?  There was no celebration because the federal income tax is universally hated. 

Sadly, most Americans just assume that there is no other option to an income tax.  Most Americans just assume that it has always been with us and that it will always be with us.  This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes.  That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year. 

At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system.  But wouldn't the federal government go broke if we didn't have a federal income tax?  No, actually the truth is that the federal government did just fine before there was an income tax.  In fact, the U.S. national debt has gotten more than 5000 times larger since the federal income tax and the Federal Reserve were created by Congress back in 1913. 

As I have written about previously, the Federal Reserve system was actually designed to trap the United States in a debt spiral from which it could never possibly escape, and the federal income tax was needed to greatly expand the size of the federal government and to soak the American people of the funds necessary to service that debt.  But it doesn't have to be this way.  America was once much better off before the income tax and the Federal Reserve were created, and we could easily go to such a system again.

What we desperately need to do is to teach the American people a little history lesson.  The truth is that the greatest period of economic growth in U.S. history was between the Civil War and 1913 when there was no federal income tax at all.  The following is from Wikipedia...

The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873.  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.

Sadly, most Americans cannot even conceive of an economy like that.  Most Americans cannot even imagine having a nation without a massively bloated federal government and without an unelected central bank centrally planning our financial system.

But you know what?

It worked.  In fact, it worked fantastically well.

The period between the Civil War and 1913 propelled the United States to greatness.  Just check out all of the good things that Wikipedia says happened for the U.S. economy during those years...

The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.

 

An explosion of new discoveries and inventions took place, a process called the "Second Industrial Revolution." Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.

 

Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.

 

In 1913 Henry Ford introduced the assembly line, a step in the process that became known as mass-production.

But if we didn't have an income tax, how did we fund the government?  Well, we mostly did it with tariffs and excise taxes.  The following is from a recent article by Thomas R. Eddlem...

Prior to ratification of the 16th (income tax) Amendment in February 1913, the federal government managed its few constitutional responsibilities without an income tax, except during the Civil War period. During peacetime, it did so largely — or even entirely — on import taxes called “tariffs.” Congress could afford to run the federal government on tariffs alone because federal responsibilities did not include welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party that supplemented federal income via excises on alcohol, tobacco, and inheritances. But before the war, the need for tariff revenue to finance the federal government generally kept the tariff at reasonable levels. During wartime throughout early American history, the Founding Fathers were able to raise additional revenue employing a different method of direct taxation authorized by the U.S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.

So why didn't we stick with that system?

Well, early in the 20th century the "progressives" and the social planners started to take control in Washington.

And one of the things that "progressives" and social planners love is an income tax.  In fact, the second plank of the Communist Manifesto is a "heavy progressive or graduated income tax".

Of course they promised us that income tax rates would always remain low.  And at first they were quite low.  The following is from an article by Adam Young...

The presidential election of 1912 was contested between three advocates of an income tax. The winner, Woodrow Wilson, after the ratification of the Sixteenth Amendment, called a special session of Congress in April 1913, which proceeded to pass an income tax of 1% on incomes above $3,000 and applied surcharges between 2% and 7% on income from $20,000 to $500,000.

But once the "progressives" and the social planners get their feet in the door, they always want more.

And we have seen how things have worked out.  Today, the American people are being taxed into oblivion.

In a previous article entitled "Show This To Anyone That Believes That Taxes Are Too Low", I listed dozens of other taxes that the American people pay each year in addition to federal and state income taxes...

#1 Building Permit Taxes

#2 Capital Gains Taxes

#3 Cigarette Taxes

#4 Court Fines (indirect taxes)

#5 Dog License Taxes

#6 Drivers License Fees (another form of taxation)

#7 Federal Unemployment Taxes

#8 Fishing License Taxes

#9 Food License Taxes

#10 Gasoline Taxes

#11 Gift Taxes

#12 Hunting License Taxes

#13 Inheritance Taxes

#14 Inventory Taxes

#15 IRS Interest Charges (tax on top of tax)

#16 IRS Penalties (tax on top of tax)

#17 Liquor Taxes

#18 Luxury Taxes

#19 Marriage License Taxes

#20 Medicare Taxes

#21 Medicare Tax Surcharge On High Earning Americans Under Obamacare

#22 Obamacare Individual Mandate Excise Tax (if you don't buy "qualifying" health insurance under Obamacare you will have to pay an additional tax)

#23 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income that goes into effect next year)

#24 Property Taxes

#25 Recreational Vehicle Taxes

#26 Toll Booth Taxes

#27 Sales Taxes

#28 Self-Employment Taxes

#29 School Taxes

#30 Septic Permit Taxes

#31 Service Charge Taxes

#32 Social Security Taxes

#33 State Unemployment Taxes (SUTA)

#34 Tanning Tax (a new Obamacare tax on tanning services)

#35 Telephone Federal Excise Taxes

#36 Telephone Federal Universal Service Fee Taxes

#37 Telephone Minimum Usage Surcharge Taxes

#38 Telephone State And Local Taxes

#39 Tire Taxes

#40 Tolls (another form of taxation)

#41 Traffic Fines (indirect taxation)

#42 Utility Taxes

#43 Vehicle Registration Taxes

#44 Workers Compensation Taxes

Yet even with all of these taxes, our local governments, our state governments and our federal government are all absolutely drowning in debt.

In another previous article entitled "24 Outrageous Facts About Taxes In The United States That Will Blow Your Mind", I listed a number of reasons why our federal income tax system has become a complete and utter abomination that can never be fixed...

1 - The U.S. tax code is now 3.8 million words long.  If you took all of William Shakespeare's works and collected them together, the entire collection would only be about 900,000 words long.

2 - According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements.  Imagine what our society would look like if all that time was spent on more economically profitable activities.

3 - 75 years ago, the instructions for Form 1040 were two pages long.  Today, they are 189 pages long.

4 - There have been 4,428 changes to the tax code over the last decade.  It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.

5 - According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.

6 - Our tax system has become so complicated that it is almost impossible to file your taxes correctly.  For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household.  All 46 of them came up with a different result.

7 - In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household.  All five of them came up with a different result.

8 - The IRS spends $2.45 for every $100 that it collects in taxes.

9 - According to The Tax Foundation, the average American has to work until April 17th just to pay federal, state, and local taxes.  Back in 1900, "Tax Freedom Day" came on January 22nd.

10 - When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.

11 - Residents of New Jersey pay $1.64 in taxes for every $1.00 of federal spending that they get back.

12 - The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.

13 - According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.

14 - Warren Buffett had an effective tax rate of just 17.4 percent for 2010.

15 - The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.

16 - Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.

17 - The United States has the highest corporate tax rate in the world (35 percent).  In Ireland, the corporate tax rate is only 12.5 percent.  This is causing thousands of corporations to move operations out of the United States and into other countries.

18 - Some tax havens are doing a booming business in setting up sham headquarters for U.S. corporations.  For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.

19 - In 1950, corporate taxes accounted for about 30 percent of all federal revenue.  In 2012, corporate taxes will account for less than 7 percent of all federal revenue.

The wealthy have become absolute masters at avoiding taxes, and the poor are not able to pay much.

So who always gets squeezed?

The middle class does.

No matter what our politicians promise us, the hammer is always brought down on the middle class.

And now, according to The Huffington Post, the IRS says that it can even read our old emails without a warrant to make sure that we are paying all of the taxes that we should be...

The IRS apparently interprets that authority very broadly, the documents show: as long as you've stored your email in a cloud service like Google Mail, and as long as those emails haven't been deleted after a few months, the agency thinks it doesn't need a warrant to read them.

 

The idea of IRS agents poking through your email account might sound at the very least creepy, and maybe unconstitutional. But the IRS does have a legal leg to stand on: the Electronic Communications Privacy Act of 1986 allows government agencies to in many cases obtain emails older than 180 days without a warrant.

 

That's why an internal 2009 IRS document claimed that "the government may obtain the contents of electronic communication that has been in storage for more than 180 days” without a warrant.

It should be noted that the IRS is claiming that it does not use emails "to target" specific taxpayers, but notice that they are not promising not to use old emails against taxpayers once they are officially being audited or investigated...

"Contrary to some suggestions, the IRS does not use emails to target taxpayers. Any suggestion to the contrary is wrong."

In any event, the truth is that we have one of the most complicated and one of the most intrusive tax systems in the history of the world.

Don't the American people deserve better?

What do you think?

Should America go back to a system where there is no income tax and no Federal Reserve?

 

America Is Broke

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Shell Game's picture

1913 was a bad fucking year..

Zer0head's picture

2013 will be worse

and if this is deemed to be Domestic Terrorism ....

ACP's picture

...whether it is or not...

Zer0head's picture

you are of course correct, but if Domestic...

the balls (figurative)  of every American shall be placed in a vice for the sake of the children

http://farm4.static.flickr.com/3017/2720797818_c201c812b3.jpg

Boris Alatovkrap's picture

If tax code is 13 miles, maybe double space to 26 and end with explosion.

markmotive's picture

Only way to eliminate income taxes is to find a new 'new world' and create a new society. And we'll make a constitution that sets certain guidelines to make sure the citizens aren't screwed by government anymore.

Oh...I guess that's what we did.

Human greed has no bounds.

JLee2027's picture

Or have the current economic system collapse in a heap and honest men take control of things.

nmewn's picture

We would feel like Diogenes...there's not many left and the ones that are, don't feel like babysitting ;-)

CH1's picture

Cuz there was thousands of peolpe drying on the streets every day before the gubbermint could tax people.

Right?

nmewn's picture

I could make a firm case that government because of taxation (and/or counterfeiting) has destroyed more lives than it ever saved ;-)

CH1's picture

And you'd be RIGHT.

Ever read Rummel's Death By Government?

Turin Turambar's picture

In a way, you are partially correct.  A new world (cyberspace) has been discovered and is in the process of development.  Fear not citizen.  The government shall bring order out of the chaose and protect you from everything for a very small fee (at first).  The political class is slobbering all over itself trying to figure out a way to get an internet "fairness" tax rammed through.

Banksters's picture

Well, people either wake up or we'll all be fucked.

 

 

The banksters are the real terrorists and politicians are in bed with them.  Of course they'll spend money with interest. What's worse, they'll tell you the opposite before they are elected.  Fuck it.  

The state can kiss my ass.    

 

Do I own my car.  NOPE.  Don't believe me, then don't register it and park it on a public street.  BYE BYE.

Do I own my house. NOPE Stop paying property taxes. BYE BYE.

THE MOTHER FUCKING BANKSTERS HAVE STOLEN IT ALL.  What is worse, is that unsuspecting govt workers carry on with out reflection.

 

They are fucking laughing at us.

 

IRS Building with Pyramid and Freemason symbol

http://seeker401.files.wordpress.com/2012/11/irspillarspyramid.jpg

http://1.bp.blogspot.com/-EFZF-jNAI4Q/ULuUOXmkE1I/AAAAAAAAD7U/LCOrjpA6xuU/s320/compo_irs_israelmasons.jpg

US money

http://1.bp.blogspot.com/_FNndI0BvPNA/TKNVSQOO8BI/AAAAAAAAB4A/BsJ0itGZ8wg/s1600/eye_pyramid.jpg

 

Rothschilds Israeli supreme court  complete with Pyramid and eye

http://2.bp.blogspot.com/_qUFDMUpk9jE/SkSSzhtZJII/AAAAAAAAVXA/xYtZkUslBew/s1600/Beit_Mishpat_Elyon_min.JPG

 

HAHA MOTHER FUCKERS.

 

kchrisc's picture

The bankster fraud is even crueler than you can imagine.

Picture this: they print money via stealing the deposits of the people and loaning out money based on that theft. They do this until the music stops and the affected economy implodes. They get bailed-out, or worse get to steal the same deposits AGAIN via a bail-in.

Now the citizens can't pay and default so the banks foreclose on the underlying collateral and take title to said property.

The Cliffnotes: the banks are able to print title to real property and therefore steal the property at the SAME TIME that they have stolen the deposits of the same victims. It's fraud squared.

Nothing could deserve the guillotine more than these fuckers and their pol and crat cock-sucking puppets.

Reject these criminals by not paying and obeying them

Revolt against these psychopaths

Retribute these thugs and thieves

Restore the Constitutional republic

 

Boris Alatovkrap's picture

Sometime tree of freedom must be water by blood of revolution.

Svener's picture

But we have planes now, I want the FAA. I like our national parks. I don't trust industry, I want food tracked and regulated. I want a patent office, I want the NIH and CDC. I want the EPA, I remember lake Erie when it was on fire and the pea soup of Bejing is not something I want here. I just wish we could kick all the poor white trash on SSI disability off the dole. Answer this, what do we do with the trash that won't work?

pods's picture

Baaaaah!

As to your question, I think they get a pension and are called, "gentleman from X (insert state) or Senator..........."

Income tax is to regulate inflation when the rich create too much debt money, thus stressing the fractional reserve system.  Just another tool of the fractional reserve system.

Fyi, most industrial pollution was SANCTIONED by the very government that you want to regulate it, and food "regulation" is meant to ALLOW certain levels of contamination.  Why do you think industry buys the regulators?

pods

Anusocracy's picture

Exclude them from society. There is no right to live at someone else's expense.

As for "I want" blah-blah-blah, you can pay for it if you want it. You have no right to force me to pay for what you want.

prains's picture

the great thing about living in the Various States of Detroitification before there was income tax was you could shoot the brown people getting in your way without cause or effect, it was the best of times......./sarc for sock puppets

Anusocracy's picture

I like private law.

In rural areas around here used to be signs like: Private Property. Trespassers Will Be Shot.

Sun and Moon's picture

The Fed was created on December 23, 1913. A good year for bankers, bad for everyone else.

AGuy's picture

Income Tax in the US was created to make way for Prohibition. Prior to the Income tax, about 1/3 of Federal Revenue came from taxes on Alcohol. Originally the "dries" (consisting of members of both the DNC & RNC & the Womens Sufferage movement) pushed for Prohibtion at the beginning of the 20th Century, but it was repeatily blocked until 1919. Later the Gang wars supported by illegal booze sales led to the first gun control laws. One thing after another and this is how we ended up becoming a socialist nation. Blame it all on Prohibition!

 

traderjoe's picture

No. The income tax paved the way for government to borrow money at-interest from private corporations with the collateral of your future labor. Oh, and those private corporations create said money for free through fractional reserve banking.

See United States Note.

Wake the fuck up.

CH1's picture

AGuy is right that Prohibition was associted with the income tax.

I think traderjoe has a point too.

Guvs: They suck, no matter which way you look at them.

AGuy's picture

"No. The income tax paved the way for government to borrow money at-interest from private corporations..."

Nope! Prohibition was the catalyst for the income tax:

http://archive.mises.org/6907/prohibition-and-the-income-tax/

"By 1920, the income tax supplied two-thirds of Uncle Sam’s revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell. "

It was the "Dry" movement that pushed for the income tax to pave the way for the prohibition. Prohibition also led to gun control laws, due to gang violence tied to illegal alcohol sales.

"The income tax paved the way for government to borrow money at-interest from private corporations"

Up until the great depression, the US gov't maintained almost a balanced budget, (except for the WW1), There was no need to borrow large sums of money. Back then there was no social secuity, Wealthfare, medicare or other big gov't spending programs. Nor was there a large military budget (with the exception of WW 1), Social programs didn't start until FDR in the 1930's.

masterinchancery's picture

No, it was for political vote buying and also the ability to wage war (WWI) without inconvenience.

wisefool's picture

I'll bet my salary that Barry is on the golf course before the end of this week to think about what happened today, and everyone else there will be writing off their taxes.

Landotfree's picture

The first state to cancel the agreement with the federal government, will be the least loser.   The State can remove themselves from the chains at any time, they were greedy and wanted a piece of the pie.   

http://theinhabitant.blogspot.com/

The Inhabitant has spelled this out.

http://theinhabitant.blogspot.com/2012/11/health-care-legislation-is-taxing.html

Without the State inacting the agreement the federal government can not pierce the boundaries of the State.   Look it up in your own State code... it's there!!!!!!!!

Pure Evil's picture

Yeah right.

And I guess the Non Aggression Pact Stalin had with the Nazis kept Hitlers mechanized infantry divisions from rolling up to the gates of Moscow.

Landotfree's picture

Yeah right what?   The States have agreed to the federal government piecering the boundaries of the State.  Nothing can stop the US from launching a nuke strike on itself either... so what?   The SSA, Medicare, IT, etc are all administrated through and by premission of the State... cancel the agreements... it's in your State's code.

amadeusb4's picture

America was much better off before income taxes?? WTF are you smoking, Tyler? Not only is America much better off, but even despite the 30 year decline in income, Americans are much better off.

Put away the tinfoil hat and draw the curtains just once in a while.

Landotfree's picture

Wait till the bill comes on all these programs... a STATE can't file BK!!!!!!!   The first State to remove themselves will be the best off.

Shell Game's picture

@amadeusb4

Hey, I have an idea.  How about drawing the curtain once in a while on decades of exorbitant privilage of reserve currency status and military superpower by way of warfare corporate complex?  'Better off' by way of force and looting is not really 'better off'..

amadeusb4's picture

Most of the benefit of reserve currency and military industrail congressional complex didn't go to Americans though. It went to the 1% of Americans at the top. Americans can have a succesful society without reserve currency and said complex but this would require that the democratic instutions that are in place are actually exercised. My guess is that when push comes to shove, the 1% will get quite ugly about preserving their station.

Shell Game's picture

"Most of the benefit of reserve currency and military industrail congressional complex didn't go to Americans though."

Wrong. The fact that we had sole global privilage of artificially cheap oil/gasoline created a consumption economy that benefited Americans mightily.  For a little while anyway.  That is my point, an unsustainable and unethical advantage is never 'better off'.

nmewn's picture

"America was much better off before income taxes?? WTF are you smoking, Tyler? Not only is America much better off, but even despite the 30 year decline in income, Americans are much better off."

lol...care to rephrase?

Pure Evil's picture

Much less, why is he blaming Tyler. This was written by Michael Snyder.

I guess its time to preface the title with, Guest Post:, again.

But, then again, you'd think someone reading ZH would be smart enough to figure that out.

EvlTheCat's picture

Its been all downhill since we lost the post submission math question.

THECOMINGDEPRESSION's picture

amadeusb4 you are not the brightest bulb in the pack..Americans will claim they are better off because they live off CREDIT. Mortgages, credit cards and LOANS! This illusion is for you to FEEL good, powerful and in command..But really you are broke, a BONIFIED debt and TAX slave..FOOL!

jcaz's picture

@amadeusb4-  son, this blog is a lil over your head, isn't it?  Lighten up Francis.....

57-71's picture

This is true. Also the depression in the 1880's was equivalent to the 1930's in terms of impact to people.

Petrus Romanus's picture

"America was much better off before the income tax", Is that code for the Federal Reserve?

PUD's picture

Income tax is abject slavery. When they take your wages, compel you to labor for free, jail you if you refuse....the only thing missing are the hangings and whippings. The US never needed an income tax until the federal reserve began lending us our own money at interest.

LawsofPhysics's picture

So, after a period of mass destruction, there was massive growth - "Shocker". End the damn fed already.

Yen Cross's picture

     It's almost as if I'm commiting some sort of infraction the moment I step out of bed?

Jreb's picture

I keep waiting for the knock on the door followed by "Sir we are aware you up arrowed a subversive comment on ZH tonight. We'd like to ask you a few questions."

Followed of course by the sound of zippers and folding/unfloding latex in the background.

Then again my tinfoil hat has been missing for a few days. I'm sure everything will be fine..... it could never happen here. Right?