How many tax brackets are there

how many tax brackets are there

Tax Bracket History

Former Presidential candidate Mike Huckabee throws pieces of an IRS tax form to express his distaste for the IRS, which he planned to abolish if he were elected.

Colonial and early U.S. taxes went through various changes until the first income tax was established by the Revenue Act of 1861. The purpose of this income tax was to help the Union raise money to fight the Civil War against the Confederacy. This income tax affected incomes of $800 and up at a rate of 3 percent.

The first tax brackets came about in 1862. The lower tax bracket was 3 percent for income up to $10,000; the higher tax bracket was 5 percent for income over $10,000. In 1872, this income tax was repealed. Since the Civil War ended, the government no longer needed the money.

The U.S. Constitution gave the federal government the power to levy taxes

"in proportion to each State's population" [source: U.S. Department of the Treasury ]. When the federal government established an income tax in the 1890s, the Supreme Court declared the tax unconstitutional, because it disregarded state populations.

In 1913, the 16 th Amendment to the Constitution gave the government the power to levy an income tax regardless of state population. The federal income tax has been in place ever since.

Here are some important dates in the history of the federal income tax and its tax brackets.

In the 1980s, economists argued that high tax rates dissuaded people from working hard. The tax changes in the 1980s, then, were meant to encourage economic growth. Tax rates have fluctuated since then, but the simplified tax bracket system has changed very little.

If you'd like to know more about tax brackets and related topics, you can follow the links on the next page.

Source: money.howstuffworks.com

Category: Taxes

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