America's tax day: It hasn't always been this way

As the last April of the 1900s nears its midpoint, it may be a good time for Americans to reflect upon the most effective means of social and economic change their national government has created in the past century.

No, not special prosecutors.

The income tax.

Before the US began skimming from the cash, its citizens took home the government was small enough to be run by a tariff on such things as boots. Now it's so big that at times it seems to need all of everyone's money.

Before the income tax Washington was so small dogs could sleep on Pennsylvania Avenue. Now its so big that you can't even get to Pennsylvania Avenue - it's blocked off to protect the White House from terrorists and, presumably, beavers like those just caught eating cherry trees down by the Tidal Basin.

The income tax encourages you to buy a house, to have kids, to contribute to politics. It's always been complicated - Abe Lincoln made a mistake on his (true story).

And it's due. Today.

This year the Internal Revenue Service expects to receive 126.1 million income tax returns from individuals. Some 25 percent of these will be filed electronically, predicts the IRS. They have no word on whether that's because Bill Gates has so much money he has to file 31 million times.

If past years are any guide, the largest single category of deduction these taxpayers will take is home mortgage interest, totaling about $194 billion. Encouragingly, the fastest-growing deduction may be charitable giving, which went up by almost 20 percent in tax year 1997.

As the size of these numbers shows, the income tax touches so many Americans that it is arguably the most important interface between the US government and its citizens. Tax day seems to have always been with us, like the Washington Monument, or Cher.

But it hasn't been. The income tax is a relatively recent phenomenon in US history. It goes hand-in-hand with the rise of the United States from a rural agrarian society to the superpower it is today.

Back in 1899, April 15 was just another day for plowing. Though industrialization was sweeping through sections of the US, the government was so small that it didn't have to chase taxes, so to speak. Washington lived off tariffs and the proceeds from the sale of federal land to homesteaders.

"We had a very small Army and so forth, so the government didn't need very much," says William Samson, an expert in the history of taxation at the University of Alabama at Tuscaloosa. "They didn't provide a lot of services."

There was no National Park Service, for instance. So beavers could eat cherry trees in Washington's Tidal Basin without getting trapped and shipped off to who knows where. Except that there weren't any cherry trees then, because Japan hadn't given them to the US yet. And the Tidal Basin wasn't there, because it was a swamp. So never mind about all that.

Oh, the income tax was out there. England had one. They first tried it in 1799, to finance the Napoleonic Wars. The US had one temporarily during the Civil War. The justices of the Supreme Court refused to pay it, because they didn't think Congress could tell them what to do.

President Lincoln probably could have made the same argument, but he didn't. He paid - too much. The miscalculation wasn't caught until after his death, when his estate was refunded $174.

And farmers and other members of the US populist movement were pushing for an income levy. They complained that the existing tariff system benefited Northern industrialists, because duties protected US-made products from low-cost foreign competition.

So the early 20th-century adoption of an income tax "was a populist reaction, a way to get even with the Northern industrialists," says Professor Samson. "Then it became the way to finance World War I."

In 1913, the 16th Amendment to the Constitution made the personal income tax permanent in the US.

Nobody filed electronically in those days. Hardly anybody filed at all, because rates were low and the income cut-off high. As recently as 1934 income taxes accounted for only about 14 percent of Washington's revenues. Excise taxes, at the time, still made up 46 percent.

But the income tax was simple. It was easily raised. And even a small hike produced loads of cash.

The income tax became the train Washington rode to modernity. Historical tables in the back of this year's budget document the steady rise. By World War II, income tax from individuals accounted for 46 percent of government revenue, close to the percentage of today.

The dollar rise is astounding. In 1934, the US raked in $420 million from individual income taxes. This year the estimate is $869 billion. The Treasury figures income taxes will pass the trillion mark in 2004. Accountants will undoubtedly celebrate that event as a holy day.