Tax trivia – did you know?

Your Guide to State, Local, Federal, Estate + International Taxation

tax, tax trivia, tax lawUnless you’re a tax professional, the only thing you probably want to know about taxes is how much you owe and how you can save. However, you never know when a little tax trivia might come in handy. Just in case you’re ever on Jeopardy or Who Wants to be a Millionaire, here are some interesting tax facts.

Taxes in Medieval Europe

One of the world’s oldest tax systems was proportional. In the days of the Old Testament, a “tithe” or tenth of a person’s income was collected for religious purposes. The custom of tithing was continued by the Christian church and was the main funding for the many grand cathedrals that were built in Europe. The tithe could be paid in money or its equivalent in crops or livestock and was used to maintain the clergy, keep churches in repair, and to help the needy.

Taxes before the U.S Constitution

Before the U.S. Constitution was ratified in 1788, the federal government lacked the power to raise revenue directly. Even after it was ratified, federal revenues came mostly from tariffs and excise taxes. These taxes tend to be regressive, because people with lower incomes had to pay a higher percentage of their income than did people with higher incomes.

The Whiskey Tax and the Tariff of 1832

After the Revolutionary War and the War of 1812, the United States was faced with a tremendous amount of war debt and a need to create economic stability and prosperity. Two taxes – the Whiskey Tax of 1791 and the Tariff of 1832 – were especially important in shaping the development of the young nation.

In 1791, Congress placed an excise tax on the sale of whiskey. The tax was intended to help shift resources from individuals to national programs, such as building roads and post offices, and supporting a western defense. Farmers in western Pennsylvania believed that their livelihoods were threatened by the tax, and many refused to pay it. In 1794, they took part in the Whiskey Rebellion to protest the tax. President Washington sent militias into western Pennsylvania, and the rebellion was defeated. The Whiskey Rebellion was the first test of the government’s constitutional power to tax. Some criticized Washington for sending troops to face American citizens, yet his actions enforced the federal government’s authority. Washington made the point that the Constitution is the law of the land and must be obeyed.

Nearly 40 years after the Whiskey Rebellion, one region of the country again felt threatened by a tax – a revenue tariff. The Tariff of 1832 was a protective tariff that significantly taxed imported goods. Infant industries such as the factories in the North benefited from this tariff because people bought more domestic goods. Southern cotton farmers, however, lost business because the English textile industry could not buy as much cotton from the South. South Carolina called for a nullification, or rejection, of the federal tariff and threatened to leave the union. President Andrew Jackson stepped in, and a compromise was reached in 1833.

Taxes during the Civil War

During the Civil War, the government placed taxes on all sorts of goods in order to generate revenue. Carriages, gold watches, musical instruments, pool tables, and yachts were among the items taxed. The tax on a gold watch during the Civil War was $1.50. Congress implemented a federal income tax in 1862 to raise additional revenue for the war effort. This tax was later repealed when the additional revenue was no longer needed.

Taxes in World War I

In 1913, Congress levied a one percent tax on net personal incomes above $3,000, with a six percent surtax on incomes above $500,000. As the nation sought greater revenue to finance the World War I effort, the top rate of the income tax rose to 77 percent.

The Wealth Tax and the Victory Tax

President Franklin D. Roosevelt’s New Deal programs forced an increase in taxes to generate needed funds. The Revenue Act of 1935 introduced the Wealth Tax, a new progressive tax that took up to 75 percent of the highest incomes.

The cost of World War II exceeded federal tax revenues. The Revenue Act of 1942 proposed the Victory Tax, the broadest and most progressive tax in American history. To ease taxpayers’ burden of paying a lump sum from this mass tax, and to create a regular flow of revenue into the Treasury, the government required employers to withhold money from employees’ paychecks. By the end of the war in 1945, about 90 percent of American workers submitted income tax forms.

Social Security Tax

Millions of Americans were unemployed during the Great Depression. President Roosevelt’s New Deal created some new jobs, but many elderly people could not work and were living in poverty. The President asked Frances Perkins, the first female cabinet member, to develop an “old-age” insurance program. The resulting Social Security Act of 1935 was designed to provide elderly retired workers with pensions.

At first, payments into Social Security were considered “contributions,” not taxes. The program appeared to be self-funded – as workers contributed, they received credits toward retirement benefits. However, too many people needed help, so the program was expanded to include the families and survivors of retired and disabled workers, the unemployed, and federal workers.

Duck Stamp Tax

The Duck Stamp Act is a direct tax that applies to people over the age of 16 who want to hunt waterfowl. It came about because a group of sportsmen and conservationists lobbied for a program to protect migratory waterfowl and wetlands. Since its inception in 1934, the Duck Stamp has become a popular collector’s item. It is an actual stamp. A person who bought each stamp the year it was issued would have paid around $400 for the stamps by the year 2000 and they would be worth over $5,000 today.

Most used Social Security number

The most used social security number of all time was 078-05-1120. In 1938, as part of a promotion to sell wallets through Woolworth and other department stores, wallet manufacturer E.H. Ferree Company wanted to demonstrate how a Social Security card would fit into its wallets. A sample card was placed inside each wallet and displayed the Social Security number of the company’s secretary, Mrs. Hilda Schrader Whitcher. Even though the sample card was half of the size of an actual Social Security card, was written in red, and had “Specimen” written in bold, many people confusedly used this as their own Social Security number. In 1943, 5,755 people were using Hilda’s number. Over the years roughly 40,000 people have used this number.

Pamela Wheeler, EA