INCOME TAX 



2939 



After the United States entered the War of 

 the Nations the need for greater revenue was 

 imperative, and the income tax law was 

 amended, to take effect in 1917. The new law 

 reduced the exemption to $1,000 for single per- 

 sons and to $2,000 for those married or the 

 heads of dependent families. There was im- 

 posed a basic, or normal, tax, of 2% on incomes 

 up to $4,000 gross ; above that amount the nor- 

 mal tax was 4%. Upon incomes greater tha'n 

 $4,000 there was applied, in addition to the 

 normal tax, a surtax, which increased in nearly 

 direct proportion to the increase in income. 

 This surtax ranged from an added 1% on in- 

 comes between $5,000 and $7,500 to 62% on 

 $500,000 incomes. Above $2,000,000 in income 

 the surtax was 63% to over 70%. 



In 1918, effective in 1919, still greater taxes 

 were levied, to provide partly the billions of 

 dollars needed to prosecute the war against 

 Germany. The exemptions of $1,000 for single 

 persons and $2,000 for married persons was re- 

 tained, but the tax rate was placed at 4% on 

 incomes below $4,000 and 12% on all above that 

 sum. Surtaxes were begun at the $5,000 point. 

 It was confidently expected that this new law 

 would produce for the government a sum in 

 1919 equal to $60 from each man, woman and 

 child in the United States. 



The amounts to be paid by married persons 

 with incomes ranging from $2,500 to $5,000,000 

 is shown in the following table, with the rate 

 per cent. In adjoining columns is given the 

 income tax rate per cent in Great Britain for 

 the same year. Comparison with the rates in 

 the United States is made by consulting col- 

 umns three, four and five : 



INCOME TAX 



UNITED STATES UNITED KINGDOM 



1919 RATE RATE (PERCENT) 



The average American citizen felt that he had 

 reason to complain because of the severity of 

 the income tax upon his personal fortune. 

 However, he doubtless felt considerably molli- 

 fied if he chanced to compare the rate per cent 

 taken from him and the rate exacted from the 

 people of Great Britain. The American with 

 an income of $2,500 paid 1.2% of it to the 

 government; the Englishman who is obliged 

 to earn his living paid nearly 8.5% of it to the 

 government, while the one who lived on the 

 income from his fortune paid 11.25% of his 

 income. The American with an income of 

 $10,000 paid less than 8.5%, while the English- 

 man paid from his income 22.5%. 



Exemptions and deductions from gross in- 

 comes are numerous, but they do not apply in 

 the great majority of individual cases. 



Besides the provision for greatly increased 

 individual taxes, the new law provided for a 

 war tax of 6% on net incomes of corporations, 

 a tax on estates of deceased persons ranging 

 from 2% to 25%, an excess profits tax ranging 

 from 20% to 60%, added taxes on beverages 

 (on beer, $3.00 per barrel; wines, $2.20 per gal- 

 lon; distilled spirits, $2.10 per gallon); higher 

 taxes on tobacco products (cigars, from $1.00 

 to $8.00 per 1000) ; taxes on amusements (1 cent 

 for 10-cent tickets, and another cent for each 

 additional 10 cents or fraction thereof) ; on rail- 

 road tickets, 8%. Other taxes of less impor- 

 tance to the average citizen are also scheduled. 



State Income Taxes. At different times a 

 number of American states have made experi- 

 ments in the direction of taxing incomes, but 

 the returns were small and the results unsatis- 

 factory until 1911, when the state of Wisconsin 

 adopted a system of income taxation. As ad- 

 ministered by an efficient expert state tax com- 

 mission, this tax yielded in the four years be^ 

 tween 1912 and 1916, $7,475,912. E.A.R. 



