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From colonial times to the present day, debate over tax policy — and how to reform it — has been a fixture in American politics. The tax system has changed radically since the founding of the republic, paralleling the development of the American economy and the ever-growing role of the federal government. Taxation has evolved from a system dominated by tariffs and excise taxes in the 19th century to today’s income-tax-based system. Now, in the first decade of the 21st century, many people are suggesting that the tax system needs more changes. However, previous attempts at reform have succeeded only rarely, often because of strong opposition from entrenched interests and powerful constituencies.

Created by RollCall on Apr 17, 2009

Last updated: 03/12/10 at 05:08 AM

Tags: congress tax reform teaxes tea party ronald reagan tax

• Bush Tax Cuts Due to Expire
  2010

  The 2001 and 2003 tax cuts are due to expire at the end of the year. In 2009, Congressional Republicans are advocating extending all of the provisions, while Democrats and President Barack Obama want to let reductions for upper-income groups expire.

• Rangel Proposes Comprehensive Reform
  2007

  House Ways and Means Chairman Charlie Rangel (D-N.Y.) proposes comprehensive tax reform legislation that increases tax rates on upper-income individuals, lowers rates for other individual payers, abolishes the AMT and reforms the corporate tax system.

• Advisory Panel Calls for Reform
  2005

  The President’s Advisory Panel on Federal Tax Reform calls for fundamental reform of the tax system. The panel recommends revamping business taxation, reducing the number of individual tax brackets, abolishing the AMT and eliminating the deduction for state and local taxes.

• The Bush Tax Cuts, Part II
  2003

  Congress passes a major tax reduction that speeds up the enactment of the 2001 cuts, reduces the capital gains tax and provides for dividends to be taxed at the same rate as capital gains.

• The Bush Tax Cuts
  2001

  President George W. Bush wins passage of a large tax cut package that reduces most tax rates, increases certain deductions and gradually phases out the estate tax.

• Forbes Champions Flax Tax
  1996

  Wealthy magazine publisher Steve Forbes seeks the Republican nomination for president by running on a platform advocating a single-rate income tax, commonly known as the flat tax. Forbes fails to win the nomination, but his advocacy makes tax reform a national issue. (File Photo)

• Tax Code Simplified
  1986

  Reagan signs the Tax Reform Act. After lengthy negotiations led by Treasury Secretary James Baker, Senate Finance Chairman Bob Packwood (R-Ore.) and House Ways and Means Chairman Dan Rostenkowski (D-Ill.), the bill establishes a new Internal Revenue Code (to replace the 1954 code) that dramatically simplifies the tax system. The new code reduces the top rate from 50 percent to 28 percent, cuts the number of brackets from 15 to four and eliminates numerous deductions and loopholes. (Photo Courtesy Library of Congress)

• Reagan's Tax Cuts
  1981

  President Ronald Reagan convinces Congress to pass a massive tax cut. The top rate is reduced from 70 percent to 50 percent. As a reaction to high inflation in the 1970s, the bill indexes tax brackets to inflation.

• Earned Income Tax Credit Created
  1975

  Senate Finance Chairman Russell Long (D-La.) helps create the earned income tax credit in an attempt to help low-income workers by refunding a portion of their FICA payroll taxes. The EITC is later expanded numerous times. (File Photo)

• AMT Established
  1969

  Congress creates the alternative minimum tax, following several highly publicized cases of wealthy individuals avoiding their taxes. The tax requires individuals with incomes above a certain threshold to calculate their tax liability under both the regular income tax and the more stringent AMT and then pay the greater amount.

• New Tax Code Created
  1954

  A new Internal Revenue Code is established to replace the 1939 code. As originally enacted, the 1954 code provides for 24 tax brackets with rates ranging from 20 percent to 91 percent.

• World War II
  1941

  As the United States enters World War II, the massive cost of the war leads to the biggest expansion of the individual income tax in American history. With a top rate of 94 percent by 1945, federal tax receipts as a share of gross domestic product rise from 7.6 percent in 1941 to 20.4 percent in 1945, while the number of Americans paying income tax rises from 4 million in 1939 to 43 million in 1945. During the war, the government also begins the practice of withholding income tax from worker paychecks. (Photo Courtesy Library of Congress)

• Tax System Codified
  1939

  The tax system is formally codified into the first Internal Revenue Code. Lawmakers draft all subsequent tax legislation, except those relating to tariffs, as amendments to this code. The 1939 code remains in effect until Congress enacts a new code in 1954.

• Social Security Established
  1935

  Congress and President Franklin Roosevelt create the Social Security program and finance it with a payroll tax. The payroll tax, also known as the Federal Insurance Contributions Act tax, is increased and expanded several times in later decades to fund the expansion of Social Security benefits and the creation of Medicare in 1965. (Photo: Patrick Schneider/Charlotte Observer)

• Capital Gains Tax
  1921

  Congress passes the first separate tax on capital gains, which were previously taxed as individual income.

• World War I
  1917

  The United States enters World War I. To pay for the war, the top income tax rate is raised to 73 percent. Congress gradually reduces the top rate to 25 percent by the mid-1920s before it rises again during the Great Depression. (Photo Courtesy Library of Congress)

• First Federal Estate Tax
  1916

  Congress passes the first federal tax on estates.

• 16th Amendment
  1913

  The states ratify the 16th Amendment in February. It overturns the Pollock decision by allowing Congress “to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Soon afterward, Congress passes the Underwood Tariff Act, which imposes a progressive income tax, ranging from 1 percent on incomes below $20,000 to 7 percent on incomes above $500,000.

• First Corporate Income Tax
  1909

  The Payne-Aldrich Tariff Act creates the nation’s first corporate income tax. Senate Finance Chairman Nelson Aldrich (R-R.I.), the great-grandfather of Sen. Jay Rockefeller (D-W.Va.), becomes a bill sponsor.

• Pollack v. Farmers' Loan & Trust
  1895

  The Supreme Court in Pollock v. Farmers’ Loan & Trust Co. declares the new income tax unconstitutional. Writing for a 5-4 majority, Chief Justice Melville Fuller declares that any taxes on people or property are “direct taxes” and that any general income tax violates the constitutional restriction on direct taxes contained in Article 1, Section 9, Clause 4. (Photo Courtesy Library of Congress)

• Wilson-Gorman Tariff Act
  1894

  The Wilson-Gorman Tariff Act imposes America’s first peacetime federal income tax, charging 2 percent on income above $4,000. Many farmers and industrial workers prefer an income tax as an alternative to high tariff rates.

• First Federal Income Tax
  1861

  Congress enacts the first federal income tax to help pay for the Civil War. The federal government previously relied on tariffs and excise taxes for revenue. The new measure (as modified by Congress in 1862) imposes a 3 percent tax on incomes above $600, as well as a 5 percent tax on incomes above $10,000 and for U.S. citizens living outside of the country. Congress repeals this tax in 1872. (Photo Courtesy Library of Congress)

• Whiskey Rebellion
  1791

  Treasury Secretary Alexander Hamilton convinces Congress to impose a tax on distilled spirits to help pay for his plan to have the federal government assume state debts. The tax angers farmers in Pennsylvania and Virginia, resulting in the Whiskey Rebellion of 1794. Federal troops are deployed to suppress the revolt. (Photo Courtesy Library of Congress)

• Constitutional Convention
  1787

  The Constitutional Convention in Philadelphia ratifies the U.S. Constitution. Article 1, Section 8, Clause 1 grants taxation powers to the federal government “to pay the Debts and provide for the common Defence and general Welfare of the United States.” Article 1, Section 9, Clause 4 prohibits “direct” taxes unless the tax is proportioned to each state based on population. This latter clause becomes the basis of a successful constitutional challenge against federal income tax legislation in the 1890s. (Photo Courtesy Library of Congress)

• Boston Tea Party
  1773

  American colonists seize three British ships in Boston Harbor and dump at least 342 chests of tea into the water. The event, which becomes known as the Boston Tea Party, came after the British Parliament imposed a tax on tea without colonial representation in the parliament. Subsequent British repression leads to the American Revolution. (Photo Courtesy Library of Congress)