Is it true that Income Tax was created to finance troops for World War I?
"The Income Tax was put into effect during the Civil War, but was later revoked because it was deemed ""Unconstitutional"".  It was re-instated in 1913, just one year before World War 1. This is largely the reason why people think it was created ""for the war"", when it actually pre-dated World War 1. Edit: I don't have any sources, per-se. This is just what little information I remember from Grade 10 History class.  I remember this because I had a real ethical problem with how the government instituted the Income Tax, since it is effectively a tax on Productivity. I find this absurd, since it motivates people to do less, in an effort to be taxed less. This in turn promotes workers doing ""cash jobs"" and other such things to get around it. I personally have refused a raise because it would put me into a higher tax bracket, and I wouldn't actaully see the new money. In exchange, I asked for other non-monetary perks instead. I personally think this situation should not exist. ...however, I don't have a better solution. So I suppose I can't really pass judgment.  :)" "Canada did not introduce income taxes before World War I.  Specifically deficits forced them to in the later part of the war: The Conservatives opposed income tax as they wanted to attract immigrants primarily from the United Kingdom and the United States, as opposed to Eastern Europe, and they wanted to give their preferred choice of newcomers some incentive to come to Canada. Wartime expenses forced the Tories to re-consider their options and in 1917 the wartime government imposed a ""temporary"" income tax to cover expenses. Despite the new tax the Canadian government ran up considerable debts during the war and were unable to forego income tax revenue after the war ended. With the election of the Mackenzie King-led Liberal government, much of the National Policy was dismantled and income tax has remained in place ever since. So from a Canadian point of view they were introduced as part of the war effort." Income tax was seen as a way to exploit the revenues available from the rapidly expanding ranks of people with mid to high incomes. It was initially targeted at the very wealthy. Previously, most Federal revenues came from excise taxes and tariffs, both of which have many negative economic effects, leave the government with limited revenue generating ability and bring a host of international and domestic political problems.  Since the successful implementation of the income tax required a constitutional amendment, it is very unlikely that anyone at the time seriously considered the income tax a temporary measure.
It is double taxation. The same income is taxed twice.  But as to the core of your argument, starting from a baseline of zero I agree. But we aren't starting over .. there is 100+ years of income tax history and almost 250 years of state/local governments creating the services required for local residents.  It's been amazing how a lil bit of federal control has caused the conservative movement has forgotten they brought the 10th amendment to life with Seminole Tribe v. State of Florida. This is wrong.  Clear but wrong.  A different story that has the benefit of being true follows.    Money is an agreed-upon fiction.  When, say, the Romans invaded a territory they had to find a way to feed their army and pay their soldiers.  The soldiers could just steal stuff, but that was unsustainable because after awhile all economic activity would just stop.  So, the army paid the soldiers with coins that could then be used by the soldiers to purchase things from the natives.     Now, the people had no reason to accept these stamped pieces of metal (gold and silver are not inherently valuable, it's just an agreed-upon fiction).  To force acceptance, Rome imposed taxes that had to be paid in Roman coinage.  Now, the people had to accept the coins to accumulate enough to pay their taxes, the soldiers were able to spend their pay, and a more-or-less modern looking economy was born.    Coins stamped with a monetary value have always been worth more than the market price of the underlying metal, (except in extreme circumstances.)  Currency has value because it can be used to pay taxes. "This is the best tl;dr I could make, [original](https://bankunderground.co.uk/2017/08/08/your-country-needs-funds-the-extraordinary-story-of-britains-early-efforts-to-finance-the-first-world-war/) reduced by 95%. (I'm a bot) ***** &gt; Financing World War I required the UK government to borrow the equivalent of a full year&amp;#039;s GDP. But its first effort to raise capital in the bond market was a spectacular failure.  &gt; As part of a project looking at the financing of World War I, the ledgers of investors who purchased the 3&amp;frac12;% War Loan have been analysed for the first time.  &gt; These reveal the startling truth about the failure of the first bond issue of the Great War and the extraordinary role of the Bank of England in covering and then concealing the shortfall in funds.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tfsn0/hacker_news_the_extraordinary_story_of_britains/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~189875 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **War**^#1 **Bank**^#2 **Loan**^#3 **investors**^#4 **bond**^#5" Irrelevant to the question. Regardless what is used for the tax base, we would still have the same debate but with much larger anti-taxation sentiments.   Supply side Jesus either works or doesn't and shifting the federal revenue sources to the income taxes does not change it. What does this have to do with capitalism?   To me, this seems like the obvious move when the corporate tax rate is much lower in other countries.  Politicians can only steal from you for so long before you start realizing you have other options.  Maybe nike doesn't want to fund neverending war in the middle east?  I know I don't. Yet my money is taken from me every year to fund it. "There's no way to confirm this anecdote I'm about to say tell you guys.  However, I'm a computer programmer.  I went for a job interview a few years ago at a top-tier bank.  When they sat me down for the interview.  They told me that their job was to take a rich person's income and let's say they pay 40% in tax.  They'll move it around so that they pay 20% in tax.  Also, these banks ... a lot of the programmers are earning 550-650 per-day and that's in pound sterling.  These programmers will create a company and pay themselves the lowest salary rate.  So they will avoid as much tax as possible because it's their ""company"".  Those programmers aren't in the millionaire range though.  They're probably just pulling over 100,000 pounds a year taxed at a really low rate.  After working with them ... you can't make any of these guys feel anything." Taxes and exemptions &amp; credits from tax exist is to encourage behavior that the government wants to promote. National and international corporate taxation is this case encourages putting capital under a mattress. By setting up a system encouraging hoarding of capital, the national and international taxing regimes fail us. Nobody actually paid the ridiculous tax rates of the time.  People exploited loopholes like they do now.  Back then, there were more.  So the actual tax rate is irrelevant, and the actual tax rate paid is important.  I see this argument way too often. "Similar, but actually quite different.  A negative income tax on the first $20,000/year has a couple of problems this scheme doesn't:  1) Administration costs and legal complexity.  Are we ""prebating"" or ""rebating"" the stipend?  How is someone supposed to get along if they lose their job unexpectedly in a rebate-based system, can they get their income-tax withholdings back up to $20,000/year?  How does the government register changes in income to know when to write someone a check?  2) With a negative tax up to a certain *fixed* level, there's effectively a changing level of subsidy depending how much of the per-capita income is the break-even tax level.  If the per-capita income is $45,000/year (our current GDP per capita), then the subsidy level is almost 50%, and if it goes up to $60,000/year (our current mean household income), the subsidy level is then 33%.  The system I described and steepk (IIRC) invented fixes the subsidy percentage in relation to the mean reported income (effectively fixing a *relative class level* as minimum) rather than a particular monetary amount (whose relative buying power versus inflation or other incomes can fluctuate wildly).  We pick a subsidy level, say 1/3 (33.33333%).  We then impose a flat income tax of that level plus a little bit more for administration costs (say, 35%).  At the end of the year, everyone is taxed at that flat level, and the government scrapes its administration costs off the top and now has a big pot with 1/3 of everyone's income in it.  This is divided into one portion for each taxpayer, and those portions into monthly or biweekly pieces.  These pieces are sent out regularly as checks to the taxpayer, and *these checks are not taxed as income*.  That last bit is what makes this so nice: it turns the tax progressive, in fact more progressive than our current system.  After taxes and *after stipend*, only the rich will pay an *effective* tax rate asymptotically close to the real 35%.  Most people without incomes many, many times the size of their stipends will be looking at an effective tax rate of less than 15%, including the tax-paying middle class and the professional upper-middle class who currently bitch so much about our tax rates being so confiscatory (which they *are*, for the abysmal level of social services we receive).  Now, to get back to the big benefits of fixing the subsidy percentage.  This means that the subsidy grows with mean income, effectively functioning as easy to run, fair, and direct wealth redistribution without the difficulty of trying to create efficient, productive WPA-style jobs or imposing market-distorting subsidies.  It also means that we can allow things like automation to improve the productivity of our economy because *everyone* gets a share: if automating a certain job is truly more efficient than having a worker do it, the capitalist's income-gain from automation will push up the mean income, and therefore the basic income, further than the worker's lesser income and the capitalist's lesser profit would have." "The tax system in general, and income tax in particular, is used for several purposes at once. One of those purposes is to raise money to run the government. It isn't the only purpose of income tax, and income tax isn't the only source of money to run the government. Try a thought experiment: let's say it costs $10,000 per person per year to run the government. (It might actually cost far more or far less, that's not the point.) A super simple tax system would just ask each person for $10,000. But such a system isn't fair. Some people don't even earn $10,000 so they are literally not able to pay that. Some people, who earn a lot, can easily afford to pay more. So a still-pretty simple approach asks each person to pay a particular percentage of their income, and the hope is that this will add up to enough to run the government. This still doesn't feel fair to everyone - 10% of your income is hard to find when you're spending it all on rent and food, and easy to find when you have way more than you ""need"". So many countries have what's called a ""progressive"" system of income tax where you pay no tax on the first X of your income, then a small percentage on the next Y, a larger percentage on the next Z and so on.  But you asked about business profit. Some places don't tax business profits at all - they just collect income taxes on people once the money reaches them as salary or dividends. Other places do. Just as a person who doesn't earn any income can't send the government money, a business that spent more on expenses than it brought in as revenue can't send the government money either. So the tax is on profit. That seems fairer to most people anyway. Things then get even more complicated for both business and personal income taxes because the government uses the system to encourage certain behaviours and to help people facing hard times. If you want to encourage people to get training and move into higher paying jobs, you might make tuition tax deductible. Most countries give a tax deduction for each small child you have. This isn't because people with children use less of the services government provides, is it? Instead it's an acknowledgement that people with children generally have less money to spend. Or an encouragement to have children, or something. Tax motivations are complicated.  If you charged all businesses a flat tax regardless of whether they were making or losing money, people might be hesitant to start companies that lose money at first. There might be less entrepreneurship in that country. If instead you only tax profits, it feels fairer and more people are likely to join in. So that's what most governments do. Is the imaginary business owner who is not turning a profit somehow getting a free ride? They are still paying tax. If they took any salary for themselves, there was personal income tax on that. Everything the company bought, it paid sales tax on. There may have been excise taxes and such in other things they bought. The economic activity of the business has been driving the wheel of the local economy and spinning off some taxes at various levels that whole time. Whether the business itself is chipping in some corporate income tax too may not end up being particularly relevant. Example: a sole proprietor has revenue of $100,000 and spends $10,000 on supplies and such. If the salary to the owner is $89,000 the company has a $1000 profit which it pays tax on. If the salary to the owner is $91,000 the company has a $1000 loss and doesn't pay tax (and may be able to use the loss to reduce taxes in a future year.) So what? The owner is paying personal income tax on roughly $90,000. The government is getting the support it needs. Yes, some owners do all the ""encouraged"" things so that some income is not taxed either in the business or the personal sphere. That is presumably what the government wanted when it set those things up as deductions. Making charitable contributions, hiring new employees, building new facilities ... essentially the government is paying the business to do those things because they're good for the country. The overall government budget (funded by personal and corporate income tax along with sales tax, excises taxes etc) is supposed to achieve certain goals which include roads and schools but also job creation and the like. This is one of the ways they do that." The argument seems to derive from the fact that state law bars cities from taxing net income. Hence the city is arguing it doesn't apply to gross income. Of course the city would also have to argue that income isn’t property. I don't think it's going to work out for them. "Well, the one variable you're forgetting is that we didn't have as much debt hanging over our heads as we do now. As I understand it, maintaining that conflict cost so much money, we're still paying for it today, the better part of a century later. Are you sure that the Federal government should undertake that level of spending again as the Fed is poised to raise rates, reversing a decades long trend of cheap borrowing?  Edit: typo, added ""sure""" exactly...and this isn't even just theory...we have hard examples of higher tax rates NOT translating into higher tax receipts:  While we had crazy top income rates in the past per this: http://t-a-x.net/wp-content/uploads/2016/08/1.png  we saw that didn't translate at all into higher actual $ receive by the govt: https://cdn.theatlantic.com/static/mt/assets/business/taxrevenuepercentGDP.png I had a cat growing up--most of the time I was the one who got her supplies.  It was never an issue. I'd split whatever cash flow you have between saving money and paying down the 20% loan. The fact that you are carrying an unrealized loss isn't really too relevant -- unless you have plans to walk away from the loan or go bankrupt, it doesn't really matter until you sell. You're either going to repay now or later.