1998 is the 85th anniversary of the constitutional amendment allowing the federal income tax. And Americans wibder what its purpose is.

     The benefits of income tax are that whiskey cigars, caviar, sable coats, champagne, truffles, brie, Rolls-Royce, Oriental rugs, emeralds and English butlers cost you a lot less than if we didn’t have federal income tax. If you don’t have those things, it is jut one more unfair aspect of federal income taxes.

From 1776 until 1913 the federal government paid its way with levies on liquor and tobacco and with excise taxes on fancy imported goods and foreign servants.

During this period the U.S. rose from a small group of states to become the most powerful nation in the world. Occassionally

there was not enough money to pay all the bills, so the government would just print extra money. When this happened, bankers took a hit because the interest they were receiving from loans now was worth a bit less. Bankers never like to lose money, so a bunch of international bankers got together and formulated a plan that they thought would help the nation’s economy, but most importantly would keep them from losing money and perhaps make them a bit of profit.

The plan involved a federal income tax and the Federal Reserve Board.

The plan was that when the economy was in resession, the government would borrow

money from the Federal Reserve and plow it back into the economy. And when the economy was expanding, the government would tax the public and use the money to pay back the loans.

In order to make this plan work, the U.S. Constitution had to be changed, because our founding fathers specifically banned federal income tax twice in the Constitution.

In 1913, after several years of lobbying

(i.e. giving lots of money to Congressmen) by banking organizations, Congress created the Federal Reserve System. and gave its bankers the power to control the nation’s economy.

At this same time, under the guidance of bankers and political centerists a Constitutional Amendment was being circulated throughout the states.

This 16th Amendement was neveral lawfully ratified by the three-forths of the states as required by the Constitution. Many of the states did not follow lawful procedure in ratifying the Amendment. Others made changes in the Amendment before they ratified it. Ultimately only two state lawfully ratified the Amendment as set forth by Congress.

In the late winter of 1913, despite these facts and no doubt because he was under pressure by the commercial banks, Secretary of State Finlander Knox stood before

Only a small percentage of wage earners had to pay the income tax originally imposed by Congress Americans didn’t have to pay any tax unless they earned more than $4000 (the equivalent of $65.000 toady), and that first tax bracket was merely one percent. Great numbers of Americans then

The seven percent rate applied only to people earning more than $500,000.(eight million dollars today) And in 1913 that included the Rockefellers, Carnegies, Mellons, Morgans, Goulds, Vanderbilts and almost no one else

It took Congress just three years to bump the rate up to 15 percent. In one more year it soared to 67 %. Of course, that was only for incomes above $2 million (the same as 32 million dollar today) Unfortunately this brilliant plan to stablize the enconomy did not work. In 1929 the U.S. was hit with the worst depression in history and hundreds of bankers went bankrupt.

But this did not bring an end to federal income tax or the Federal Reserve. This system was a monster and like the monsters of myth, it could not be killed. It just kept growing larger.

Once members ol Congress learned whal a nifty money maker the income tax was for the federal government there was no stopping them

When the nation entered World War II, income tax was imposed upon the average wage earner. and surpizingly enough, they were quite tolerant of this tax on their incomes. for it was a modest bite and, after all, there was a war going on.

In one swoop, the government added 50 million new taxpayers to the rolls, people of moderate incomes.

The rate in 1943 was 19% on earnings of $2,000. It would be similar to paying a

tax of one-fifth on an income of $18,555 in today’s dollars. The rate went up to 88% on incomes of more than $200,000, a salary the equivalent of $1.8 million today.

The only problem to this huge windfall of new income for Washington was that there was no good system for collecting all that money. Before World War II, taxes were paid on a monthly basis. Everybody had to fill out forms and mail in their taxes, much like the self-employed today, who must send in quarterly payments.

Then Congress came up with withholding - the cleverest, most significant innovation of government bureaucracy ever.

Withholding was created 54 years ago, in June 1943, when Congress passed the Current Tax Payment Act. It provided for a 20% withholding tax. It also included a forgiveness of 75% of either the 1942 or 1943 tax liability, whichever was smaller.

In effect, Congress was saying, We know you don’t have the money to suddenly pay all this tax, so we’ll let you off the hook by taking only 25% of what you didn’t know you already owed, and we’ll only take from your pay, before you even get it, 20% from now on. We’ll take the burden of figuring it out off of your shoulders.

In other words: "We’re from Washington, trust us."

And, behold, today, when taxpayers get refunds on their taxes, many are glad. As if they had forgotten that it was their money in the first place, not a gift from the government.

As former historian of the Internal Revenue Service, Shelly Davis, says, "I truly believe our income tax system would completely fall apart if not for withholding. Without withholding, we would be able to sustain our tax system as it exists. Without that, there would be absolutely no way for the IRS to collect well over one trillion dollars annually from taxpayers today.".