The First 1040

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On the evening of March 1, 1914, Americans all around the nation inaugurated what has become a spring ritual for millions of us. They raced to file the first Form 1040 at the last minute before the deadline, hurrying by motorcar or trolley or on foot.

In New York City stragglers braved a blizzard to reach the Customs House office of the Bureau of Internal Revenue, which, like district offices everywhere, stayed open until midnight. Their last minute scurrying was front-page news in the Times the next day, and it saved them from being the first Americans to pay penalties for late filing. The weather, no matter how severe, was no excuse, as three men snowbound on a train from New York to Chicago found out. They arrived just after midnight and rushed to file. The tax collector Samuel N. Fitch was unyielding. “If they’re late, they’re late,” he said, “and there is no use in coming in today.”

Some citizens were reluctant to concede that the government had a right to share their income. A tax collector in Chicago was overheard saying into the telephone: “The penalty is up to $2,000 fine and maybe a year in prison. … Yes, a taxi would get you here the quickest.” But amazingly, from today’s perspective, most Americans actually welcomed the tax.

The attitude made considerable sense. Nobody would owe any tax or even, usually, have to file a return if he or she earned less than three thousand dollars (four thousand if married)—and that was the equivalent of more than thirty-five thousand dollars (fortyseven thousand if married) today. In fact, the tax was deliberately designed to affect only the wealthiest one percent of the population, and revenues from it were intended to permit the reduction of crushing protective tariffs and excise taxes that disproportionately burdened the poor and the middle class by adding sharply to the prices of food, clothing, and other necessities.

One Missourian expressed joy in the tax in a note he attached to his return: “I have purposely left out some deductions I could claim, in order to have the privilege and the pleasure of paying at least a small income tax. … I had rather pay twice as much direct and certain tax to and for support of the Federal Government than to pay only half as much indirectly [in tariffs].” And the New York Herald observed the emergence of “the young man who overstates his income in order to be among those who are obliged to pay an income tax.” The paper predicted that “many a $12 to $20 a week clerk will be waving an income tax receipt from the stool of his favorite quick lunch to show his value and standing in the commercial world.”

The new Form 1040 required taxpayers to report income “of whatever kind,” beginning, as we do now, with salaries, wages, and compensation for personal services. Most dividends were exempt, as long as the company issuing them had paid its corporate income tax. Gain on the sale of most types of property would receive no special treatment until 1921; capital losses were not recognized at all.

 

Only six categories of deductions were allowed: business expenses, interest on personal debt, other taxes paid, casualty losses not covered by insurance, bad debts, and depreciation of business property. Medical expenses and mortgage interest, considered “personal, living, or family expenses,” were not deductible.

The new income tax’s basic levy of 1 percent on incomes between three thousand and twenty thousand dollars was supplemented by a surtax of up to 6 percent on higher incomes. It was estimated that John D. Rockefeller would owe almost two million dollars in annual taxes, Andrew Carnegie almost six hundred thousand, and the extravagant Vanderbilts a mere one hundred thousand. The average worker—a man, woman, or child putting in perhaps twelve hours a day—earned eight hundred dollars per year, slightly more than one-quarter of the lowest taxable wage.

Proponents of the tax had long argued that it would offer the only fair way to shift the burden of taxation toward those with the greatest ability to pay. In an era when everyone knew, for instance, that William K. Vanderbilt had a garage on his Long Island estate with space for one hundred automobiles, the ostentatious wealthy were an irresistible target for reform-minded lawmakers—especially since many of the very rich actually benefited personally from the high tariffs protecting the industries they owned.

Attempts to tap Americans’ earnings to support the government had begun back in the Massachusetts Bay CoIony, which taxed tradesmen, such as tailors, masons, and blacksmiths. The first income tax collected by the United States government was signed into law by Abraham Lincoln in 1862 to finance the Civil War. Most people with incomes of more than six hundred dollars willingly paid their share as long as the war lasted. The tax was repealed in 1872.