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The First 1040
Seventy-five years ago Americans paid their first income tax. And liked it.
March 1989 | Volume 40, Issue 2
How-to articles appeared in all sorts of publications. “Don’t get excited,” counseled The New York Times. “Look Blank 1040 squarely in the face.” In 1915 the newspaper observed that many House members were going to the office of the sergeant at arms for help in completing their own returns. Ordinary taxpayers could get assistance too. Local district offices of the Bureau of Internal Revenue offered help both in person and by telephone.
The bureau’s Washington staff of 277 had only several weeks in late 1913 to create and distribute Form 1040, whose name simply indicated the next in an old series of bureau form numbers. The bureau had survived the repeal of the Civil War tax and all the years since but had been doing little more than enforcing the payment of excise taxes. With the passage of the new law, 477 new field agents were taken on, each at eight dollars per day, to examine returns.
No money had to be sent in with any return that first year. Instead each taxpayer’s computation of his liability was verified by the bureau’s field agents, who then sent out bills. A New York Times editorial complained that this gave the taxpayer “the same option that the eel has about being skinned.” Nonetheless, the process proceeded amazingly smoothly. By June 1, 1914, the tax bills were ready to be sent out, payable by the end of the month. When the receipts were tallied, more than twenty-eight million dollars had been collected. That was far less than the seventy million dollars Hull had predicted, but it was enough to prove to most members of Congress that a great resource had been discovered for raising revenue without grave consequences at the polls.
In fact the new tax created political capital for most of those involved. The average tariff rate had been lowered from a high of more than 40 percent to about 29 percent. There were, of course, court challenges. But in 1916 the Supreme Court, led by Justice White, the chief dissenter in the Pollock case, found the tax constitutional on all counts. Hull immediately declared, “We are now free to go ahead to revise the law to meet new needs.” Later that year he proposed augmenting the tax to raise an additional seventy-five million dollars “without making it burdensome.”
As everybody knows, taxes would never be that low—or that popular—again. The assassination of Archduke Franz Ferdinand in Sarajevo on June 28, 1914, changed everything. By 1919 the maximum tax rate had risen from 7 percent to 77 percent, and the Revenue Act of 1917 had lowered the minimum taxable income to one thousand dollars. As Hull had observed in a 1910 speech to the House, “We cannot expect always to be at peace. If this nation were tomorrow plunged into a war with a great commercial country … we would be helpless to prosecute [it] without taxing the wealth of the country in the form of incomes.” It would take just one more great war, less than three decades later, to transform Hull’s gentlemanly “class tax” into the mass tax we know today.