Q&A – How We Ended Up with a Federal Income Tax & Why It’s a Huge Mistake 

Q&A – How We Ended Up with a Federal Income Tax & Why It’s a Huge Mistake 

Each day I feature a listener question sent by one of these methods.  

Email: brianmudd@iheartmedia.com 

Gettr, Parler & Twitter: @brianmuddradio 

iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.   

Today’s Entry: You caught my attention when you said income tax was the only bigger mistake than time changes. I’m curious to know why you said that.  

Bottom Line: Alright, I’m happy to oblige because it’s useful for everyone to know, especially in the mist of tax season, the history of our federal income tax. Specifically, what I said in my Top 3 Takeaways was this... I’m not sure there’s a more failed public policy, this side of the federal income tax, that we’ve stayed with longer than time changes. There’s ample evidence to suggest that little more than surface level knowledge of American history is known. For example, a 2019 study by the Woodrow Wilson Foundation – of greater than 41,000 adults in all 50 states found a remarkably low command of our country’s history. According to the study’s findings...  

• Only 27% of adults have an even basic understanding of American history 
• Only 40% of adults were able to pass a basic American history exam 

This broad dearth of understanding led to the recent advances by revisionists who proclaim this country as being systemically racist via the CRT narratives. Claims that are absurd on their face given the realities of the United States of America having provided for the greatest quality of life and highest standard of living for all minority groups. For comparison’s sake – the median income worldwide is currently $10,200 per year. Not only is the average income for those working full-time over four times the worldwide average – the federal poverty level – where full government assistance programs come into play – sits thousands of dollars above that level. In other words, the poorest minorities in the United States have quality of life and standards of living that are significantly higher than the average person – regardless of ethnicity around the world. But again, this is what happens when barely over a quarter of adults have even a basic understanding of American history. It’s with that example established that I’m not the least bit surprised most Americans aren’t aware of the history of the federal income tax.  

The first eye opener for most people is this not so little factoid... 

• The United States didn’t have a permanent federal income tax for its first 137 years 

In other words, to this day, well over half of American history hasn’t included a permanent federal income tax. A permanent federal income tax wasn’t established until 1913, in what was called the “Revenue Act of 1913”. Up to that point taxes collected to fund the federal government were primarily taxes on the buying and selling of goods at the manufacture level. A form of a consumption tax. In 1913, with Democrats in complete control of the federal government, their pet project of creating a federal income tax came into reality. The Revenue Act, which only passed by one vote in the Senate (that’s how close we were to not having a federal income tax), introduced the first permanent federal income tax in US history.  

In the Act, the established range in income tax rates were 1% to a maximum of 7% of one’s income. You can see how much liberty has been taken since with a minimum rate of 10%, literally ten times the impact of the original income tax code, and a top rate of 37% - one that’s greater than 5 times as punitive as the original. In terms of addressing the question as to why it was a mistake...  

The federal government is the least efficient way of deploying capital in society. Consumers are the most efficient. Taxing income literally taxes resources directly from the most efficient deployers of it in lieu of the least. This acts as a regressive influence on our economy. There are dozens of ways I could illustrate the point but there’s one in particular that is likely to really hit home right now. You know consumer inflation, as measured through February, paced 7.9% year over year... Guess what the total inflation rate was for the first 137 years of US history without a permanent income tax... Ready to have your mind blown...it was 13.8%. Not in a year. That’s the total inflation rate for the entire first 137 years of American history. Know what the inflation rate has been since the introduction of the federal income tax over the last 108 years? 2,766%. Mind blown yet? Here’s an easier way of thinking about this.  

• Average annual inflation rate without a federal income tax: 0.09%  
• Average annual inflation rate with a federal income tax: 3.1%  

That’s what happens when resources are confiscated from the most efficient delivery system of capital in an economy – to the worst. It’s it was so easy for Americans to consistently improve their quality of life for greater than the first half of our country’s history – and why its become more challenging for many overtime. The federal income tax, given to us by Democrats in 1913, is demonstrably the worst permanent policy in our country’s history. 108 years later, with Democrats in control of the federal government, we once again see that the more things change, the more they stay the same. It’s a party which has always prioritized a top-down approach to society with the Government’s influence central to shaping society and spending resources, as opposed to a bottom-up approach to governing which prioritizes the citizens government was designed to serve.