# Income Tax The **income tax** is the federal tax on individual and business income, levied at graduated (marginal) rates: income is divided into brackets, and each successive bracket is taxed at a higher rate, so that a taxpayer's *marginal* rate (the rate on the last dollar earned) exceeds their *effective* rate (total tax divided by total income). It is the single largest source of U.S. federal revenue, and the rules governing its rates, brackets, deductions, and the treatment of capital versus labor income are among the most contested questions in American politics. ## History A federal income tax was first imposed to finance the [[American Civil War]] (1861–1872). A peacetime income tax enacted in 1894 was struck down by the Supreme Court in [[Pollock v. Farmers' Loan and Trust Company]] (1895) as an unapportioned direct tax. The constitutional obstacle was removed by the [[Sixteenth Amendment]] (1913), which explicitly authorized a tax on incomes "from whatever source derived." Initially a tax on only the wealthiest sliver of households, the income tax became a mass tax during World War II, when payroll withholding was introduced and the number of filers expanded enormously. Top marginal rates peaked above 90 percent in the 1940s–1950s, fell to 70 percent in the 1960s, and were cut sharply under [[Ronald Reagan]] (to 50 percent in 1981 and 28 percent in 1986), establishing the low-top-rate baseline that has held, with fluctuations, ever since. ## The right-wing politics of the income tax The income tax is the central battlefield of the [[Anti-Tax Movement]] and a defining issue for the modern right: - **Rate cuts as the core deliverable.** From the Reagan cuts through the [[Tax Cuts and Jobs Act]] (2017), reducing income-tax rates — especially on top earners and pass-through business income — has been the most consistent unifying goal of the Republican economic coalition, justified by [[Supply-Side Economics]] and the [[Laffer Curve]] claim that lower rates can expand the base. - **The pledge.** [[Grover Norquist]]'s Taxpayer Protection Pledge, signed by most Republican officeholders, commits signatories to oppose any net income-tax increase, functioning as a binding party discipline mechanism. - **"Starve the beast."** The strategy of cutting taxes in order to force future spending cuts by manufacturing deficits treats the income tax as a constraint on government size as much as a revenue tool. - **Fundamental-reform proposals.** The flat tax (a single rate) and the "FairTax" (replacing the income tax with a national sales tax) recur as movement aspirations, as do periodic calls to abolish the [[IRS]] or the [[Sixteenth Amendment]] outright. - **The capital-vs-labor question.** Because long-term capital gains are taxed at lower rates than wages, and mechanisms like [[Step-Up in Basis]] can erase accrued gains entirely, the income tax's treatment of investment income is a recurring flashpoint in debates over inequality and dynastic wealth. ## See Also - [[Sixteenth Amendment]] — the constitutional authorization - [[Tax Cuts and Jobs Act]] — the signature modern rate cut - [[Anti-Tax Movement]] — the political coalition organized around it - [[Supply-Side Economics]] / [[Laffer Curve]] — the rate-cut rationale - [[Grover Norquist]] — the tax-pledge enforcer - [[Step-Up in Basis]] — the related capital-gains mechanism - [[Tax Code Hub]] — folder reader map