In 1913, the 16th Amendment to the Constitution
made the income tax permanent as we have it today. This amendment gave
Congress legal authority to tax income of both individuals and corporations.
Amendments like the one in 1913
are brought about through the needs of additional funds of government. Also,
many tax changes are incepted due to economy changes such as more employment
available to taxpayers or vise versa, if there is high unemployment, then
tax laws will take that into consideration too. This is done so and mostly
seen by the tax credits or special tax deductions offered though the tax
system.
For example on October 22, 1986, President Reagan
signed into law the Tax Reform Act of 1986. The act called for an decrease
in individual taxation over a five-year period.
Over the years, the tax laws
got so complicated that there was a need to simplify the tax code. The tax
code and the paperwork to file a tax return was a difficult bureaucratic
effort. Additionally, President Reagan wanted to up the economy with his tax
law reform. We are living this tax reform presently.
With this October 22, 1986 law
that President Reagan signed into law the Tax Reform Act of 1986, the top
rate on individual income was lowered from 50% to 28%.
In an effort to reduce the federal budget
deficit, the Revenue Reconciliation Act of 1990 was signed into law on
November 5, 1990. The emphasis of the 1990 act was increased taxes on the
wealthy.
It came to everyone's
realization that the wealthy were paying less than the fair share. With this
new act came higher taxes and a limitation on itemized deductions. Almost
every presidential candidate promises not to raise taxes. President Bush
promised not to raise taxes to get elected and then signed the Revenue
Reconciliation Act of 1990 in law which did the contrary. It raised taxes
and lowered deductions. This was the act that started our "pay as you go
system". In this system taxpayers pay their tax in installments as they earn
the money. This is usually done weekly or biweekly every time the taxpayer
receives a check from their employer. Taxpayers who don't have an employer
usually are required to make estimated tax payments throughout the tax year.
Other countries have similar tax policies.
Again, in 1993 another act was
signed to lessen the tax deficit. On August 10, 1993, President Clinton
signed the Revenue Reconciliation Act of 1993 into law.
What was different about the
1993 act to the 1986 was that the Revenue Reconciliation Act of 1993 affect
almost every taxpayer, not only the rich. This new tax act decreased the tax
planning benefits and tax planning strategies previously enjoyed by many.
Then again in 1997, President
Clinton signed a tax revenue act which cut taxes by $152 billion including a
cut in capital gain tax for individuals a $500 per child tax credit along
with tax incentive for education.
This per child tax credit has now increased to
$1,000 per child. The child tax credit started at $400 per child
and increased to $500 per child in 1999. It was with this act
that Roth IRAs were established. This act also exempted the
capital gain taxation of the sale of personal residences of up
to $500,000 for
