Take Us Back to '13

Disclaimer: I hate taxes. I think I pay way too much in taxes. I think my fellow Americans pay way too much in taxes, especially the "rich." Perhaps some people aren't bothered that the top 5% of income earners pay 53% of all income taxes, or that the top 10% pay 65%, but I am.

Moreover, merely filing tax forms is a frustrating, difficult, mistake-prone process. According to one recent study, only 13% of Americans now prepare their own taxes, down significantly from 1993. The cost of hiring someone to prepare a simple 1040 form can be as high as $110, and studies have shown that preparation can consume up to 37.8 hours for the most basic return.

Why, then, do we have the system we have? How did it get to the point that within a mere five years after being enacted, the lowest rate had gone up by a factor of 25, and the lowest rates reached 75% of every extra dollar earned? How did it get to the point that, prior to George W. Bush's tax cuts, Americans worked until mid-May just to pay their taxes?

Income taxes were sensibly prohibited in the Constitution. During the Civil War, the Union secretary of the Treasury, Salmon Chase, briefly implemented income taxes to help pay war bills, but they were unsuccessful at raising funds. After the war, attempts to create an income tax foundered when the U.S. Supreme Court ruled them unconstitutional.

Without income taxes, throughout the 1800s, the primary source of paying the government's bills came from import duties, and, secondarily, land sales. By 1900, while federal lands were by no means vanishing, they were providing steadily diminishing returns. The conservationist movement, led by Teddy Roosevelt, argued for setting aside many of these lands as national park and wilderness areas, further reducing income that could be generated from sales.

Tariffs still paid exceptionally well at the turn of the century, though, with virtually every imported product or raw material having a duty.

The problem with tariffs was that Congress had to adjust the tariff rates every few years. Even assuming that Congress was more efficient and sensible at the turn of the century than today, can you imagine 400 or so legislators arguing over a tenth-of-a-cent increase in imported hemp? Moreover, since before the Civil War, some Americans—particularly those in the South—argued that tariffs merely took money out of one group's pocket, the Southerners, and put it in the pockets of another group, Northern businessmen.

So the first argument made to the public for adopting the income tax was that it was fairer than tariffs and easier for Congress to administer.

Second, it originally was simple in design. The first income tax form, which may be viewed at taxfoundation.org/blog/show/642. html, was one page with six income brackets, beginning at $20,000. Anyone could fill out the form.

Third, the original rates were stunningly low. From $20,000 to $50,000 the taxpayer paid 1%. Rates went up 1% in each of the brackets thereafter, and the top bracket was 6% for those making over $500,000. And there was a $3,000 personal deduction. To put these numbers in perspective, a steak cost a quarter in 1920; a men's suit, $20; and a Ford Model T under $600. In short, the vast majority of Americans would never have paid any income taxes under that structure, and those who did pay would barely feel it. There was no withholding, so potential taxpayers had to save for tax day.

Those three factors — the complexity and political tension of the tariff, the simplicity of the income tax, and the low rates — all made the Income Tax Amendment an easy sell to the public. It might have remained only a minor irritant if, over the years, rates had not skyrocketed and legislators had not started using the tax code for punishments and rewards, social engineering, and pet projects. Nor did tariffs go away. Instead, Americans often got double-taxed.

Meanwhile, even after the tax cuts of the 1920s by the Treasury secretary, Andrew Mellon, tax rates never fell back to their original levels of 1913. "Tax creep" was common in both Democratic and Republican administrations until, finally, rates would get so high that revenue fell as people avoided taxes and reduced work. When a new, clear-eyed politician would see that high rates were hurting government income, a tax cut would follow, and the cycle would begin anew.

The income tax may have been "sold" to the public on the grounds of its low rates and simplicity, but progressive advocates of the income tax envisioned it exactly as it evolved — a tool of income transfer and social engineering. It promised to, as one proponent claimed, "equalize tax burdens borne by the various classes … [and] paid by the wealthier classes." One Missouri congressman beamed that passage of the income tax marked "the dawn of a brighter day, with more of sunshine, more of the songs of the birds, more of that sweetest music, the laughter of children well fed … wholesome Democracy shall be triumphant!"

As it now stands, the income tax is oppressive in its rates and ridiculously complex. While a good argument could be made for alternatives, the best solution to fixing the tax code is to return to the lowrate simple form of 1913.

Mr. Schweikart, professor of history at the University of Dayton, is author of "A Patriot's History of the United States" and "The Entrepreneurial Adventure: A History of Business in the United States."