The Beginning of Income Tax in America


The Beginning of Income Tax in America


So, why would the government set up a tax accounting system containing rules which make it difficult for businesses to be self-sufficient?  Read on...

The 16th Amendment to the Constitution was passed in July of 1909, laying the foundation for federal income tax. Following that, a secret meeting of top bankers and politicians, with strong support from J.P. Morgan, was held on Jekyll Island, Georgia, in November of 1910, establishing the Federal Reserve. This, in turn, was followed by the ratification of the federal income tax in February of 1913.

This is not some conspiracy theory. It is historical fact. On November 5–6, 2010, Ben Bernanke stayed on Jekyll Island to commemorate the 100-year anniversary of this original meeting.

At the end of November 1910, Senator Nelson W. Aldrich and Assistant Secretary of the U.S. Treasury Department A. Piatt Andrew, and five of the country's leading financiers (Frank Vanderlip, Henry P. Davison, Charles D. Norton, Benjamin Strong, and Paul Warburg) arrived at the Jekyll Island Club to discuss monetary policy and the banking system, an event that led to the creation of the current Federal Reserve. According to the Federal Reserve Bank of Atlanta, the 1910 Jekyll Island meeting resulted in draft legislation for the creation of a U.S. central bank.*

That progression of events cannot be ignored in determining the “why” behind tax accounting rules regarding depreciation and cost of goods sold. Being that these two rules greatly decrease cash flow, businesses are typically forced to visit their bankers for loans. It’s very interesting to find out that these same rules were reviewed by some of the world’s top bankers during that secret meeting in 1910; shortly after the 16th Amendment became law and shortly before the start of federal income tax. Coincidence?

On a side note, taxation during the late colonial period was so onerous that our Founding Fathers and many other brave Americans rose up and threw off the yoke of the British.  With cries of “No taxation without representation!”, they wrote the Declaration of Independence and began the Revolutionary War.  Although there was no income tax, there were taxes on commodities like sugar, tea, whiskey, etc., that varied from state to state, along with other taxes the Crown would come up with from time to time.  So what was the average percentage of income that the British took from our hard working forefathers?  Between 1 and 2 percent.


* Quoted from Wikipedia (with corroborating sources):