Up until 1913 Americans kept all of their earnings.
A viral post on Facebook makes the broad claim that Americans kept all of their earnings up until 1913, and still had schools, roads and subways. We checked similar variations of this claim in the past, but decided this calls for a fresh look. The post displays a dated image of a busy street filled with automobiles. Text overlaid atop the photo says: 'Up until 1913 Americans kept all of their earnings. Despite this, America still had schools, roads, colleges, vast railroads, subways and an Army & Navy. (Tell me again why taxes are necessary?)' The post was flagged as part of Facebook's efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook.) This claim contains some accurate information, but it needs some additional context and details. The year 1913 is often cited because that's when the 16th Amendment was ratified, which allowed Congress to collect tax on individual incomes. Congress later enacted legislation that imposed a 1% tax on incomes over $3,000 with a graduated surtax on incomes above $20,000. While 1913 marks the birth of the 1040 tax form, it wasn't the first time Americans paid a tax on their earnings. In 1862, President Abraham Lincoln signed a revised measure into law that enacted the nation's first income tax to help pay for the Civil War. It created a Commissioner of Internal Revenue and levied a 3% tax on incomes between $600 and $10,000, and a 5% tax on incomes higher than that. Congress repealed the measure 10 years later in 1872. In 1894, Congress passed a new income tax - but it never took effect. The U.S. Supreme Court ruled it unconstitutional a year later because it was not apportioned according to each state's population, as the Constitution then required. That meant, for example, that if 5% of the U.S. population lived in Virginia, no more than 5% of the tax's total revenue could come from Virginia. But in 1913, the 16th Amendment removed the constitutional hurdle by authorizing Congress to collect taxes on incomes, 'without apportionment among the several states, and without regard to any census or enumeration.' It's also worth mentioning that the Facebook post doesn't limit itself to federal taxes. States could, and in multiple cases did, tax earnings before 1913. So how did the U.S. government generate revenue prior to income taxes? Before the Civil War, government funds were primarily obtained from tariffs on imports, the selling of public land and temporary excise taxes. During the decades following the war, when the income tax lapsed, the IRS says about 90% of the country's revenues came from taxes on liquor, beer, wine and tobacco. While the modern tax structure wasn't in place before 1913 and the U.S. did have things like schools, roads, subways, etc., citizens still helped pay for them.
Our ruling A Facebook post says Americans kept 'all of their earnings' up until 1913. The modern income tax structure, including Form 1040, was, indeed, adopted in 1913. But the post disregards pre-1913 efforts to impose an income tax, one of which was in place for a decade, and it ignores early state income taxes. We rate this Half True.