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Income tax
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Income tax

Income tax is a direct tax which is levied on the income of private individuals. Various income tax systems exist, ranging from a flat tax to an extensive progressive tax system.

Tax levied on the income of companies is often called corporate income tax or corporation tax, although some jurisdictions impose income tax on companies.

History of income tax in the UK

Income tax was first introduced in Britain by William Pitt the Younger in his budget of December 1798. The revenue was intended to help finance the war against France. Pitt's new graduated tax began at a levy of 2d in the pound (0.8333%) on incomes over 60 and increased up to a maximum of 2s (10%) on incomes of over 200. Pitt hoped that the new income tax would raise 10 million but actual receipts for 1799 totalled just over 6 million.

Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. Income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo.

Finally, income tax as we now know it was reintroduced in 1842 by Sir Robert Peel. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above 150.

Income tax remains an annual tax, and is reimposed each year in the annual Finance Act.

Currently it has three bands of 10% (basic rate), 22% (base rate) & 40% (higher rate).

History of income tax in the US

In order to help pay for its war effort in the American Civil War, the United States government issued its first income tax on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872).

Income tax was again introduced by the federal government in 1913. The rate was 1 percent on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7 percent on incomes above $500,000.

During World War I rates rose to 77 percent.

Following the war they were scaled down and the prosperous 1920s followed.

During World War II, income tax rose again with a top rate of 91%.

After World War II income taxes were reduced.

During the Korean War the rose again.

During the 1960s and 1970s the progressiveness of income tax was increased.

The Tax Reform Act of 1986 reduced the progressiveness of the system.

History of income tax in Australia

In Australia the states reliquished all income tax powers to the federal government during World War II. The powers were never returned and there are no state income taxes in Australia.

See also