In the early years of the federal income tax, there was a lack of data regarding who was paying the tax, how much they were earning, and where they were located. Congress directed the Bureau of Internal Revenue (BIR) to collect and publish this information in its annual reports. The first report in 1918 focused on taxes paid, net income, and the location where returns were filed. Geographic information was particularly important as politicians were interested in which states were paying the most taxes.
The BIR’s reports evolved over time to include data on special wartime levies and general economic information. The cost of preparing the data from filed documents was low, leading to better statistical universes of individual returns. By 1928, the reports provided valuable information on income distribution, profits, and purchasing power. The BIR aimed to remain objective in its data collection and provide valuable public information for the study of economic conditions in the country.
The federal income tax system changed over the years, reflecting different exemption levels and tax rates. In 1916, the tax primarily affected the rich, with high exemptions for individuals and married couples. By 1917, exemptions were lowered, expanding the number of people paying income taxes. The number of taxable individual returns increased eightfold from 1916 to 1917, but the income tax was still primarily a tax on the wealthy.
The BIR’s first report on 1916 tax returns showed that wealthier individuals reported a significant amount of net income and paid the majority of taxes. The income tax burden was distributed across different occupations, with merchants, manufacturers, lawyers, and medical professionals filing the most returns. The BIR categorized income as derived from personal service, business, or property, with dividends also making a substantial contribution to gross income.
Geographical data highlighted New York as the state paying the highest amount of total taxes in 1916. Other states like Pennsylvania, Illinois, Ohio, and Massachusetts also contributed significantly to the national tax bill. States like North Dakota, Wyoming, South Dakota, and Nevada paid significantly less in taxes. The BIR’s reports provided valuable insights into the distribution of income, professions, and tax burdens across different regions in the country.
Overall, the BIR’s statistical reports played a crucial role in providing concrete information on taxpayers, income sources, and business pursuits to Congress and the public. The evolution of these reports over the years offered valuable insights into the economic conditions of the nation and helped policymakers make informed decisions about tax policy and revenue collection.
