If you’re one of the millions of Americans struggling with your tax forms today, you’re not alone. Even Albert Einstein allegedly found income taxes to be “the hardest thing in the world to understand.” But how did our tax system become so complicated?
From Revolution to Revenue: The Birth of American Taxation
America’s relationship with taxes has been fraught from the beginning. Joel Slemrod, professor of economics and the University of Michigan and co-author of Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages says that contrary to popular belief, the Boston Tea Party wasn’t sparked by increased taxes, but rather by a decrease that threatened the livelihood of smugglers who had been circumventing high British tea taxes. This tax unrest eventually led to the American Revolution and the founding of a new country.
Given this history, early American governments approached taxation cautiously. For decades, federal revenue came primarily from excise taxes (applied to specific goods like fuel) and tariffs. This simple system worked until the Civil War created an urgent need for additional funding. In 1862, President Lincoln signed into law the very first federal income tax to fund the war effort, simultaneously creating the Bureau of Internal Revenue (now the IRS). This innovative approach generated the equivalent of about $1.1 billion in today’s dollars for the Union government.
After the war ended, however, this emergency tax was eliminated in 1872, and the government reverted to its previous approach. For decades, nearly 90% of federal revenue came from taxes on liquor, beer, wine, and tobacco—so-called “sin taxes.”
The Rise of the Modern Income Tax
During the Gilded Age—an era of profound wealth inequality—the tax burden fell primarily on the poor through regressive excise taxes. In 1894, Congress passed the Wilson-Gorman Tariff Act, which established the first peacetime income tax, applying only to the wealthiest 1% of Americans.
The Supreme Court quickly ruled this unconstitutional, but public support for a fairer tax system led to the 16th Amendment, which in 1913 finally gave the federal government the right to levy an income tax regardless of population distribution. Initially, this income tax affected very few people. The tax form and its instructions were a mere four pages long, and with the exemption level set at roughly $90,000 in today’s dollars, only about 350,000 returns were filed in a country of nearly 100 million people.
World War II: The Great Tax Transformation
Everything changed during World War II. The exemption level was drastically lowered, expanding the tax base from 7.7 million filers in 1939 to 49.9 million by 1945. This shift transformed income tax from a “class tax” to a “mass tax,” with the Treasury Department promoting tax payment as a patriotic duty.
The collection method also evolved significantly during this period. Before 1943, taxpayers filed once a year for the entire sum they owed. But in 1943, the government implemented employer withholding, requiring employers to send portions of employees’ wages directly to the government throughout the year. This remains one of the most important innovations in modern tax administration.
Why Taxes Became So Complicated
Unlike after the Civil War, the income tax remained in place following World War II. The federal government’s role had permanently expanded through programs like Social Security, the GI Bill, and increased defense spending, making the old tax structure insufficient.
Two main factors have contributed to the growing complexity of the American tax system:
- Social Engineering: Policymakers increasingly use the tax code to influence taxpayer behavior through credits and deductions that encourage retirement saving, historic preservation, or green energy adoption, while discouraging behaviors like smoking or alcohol consumption.
- The Pursuit of Fairness: Making taxes fair inherently makes them more complex. A simple system where everyone pays the same amount would be profoundly unfair. Our progressive system with deductions for various circumstances (like medical expenses or dependents) attempts to account for different needs and situations—at the cost of simplicity.
The original 4-page Form 1040 from 1913 has ballooned to 106 pages in 2025, reflecting these complexities.
Could Filing Be Easier?
While the tax code might necessarily be complex, filing taxes doesn’t have to be difficult for average Americans. Many countries use “return-free filing” systems that pre-populate tax forms with information the government already has. Taxpayers simply verify the information and submit.
In 2024, the IRS piloted a Direct File program in 12 states that allowed qualifying taxpayers to file returns electronically for free without commercial tax preparation software. Participants completed their filing in as little as 30 minutes, and 86% reported increased trust in the IRS.
However, the future of such simplification efforts remains uncertain amid political debate and opposition from tax preparation companies, which have spent millions lobbying against systems that would make filing free and easy. Until meaningful reform takes hold, every April 15th will continue to be a day that makes one-third of Americans—along with the ghost of Albert Einstein—want to cry.
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