As the Modern Income Tax Marks Its 90th Year, the Tax Code Is More Complex Than Ever, Notes CCH

(RIVERWOODS, ILL., October 1, 2003) – While tax bills will be smaller for many people in 2003 thanks to tax legislation passed this year, the Internal Revenue Code is doing anything but shrinking. In fact, as the modern income tax law marks its 90th anniversary in October, it’s more complex than ever, according to CCH INCORPORATED (CCH), a leading provider of tax information and software. CCH has been keeping professionals up to date on the twists and turns of the tax law since 1913, when President Woodrow Wilson on October 3 of that year signed into law the Underwood Tariff Act, section two of which created the modern income tax.

Although it took the first federal tax loose-leaf service – the Income Tax Service – just 400 pages to deliver the original 1913 law and related documents, 90 years later it takes the CCH Standard Federal Tax Reporter 25 binders and 55,000 pages to do the same job.

To commemorate the 90th anniversary of the income tax and CCH’s longstanding tax law leadership, CCH offers this look at the tax law, then and now.

In a special commemorative booklet, CCH also has reproduced the 1913 law – originally part of the Underwood Tariff Act – as it appeared in the pioneering loose-leaf Income Tax Service. At just 27 pages, it’s slim in comparison to the thousands of pages required today to just reproduce the current tax code. ($9.50. For more information or to order, call 800-248-3248.)

Some Things Never Change

Despite the exponential growth in the tax code, today’s professionals cannot help being struck by the many similarities between the 1913 law and the current code.

“The general outline of the legislation and numerous specific provisions survive to the present day,” said Mark Luscombe, an attorney, CPA and principal analyst for CCH’s tax and accounting group. But it’s not likely the nation’s income tax law will shrink again to fit into a few dozen pages.

“The Code has become large and complex in part because it deals with complex problems. Even in 1913, questions of how you figure the tax on insurance companies took up an inordinate amount of the law, and those questions have become more complex over time as Congress, the IRS and the courts have tried to spell things out in greater detail,” Luscombe said.

Original Features Survive

The original income tax of 1913 taxed the income from all sources of all Americans, whether they were living in one of the then states or abroad, and also taxed all the income of resident aliens, plus the U.S. income of non-residents. Individuals could subtract a fixed amount – $3,000 per person, with an extra $1,000 for married couples – in figuring their taxable income. They could also take deductions for specific items, such as taxes.

The 1913 law levied a 1-percent “normal income tax” on the “net income” of individuals, plus a graduated, additional tax of 1 to 6 percent on income over $20,000. The top, 6-percent, bracket began at $500,000.

From the beginning, tax computations have been performed on Form 1040. The first Form 1040 was three pages long, with an additional page for instructions. Currently, Form 1040 itself is only two pages long, but can require dozens of pages of additional schedules, and the instructions for filing federal tax come in a 126-page booklet for Form 1040, a 32-page booklet for the “simple” 1040EZ. Some other similarities and differences:

  • Individuals could deduct interest they paid, such as mortgage interest.
  • There were no credit cards in 1913, but if there had been, the interest on them would have been deductible, as well. “Personal interest” has not been deductible for more than a decade under the current law.
  • Nearly all state and local taxes were deductible in 1913, whereas today, sales tax is not.
  • Casualty losses – those due to “fire, storms or shipwreck and not compensated for by insurance” – were deductible in 1913, as they are today.
  • As with today’s law, state and local bond interest was exempt from tax.
  • Unlike the current law, interest on United States bonds was also untaxed.
  • “National” taxes, such as excise tax on telephone service first instituted to pay for the Spanish-American War, could also be deducted in 1913, but today such taxes are non-deductible.
  • There were no special provisions for capital gains in 1913 – they were taxed like all other income.

New Needs, More Law

Some of the growth in the size of tax law has come about as the Code is used to provide for needs that are much more pressing today than they were in 1913. Trimming these provisions would shrink the law but also deprive people of tax saving features that have become popular in recent years.

For example, credits for higher education expenses, the exclusion of employer-reimbursed tuition and various tax breaks for those saving for higher education are all post-1913 phenomena, and many of the education provisions in the Code today are of recent origin. Sorting out the best options from the many presented in today’s Code has become an important sub-specialty for accountants and other financial advisors, Luscombe noted.

“But in 1913, relatively few people finished high school, let alone college,” Luscombe added. “In recent years, we’ve seen both political parties recognizing the popularity of relieving education expense through the tax laws, as Democrats honored President Clinton’s birthplace with Hope scholarship credits and Republicans memorialized one of their congressional leaders with Coverdell education savings accounts.”

Just as dramatic an addition are the many provisions that use the tax code to promote retirement savings. Mutual-aid associations were granted tax exemption in 1913, but there were nothing like the pages of provisions in the present Code governing pension and profit-sharing plans, Roth and other IRAs and 401(k), 403(b) and 457 plans. But Luscombe sees these additions as a sign of changing times, as well.

“In 1913, the idea of a financially secure, independent, non-working ‘retirement’ was only a dream for most people. It was more common to die well before what we consider retirement age, or to be dependent on your children and grandchildren when you got too old to work,” Luscombe said. “The retirement provisions of the Code have grown as the concept of retirement and the need for retirement income have become realities. It would be difficult today to rip all of these provisions out of the Code in the name of simplification.”


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, human resources, health care and small business markets. CCH is a Wolters Kluwer company. The CCH web site can be accessed at The CCH Tax and Accounting web site can be accessed at


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