Let me be clear: the primary purpose of federal income taxes originated from the government’s need to fund World War I. Before the introduction of federal income taxes, the U.S. government relied primarily on two key revenue sources: tariffs and excise taxes.
What Are Tariffs and Excise Taxes?
Tariffs:
Tariffs are taxes levied on imported goods. These taxes were designed to make foreign products more expensive, encouraging Americans to buy from American businesses.
Excise Taxes:
Excise taxes are taxes imposed on specific goods like alcohol and tobacco. These were intended to discourage bad habits or regulate behavior, while also generating revenue.
In simple terms, tariffs protected U.S. businesses by discouraging reliance on foreign goods, and excise taxes aimed to curb “undesirable” behavior while funding government needs.
Why Did Federal Income Taxes Start?
During World War I, the cost of war efforts overwhelmed the revenue generated by tariffs and excise taxes. The U.S. government needed a new, reliable way to fund its growing expenses. This led to the introduction of federal income taxes, made possible by the 16th Amendment in 1913.
Initially, income taxes targeted only wealthy individuals and businesses, with rates ranging from 1% to 6%. The idea was simple: those who earned the most would contribute the most to the nation’s war effort.
Income taxes quickly became a cornerstone of government revenue, funding not just wars but also infrastructure and social programs.

What is FICA and Why Does It Matter?
FICA stands for the Federal Insurance Contributions Act, a law that requires employers and employees to contribute to Social Security and Medicare programs.
Purpose:
FICA ensures that workers contribute to a system that provides financial security (Social Security) and healthcare (Medicare) in retirement or in cases of disability.
Here’s how FICA works:
Social Security Tax:
Employees contribute a percentage of their wages, matched by their employer, to fund Social Security benefits for current retirees and other beneficiaries.
Medicare Tax:
A smaller percentage is deducted to fund Medicare, which provides healthcare for older Americans.
FICA represents a system where workers actively contribute to their own future financial and healthcare needs, reducing reliance on general government aid.
The Creation of the Social Security Number
Social Security Number (SSN):
The SSN was created in 1936 as part of the Social Security Act to track individuals' contributions to their Social Security accounts.
While many view the SSN as defining their identity, it does not. Instead:
The SSN identifies an account within the Social Security system.
The birth certificate identifies the person, documenting their legal existence.
Connecting the Dots:
Birth Certificate and Social Security Account
When a person is born, their birth certificate serves as their legal proof of existence. Later, when they are issued a Social Security Number, it represents their entry into the federal system of contribution. This system ensures that every working individual contributes taxes to fund essential programs like Social Security, Medicare, and national infrastructure.
In essence:
Birth Certificate: Identifies the person as a legal entity.
Social Security Number: Tracks the financial contributions made by that person to the federal government, tying their work and income to benefits they may receive later in life.
Nonprofits and Tax Exemption:
A Government Trade-Off
Nonprofits (such as 501(c)(3) organizations) represent an interesting aspect of the tax system. The government recognizes that individuals and entities contribute to public welfare through taxes and wants to encourage activities that benefit society as a whole. Here’s how nonprofits fit into the bigger picture:
Contribution Through Taxes:
Workers contribute to federal programs like Social Security and Medicare through taxes.
These contributions help fund social aid, healthcare, and infrastructure.
Nonprofits’ Role:
Nonprofits often address societal needs (e.g., feeding the hungry, providing education, or supporting the arts), reducing the burden on government programs.
In recognition of this, the government allows nonprofits to operate tax-free, saying, “Since you are contributing to the greater good, we won’t require you to pay taxes.”
This system creates a balance:
Workers contribute directly through taxes.
Nonprofits contribute by providing public services, receiving a tax exemption as an incentive.
Why Was the 401(k) Created?
Later, in 1978, the 401(k) was introduced to help individuals take more control over their retirement savings. Unlike pensions, which were employer-funded and guaranteed, the 401(k) shifted the responsibility to employees.
Pensions:
Pensions were retirement plans funded by employers, providing a fixed income to retirees. Over time, pensions became costly and unsustainable for many businesses.
401(k) Plans:
The 401(k) was designed to relieve employers of the financial burden of funding pensions and encourage individuals to save for their own retirement.
Penalties for early withdrawals exist to discourage dipping into retirement savings early, ensuring funds are preserved for the intended purpose.
The Creation of the SBA
The Small Business Administration (SBA) was created in 1953 to provide opportunities for smaller businesses, including minority- and women-owned businesses, to compete for government contracts. Historically, government contracts—especially during wartime—went to large corporations. The SBA was designed to level the playing field and support small businesses in contributing to the economy.
Connecting Taxes to the Bigger Picture
So, why do you pay taxes today? Taxes fund critical aspects of our society, including:
National Defense: Historically, taxes were introduced to fund wars, like World War I.
Social Security and Medicare: Taxes ensure that Americans contribute to their own financial and medical security in retirement, reducing reliance on welfare programs.
Infrastructure and Programs: Taxes fund highways, schools, healthcare programs, and more, creating a functioning society.
The overall purpose of taxes, programs like Social Security and Medicare, and incentives like 401(k)s is to:
reduce long-term dependence on government aid
by encouraging individual responsibility and economic self-sufficiency.
What is 'The Congress'?
In the United States, Congress is the part of the federal government that makes laws, including tax laws. It is made up of two groups:
The Senate: Two senators from each state, representing all states equally.
The House of Representatives: Representatives based on the population of each state, so larger states have more representatives.
Congress gets its power to collect taxes from the U.S. Constitution. At first, the Constitution only allowed direct taxes (like property taxes or income taxes) to be collected if they were apportioned among the states.
What does "apportioned" mean? It means the tax had to be divided up based on the population of each state, so every state paid an amount proportional to how many people lived there.
This rule made it difficult to create a fair income tax system, which is why the 16th Amendment was passed in 1913. The amendment allowed Congress to tax incomes without apportionment, making income taxes simpler and fairer.
Congress now uses its power to collect taxes to fund programs, like Social Security, Medicare, national defense, and infrastructure.
Conclusion
Whether you agree with the concept of taxes or not is not the purpose of this blog. The goal is to provide context and understanding as to WHY YOU PAY TAXES.
At its core, the tax system is about balance, as envisioned by the government. We live in a society that operates within a system designed to function efficiently through collective contributions. The more individuals can contribute to this system—and to their own financial independence through tools like Social Security and retirement savings—the less they depend on direct government aid.
At the same time, the government still requires public assistance to fund programs that serve the 'greater good'. Through ‘The Congress,’ taxes fund the nation’s needs while making individuals to secure their own future.
References
IRS on FICA Taxes: IRS FICA Overview
History of Social Security Numbers: Social Security Administration - SSN History
Income Tax Day: Library of Congress
SMALL Business Act (SBA): Click Attachment Below
Its important to know the legal aspect of the law as in How our system works in relation to The US Congress passing Laws under their 2 Jurisdictional Authorities.
Subject matter and Territory
Congress's territorial jurisdiction is specifically limited to U.S. territories.
It does not extend to the 50 states of the Union.
The Constitution clearly delineates this distinction.
States have their own sovereignty and powers under the 10th Amendment, which reserves to the states all powers not expressly granted to the federal government.
Territories, on the other hand, are subject to the direct authority of Congress.
That means not all Federal Law is applicable. Specifically Federal Income Tax Law. Title 26 of the United States Code.
The Tax Code…
Very insightful, thanks.
Under "Conclusion" No one in his/her right mind would agree with the current system amended by the 16th as it currently stands. My comment/question is: what is 45,47 going to do to the SBA with his current direction. What is his aim ultimately?
I wouldn't want you to write it out. Just call me sometime when you have the time and give me your insightful opinion.
.....and, please don't get me talking about your Supreme Court!
Great Read.. The Pdf doc.. I will need a week to read that part lol