The federal agency that does business with more Americans than any other arm of the federal government observed its 90th birthday in October. Created in 1913 with ratification of the 16th amendment, Congress enacted a federal income tax system and with it an agency charged with administering the tax laws. And so the Internal Revenue Service was born.
The nation’s original income tax arrived during the Civil War to finance war expenses. But ten years later the tax was repealed as the country returned to tariffs and duties to generate revenue. Shortly before the turn of the 20th century, the Supreme Court ruled an income tax unconstitutional when Congress revived it in 1894.
So when the states ratified the 16th amendment two decades later, the income tax emerged as a constitutional means for the federal government to raise revenue and provide services to the people.
Times certainly have changed in the last 90 years. The agency started out with a staff of a few thousand employees. Today 100,000 people work for the IRS. In 1913, the federal tax collector collected about $700 million. In 2002, the IRS collected more than $2 trillion and processed nearly 227 million tax returns. Taxpayers pay $9.9 billion to run the agency.
Beyond personnel and budgeting, perhaps the greatest shift affecting the mission of the IRS in its 90-year run to date are the fluctuations in tax policy and its effort to implement an increasingly complex federal tax code. In its early years, the marginal tax rate started at one percent with a cumulative top rate of seven percent for those with incomes of $500,000 or more. During World War I, the highest-earners faced a whopping 77 percent marginal tax rate to finance the war effort.
As chairman of the Senate Finance Committee, which bears primary legislative and oversight authority over the IRS, I work to advance tax policy that strikes the magic balance between funding essential government services and lowering the tax burden to help grow the economy and create jobs. In 2001 and 2003, I steered two of the largest tax rebates in modern history through Congress. The new tax laws reduce the lowest tax rate to 10 percent and drop the top rate to 35 percent. My philosophy rests in the belief that working men and women deserve to keep more of their hard-earned money. The entrepreneurs, small business owners and investors of America will generate more prosperity, economic growth and jobs with more of their own money in their pockets.
From my senior position in the Senate, I also take very seriously congressional oversight duties in my pursuit to keep our system of checks and balances strong. I work hard to make the federal government accountable, efficient and effective to the people. In the last decade, I led the effort to put "service" back into the Internal Revenue Service. In many ways, the agency had lost touch with its mission to help taxpaying Americans comply with the tax laws. Over the years, the bureaucracy developed an insular culture of "we vs. the taxpayer" and grew to become one of the most disliked government institutions in America. With enactment of the IRS Restructuring and Reform Act of 1998, Congress prescribed the largest overhaul of the agency in a half-century.
As chairman of the committee in the U.S. Senate which holds primary oversight responsibilities over the IRS, I continue to work closely with the federal agency to ensure it’s meeting the fundamental goals of the 5-year-old law, including improving customer service, modernizing its outdated infrastructure, putting a premium on fairness and integrity, and insisting on open lines of communication with taxpayers.
To that end, I facilitated in October an opportunity for Iowa taxpayers to consult with members of my staff at IRS offices in Des Moines, Waterloo, Davenport and Cedar Rapids. My Iowa-based staff, who specialize in resolving issues with federal agencies, and staff members of my Finance Committee, who have specialized legal knowledge of tax issues, met with Iowans who came with questions about their personal tax issues. The committee staff members also met with accountants and tax preparers in Iowa to discuss particular concerns they find most troublesome to Iowa taxpayers.
From my watchdog and policymaking position in the Senate, I’ll continue my efforts to help make sure the federal tax collection agency builds upon its efforts to improve customer service, raise voluntary compliance rates and fairly enforce the tax laws. That includes my efforts to close tax loopholes that allow corporations and individuals to avoid paying their fair share. As the IRS works its way towards a century of service, Iowans can rest assured I’ll do my best to see the agency collects every dime due under the law, but not a penny more.