A Comparison of the U.S. Tax Systems in 1963 and 2013

INTRODUCTIONIt is common knowledge that the U.S. individual taxation system is very fluid with numerous changes occurring in each annual revision. This study examines the U.S. individual income tax system in existence in 1963 with its counterpart 50 years later in 2013. Many facets of these two versions are examined in this paper. In particular, income inclusions, income exclusions, for and from Adjusted Gross Income (AGI), tax credits, filing requirements, tax rates, standard deductions, personal exemptions and many aspects of the 1963 and 2013 versions of the Internal Revenue Code (IRC) are compared and contrasted.A review of Form 1040 for 1963 and 2013 shows both similarities and significant differences. Form 1040 is a one page two-sided document in each of these years. Both versions begin with an income reporting area and after that section there are few similarities. For example, the first page of the 2013 version determines both total income and AGI. A host of for are found on Form 1040 page 1 on the 2013 form. These were not available to taxpayers filing in 1963. Deductions for AGI such as educator expenses, health saving account deductions, moving expenses, self-employed SEP pension deductions, self-employed health insurance deductions, penalty for early withdrawal of savings, alimony paid, student loan interest deduction, and the tuition and fees deduction are recent developments that did not exist 50 years ago.The front page of the 1963 Form 1040 included lines to report all income items, calculate the amount of tax liability using either the tax table or tax rate schedule, an area to summarize all tax credits and payments made, and finally determine the tax due or refund. The back of Form 1040 in 1963 included an area for reporting personal and dependency and a section for reporting itemized for the year. The itemized listed on this page included charitable contributions, interest expense, taxes, medical expenses, and itemized including casualty and theft losses.The group of expenses called other itemized deductions in 1963 included items that in 2013 are classified as for AGI. These encompassed the cost of care of children and dependents, educational expenses, gambling losses, and alimony payments made under a divorce decree. Similar to current regulations, educational expenses must be for the purpose of maintaining or improving skills required in the taxpayer's trade or business and courses needed to meet the express requirements of the taxpayer's employer. Likewise, educational expenses incurred to obtain a new position, to meet the minimum requirements of the job, or to achieve a substantial advancement in position were not deductible. In summary, the back side of the 1963 form 1040 contained all the information found today on Schedule A (Itemized Deductions).The back of the 2013 Fonn 1040 begins with numerous tax credits that were not available to taxpayers in 1963. These include educational credits, retirement savings contributions credit, child tax credit, residential energy credits, and a number of others. Following the tax credits area, lines 56 through 60 are used to report taxes including the self-employment tax, unreported social security and Medicare tax, additional tax on IRA's and qualified retirement plans, household employment taxes, and a number of taxes. The next section of tins page includes all of the taxpayer payments of tax including taxes withheld, estimated taxes made, any earned income credit (EIC) available, any refundable portion of the educational American opportunity credit, the refundable credit for federal taxes paid on fuels (fanning, etc.), and a number of refundable credits. The final lines on the back side of the 2013 Form 1040 are used to determine the amount of the tax due or refund for the year. The remainder of this paper compares a number of significant aspects of the federal income tax system existing in 1963 and 2013. …