Theme 2: Taxes in U.S. HistoryLesson 5: The Wealth Tax of 1935 and the Victory Tax of 1942

President Franklin D. Roosevelt's New Deal programs forced an increase in taxes to generate needed funds. The Revenue Act of 1935 introduced the Wealth Tax, a new progressive tax that took up to 75 percent of the highest incomes. Many wealthy people used loopholes in the tax code. The Revenue Act of 1937 cracked down on tax evasion by revising tax laws and regulations.

The cost of World War II exceeded federal tax revenues. The Revenue Act of 1942 proposed the Victory Tax, the broadest and most progressive tax in American history. To ease taxpayers' burden of paying a lump sum from this mass tax, and to create a regular flow of revenue into the Treasury, the government required employers to withhold money from employees' paychecks. By the end of the war in 1945, about 90 percent of American workers submitted income tax forms.