World War I and the 1920s
American entry into the First World War transformed and expanded the nascent income tax regime. In 1916, Congress made the existing income tax system both more progressive and more productive. Even during the war, however, most taxpayers remained exempt from the income tax. In 1918, only 15 percent of American families were subject to any personal income tax; the richest 1 percent of American families accounted for 80 percent of revenues collected.
The WWI tax system was short lived. Under the direction of Treasury Secretary Andrew Mellon, the three Republican administrations of the 1920s rolled back most of the wartime system.