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The History of Taxes

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We have a lot of different taxes.  Sales tax, income tax, social security, property tax. 

“If you drive a car, 

I’ll tax the street, 

If you try to sit, 

I’ll tax your seat 

If you get too cold, 

I’ll tax the heat, 

If you take a walk, 

I’ll tax your feet”.  

This line from the Beatles’ song “Taxman” demonstrates the feeling many have.  You may wonder, was it always like this?

 

As you may know, a rallying cry for the American Revolution was, “No taxation without representation.”  This culminated in the Boston Tea Party, which was a protest of the Tea tax, where colonists threw boxes of tea into the Boston Harbor.  At the time, the colonist’s taxes amounted to much less than you generally pay today, sometimes as little as 1%. Their issue was the fact that Britain would not grant them representation in Parliament, yet demanded the payment of taxes.  We can see a comparison today with Puerto Rico.  Because Puerto Rico is a territory and not a state, it doesn’t have congressional representation, therefore it does not pay federal income tax, however this does not mean they pay no taxes at all.

 

Following the American Revolution, there was no federal income tax.  Through most of the US history, the primary way government obtained funds was through tariffs as well as excise taxes (taxes paid on goods similar to income tax). The government was also involved in less things than they are today so it required less taxes overall. The income tax was first proposed during the War of 1812, but nothing came of it at that time.  During the Civil War in order to pay for the cost of fighting the war, an income tax was imposed by both sides, and again in the 1890s but this was struck down as unconstitutional in Pollock v. Farmers Loan and Trust. 

 

This changed with the 16th Amendment. The Amendment didn’t impose the tax but merely allowed it.  It was the Revenue Act of 1913 that made it law.  Many people have tried to resist or use various arguments to avoid it, and while there are legal methods, it didn’t turn out well for many of those trying illegal methods. In fact, it was Al Capone’s tax resistance and not all the murder and other violent crimes he did, that ended up landing him in Alcatraz. What would become the IRS came along with this but didn’t gain its current name until the 1950s when its functions were reorganized a bit.  Also founded the same year was the Federal reserve which changed the way banking was done and can be seen as part of the package with the Income tax in a way.  If you think income taxes are high now, they actually peaked during the ending of WWII with the top rate of over 90% although very few of even the rich paid that much. Tax forms have also gotten continuously more complex throughout the years. One famous quote states “the only thing you can be sure of is death and taxes.” Will Rogers expanded upon this by saying “The difference between death and taxes is death doesn’t get worse every time Congress meets.” 

 

Another question is, why the date? Why is April 15th tax day? It wasn’t always so.  In 1913, when the 16th Amendment first passed, it was March 1st.  Then it was March 15th.  In 1955,  it changed to the 15th of April where it remains today (with a few days added due to holidays sometimes).  It is meant to give enough time to get everything together from the previous year, but most people put it off anyway. 

 

Today, there are efforts to change the tax laws.  There is much debate today about what sort of tax is preferable.  A fair tax, a flat tax?  Replace the Income tax with a National sales tax? That might simplify the tax code at the very least and likely make the IRS unnecessary.  As the 16th Amendment doesn’t require an income tax specifically, any of these proposals could be passed without an additional amendment, however, they wouldn’t necessarily be permanent.  

 

This is all just the Federal taxes.  States have always handled their own taxes, with various different rates and methods.  Some states for instance don’t have a sales tax, such as Oregon.  They might have taxes on specific goods, like California’s gas tax.   So in the end, the government – whether it be Federal or State – ends up with part of your paycheck.  It is nothing new; every civilization has had some form of taxation.  Remember this the next time tax day rolls around.