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5Jan 2016
Jan 5, 2016

A Brief History of Taxes in America

taxes-history-america“Taxes are what we pay for a civilized society.” Oliver Wendell Holmes

As long as people have been forming communities, people have been paying taxes. In fact, taxes are an essential component of any thriving civilization. Taxes provide the lifeblood of any developed civilization. Without them, we would lack roads and bridges, public schools, police forces and fire departments, national defense programs, and public health services.

United States history is filled with strong connections to taxing practices. Much of the American Revolution was driven by taxing practices. After all, who can forget the Boston Tea Party? An event that lives in infamy for its rebellious spirit—an event that occurred due to the simple fact that there was an unsupported tax that the American people did not want to pay.

A Look at our Taxable History

The United States as we know it today exists on three levels: federal, state, and local. American pay taxes at all three levels. We pay taxes on income, payroll, property, sales, and estates and gifts. Benjamin Franklin said that “nothing is certain but death and taxes.” And guess what? There’s a tax even on death.

In return for Americans paying their dues, however, the US has one of the greatest national defense systems in the world, beautiful national parks, a generous “safety net” for financially disadvantaged citizens, Social Security, a social insurance system, and a first-rate infrastructure that includes miles and miles of paved highways, expansive bridges, and roads that lead into the most remote of places.

It’s hard to believe that at the very beginning of United States history, citizens really only paid import taxes known as “tariffs.” As the United States has grown in size and population, the tax system has expanded to accommodate a thriving, first-world civilization. There have been taxes since the beginning of our country, and people have been fighting about them ever since.

No Taxation without Representation!

In the 1700s, English parliament imposed a series of tax laws on American colonists. Colonists felt this was unjust as American were not represented in parliament. The Tea Act of 1773 was the last straw. The Tea Act allowed the failing British East India Company to export tea duty-free to the colonists; however, the colonists were still required to pay taxes carried out by the unpopular Townshend Revenue Act of 1967. Colonists protested by dumping the arriving tea into the Boston Harbor, instigating the American Revolution.

The Dawn of the American Tax System

Before there were income taxes, there were tariffs. The first tariff was one of the first major actions taken by Congress. Enacted in 1789, it worked to raise revenues for the country’s new governments by placing a tariff on imported goods. Subsequent protective tariffs were implemented to help Americans compete with cheap foreign imports, broadening industry within the nation.

During the Civil War there was the Revenue Act of 1861, which created a tax on all personal incomes to support the war effort. Ten years later the tax was repealed. Without a war to pay for there was a lack of consensus about the need for paying taxes. Of course, at this point in American history the US was still rather fragmented, and much of the transportation resources—from roadways to steamships to train tracks—were funded privately, or not funded at all and left in a state of disarray (think of an overgrown dirt road).

The United States Start Paying Taxes on Income

A big change came in 1909, when the 16th Amendment was passed by Congress. Ratified in 1913, a tax on income was instituted for the first time in the United States. In the grand scheme of things, that is actually pretty recent! This puts our constitutional guidelines on taxation as recent as World War I, which started in 1914. Over the years, various types of taxes on all levels have been instituted and repealed numerous times.

2016 Presidential hopefuls have brought to life the call for a “flat tax,” which is basically the idea that everyone is taxed an equal amount, regardless of income level. This is actually not a new idea at all! In 1894, Congress enacted a flat rate Federal income tax, which was repealed the following year when it was found unconstitutional by the US Supreme Court. The Amendment in 1913 was the first to allow the Federal Government to tax each state, without regard to state population levels.

How to Pay Your Due without Paying too Much

The taxes that you pay at the end of the year are part of a grand history of American financial progress. While it might sometimes feel like that tax payment goes off into a void of lost funds, taxes are crucial to our society’s ability to function. Of course, no one should pay more than they can afford, or that they are required to. That is why you want to partner with a strong accountant who can help you make heads and tails of your tax bill every year.

A good accountant understands the rather thick and complicated U.S. tax system. He or she can help you budget for taxes, deduct expenses you may not have realized were deductible, minimize liabilities, and help you stay within the law while paying the least amount of tax.

Whether you view taxes as a necessary evil or a point of American pride, paying taxes is something all Americans have in common, from past to present. No one particular enjoys handing over that check come April 15th, but know this: the next time you take a leisurely walk through the park or see the police helping a citizen in need, you helped pay for it.