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Like what has been discussed before, it is certainly most essential for a person not to be intimidated at all by the mere thought of taxation; and the best way to overcome the nervous feelings that come with the very idea of taxes is to become familiar with it. Again, one of the best ways to familiarize one’s self with taxes, one of the very first things one must do in order to understand taxation and its basics, would be to look into the history of taxation. Given that the history of Western taxation – that is, the beginnings of taxation – has been discussed well into the nineteenth century (at which point the taxation has evolved from a means of controlling the masses and staying in power to a means of sustaining a government that provides for the masses), we could now move into newer territory in terms of the history of taxation. That is to say, we are now free to discuss the evolution of taxation in the context of America: we can now discuss the history of American taxation, whose development in the Western world more or less helped shape much of taxation in other parts of the democratic world.

So, where to begin when discussing the history of American taxation? The most logical place, of course, is that point in history before America became the America we know now – that is to say, we begin by taking a look at Colonial America before moving on to post-Revolution America, to see the difference between the taxation sensibilities of a colony versus that of an independent nation.

Remember that taxation and its many evolutions are always based on two questions: “Who is taxed?” and “What is taxed?”. It has already been established in the course of a previous article posted on this site that the individuals taxed (at the very least, in the beginning) tended to be the poor and the local colonials – those people who are not, in any way, in power. It was also established that practically anything could be taxed, from land to inheritance to trading. During the time of Colonial America, America was, of course, a colony of the United Kingdom (or, if you prefer, Britain). Thus, the more enterprising colonials living in America back then were expected to pay some sort of percentage tax to the British on top of the regular trade tax they had to pay in order to export their products to other countries. They also had to pay a portion of the tax they receive for the imports coming in from other countries that they trade with.

An example of this would be the 1764 modification of the Molasses Act, which was renamed the Sugar Act at that point. The Sugar Act was an amendment that was geared towards adding import duties on items like molasses, wine, sugar and other different commodities that were valued at the time. The changes in the Act, however, did not give them the amount of revenue that they had hoped to have, which was why the Stamp Act was established in 1765. The Stamp Act imposed direct tax on most commercial and legal documents as well as all the various newspapers published and printed in the colonies. Eventually, the Americans felt a need to separate themselves from their homeland of England, which then led to the American Revolution that was the beginning of the America we know today.

After the Revolution, the history of American taxation, much like the history of America itself, became a little more exciting – perhaps because at that point they were trying to figure out the mechanisms of their young government all at once at the time. But the point is, taxation in America around the late eighteenth century became something that inspired much debate and, at some point, riotous protest. A case in point would be Alexander Hamilton’s excise tax, which was established in 1791. This excise tax was thought to be one that promotes discrimination and eventually the settlers based west of Alleghenies rose up against the tax collectors in 1794, in what history texts now refer to as the “Whiskey Rebellion”. The aftermath of this rebellion was eventually stopped by President Washington who, despite allowing the conviction of two of the settlers, actually pardoned all those involved.

Another example of tax-based protests in early Western America happened because in 1798, the Federal Property Tax was enacted by the Congress to pay for Army and Navy expansions that were being planned in order to prepare for the possibility of America ending up in a war with France. This new tax was also met with some discontent and the “Fries Rebellion”, led by a Mr. John Fries who, funnily enough, was one of the military individuals who were sent out to stop the “Whiskey Rebellion”. Thankfully, no-one had been truly hurt by the uprising and Fries, who had been convicted for treason, was pardoned in 1800 by President Adams.

During the War of 1812, when they felt the need for extra revenue, the United States of America drew up their very first proposition for income tax, a proposition designed very much like the British tax Act of 1798. This system of income tax involved a progression of rates that related to a person’s personal income: point zero eight percent of the income is imposed on income above the equivalent of sixty pounds, and ten percent of the income is taxed when it is above the equivalent of two hundred pounds. The Act was fully developed by 1814, but ironically, this was never passed due to the fact that by 1815, the War was ended with much thanks to the Treaty of Ghent, which means that the money was no longer needed.

The incident gave America some kind of practice before it finally churned out the Tax Act of 1861. According to the Tax Act of 1861, “there shall be levied, collected and paid, upon annual income, of every person residing in the U.S. whether derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere, or from any source whatever, a tax”. Which, of course, means that anyone living in the United States is required to pay a percentage of one’s yearly income (which includes property and professional compensation). According to the Tax Act of 1861, an income of above eight hundred dollars would warrant a three percent tax, and that American citizens living outside of America would need to pay five percent of their income for the same annual income. The 1861 Tax Act is an interesting point in American taxation history because despite being passed, it was supposedly never really upheld.

Because the 1861 Tax Act was not properly upheld, it was only logical that another one would be put into place almost immediately. In the first of July 1862, President Lincoln signed the Tax Act of 1862. The rates were a little bit higher this time around: annual income of eight hundred dollars a year would warrant a three percent tax, while annual income above ten thousand dollars a five percent tax. However, this time around, the included tax deductions for the benefits of the citizens – the rent or rental value of a home, for example, is deducted from the annual income, thus lessening the tax liability of an individual. This new tax was embraced wholeheartedly by Americans, but mostly because they needed the taxes to pay for their Civil War – and the fact of the matter is, many people chose not to pay this tax either. Old documents show that out of the thirty-eight million people living in America in 1870, for example, only roughly two hundred and eighty thousand people actually filed their tax returns.

Another Tax Act was apparently passed in 1864 to further raise revenue for the Civil War. The 1864 Tax Act ruled that individuals with an annual income between six hundred and five thousand dollars would have to pay five percent tax, while income between five thousand and one and ten thousand dollars will pay seven point five percent. Income above ten thousand dollars a year would get a ten percent tax. Tax deductions involving rent and rental value only amounts up to two hundred dollars, although the citizens were allowed to deduct tax liability when they need to have their rent homes repaired. The people were still accepting of this new taxation act, of course, prompting one senator to comment that the people have gained “a recognition of the idea that taxes shall be paid according to the abilities of a person to pay”.

Of course, when the Civil War ended, the people stopped being so happy about the taxes that they were required to pay, leading to the modification of the 1864 Tax Act. This time, the citizens were all expected to pay a flat rate of five percent, and the exemption amount was raised to one thousand dollars. The maintaining the rates of this new amended Act became increasingly difficult as by 1869, The Times published that “no businessman could pass the day without suffering from those burdens”. In 1870, up until 1872, tax rates were kept at a flat rate of two point five percent and the exemption amount was further raised to two thousand dollars.

It is interesting to note that the Tax Act of 1864 was actually challenged numerous times, but remained firm because the Supreme Court supported it unanimously with no question. It was only declared unconstitutional by the Supreme Court AFTER the war because it enforced direct taxation on the citizens when, in fact, the constitution states that that kind of thing is not at all allowed.

The Tax Act of 1864 was finally repealed in 1872, and the new tax systems put in significant tariff restrictions which became a major source of revenue for the United States of America until 1913, when the Sixteenth Amendment was passed. According to the Sixteenth Amendment, Congress is allowed the authority to tax the citizens on income from anywhere they can find it.

As you can see, taxations laws are often affected by civil necessities that an entire nation encounters; taxes evolve from a need for something to be paid for – whether it is the right to security or other things, the evolution of American taxation has shown that the support for the tax by the citizenry is often affected by its perceived importance. The taxation laws can always be changed once it is recognized to be no longer viable for the prosperity of the people involved; the people involved being the masses who make up one nation.