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As was mentioned before, many individuals have some form of discomfort, some form of trepidation, at the thought of taxation and taxes, in that the numbers begin to blur and all the rules and regulations tend to become dizzying in their quantity. Nevertheless, it must be taken into account that despite the relationship of taxation with numbers and rules, taxation in PRINCIPLE is a tool that is used to ensure that the public receives benefits that befit a society that is comprised of human beings. In order to steer thoughts of taxation from being simply a matter of numbers and finance (which are, at best, boring to most people and at worst nightmarish to those who are at war with maths and structures), it is best that we take a short detour into the history of taxation – in particular, Western and American taxation because much of modern taxation was based on them – so there will be an understanding of the evolution of this function, and the fact that it’s MORE than just numbers and a reason to be angry at one’s government. It is something that inspires change and is likewise inspired by change.

In previous articles, it has been established that the two main issues of taxation involve two significant elements of taxation: who is being taxed, and what is being taxed. In the beginning, the ones being taxed are the ones that were generally thought of (at least, back then) as the “lesser citizens” – that is to say, the poorer peasant masses and the people who live in the colonies or other places that have been taken over by the empire or nation. What was taxed in the beginning included some things as ridiculously simple as the use of cooking oil, or something as precious as the value of one’s inheritance. Most of the time, these early taxes were implemented in order to finance wars, property conquests, or simply the excesses of the so-called nobles. Then, as time went on, society began to evolve, and with it, the taxation system.

In the case of the history of American taxation, much of their very early taxation history involved being a colony of the England, of the United Kingdom. As such, they owed a fraction of what they had earned by means of territory and trade taxes to the “mother land”. As they extricated themselves from Europe in order to create their own nation, however, they began to create their own tax laws that not only included territory and trade, but personal income as well. Most of these taxes, as is seemingly a trend in much of taxation history, were generally supported by the in times of war and turmoil (as the taxes are used, supposedly, for the security and prosperity of the citizenry) but were usually instigators of protest, discontent and rebellion in times of peace (possibly because there seems to be no immediate or outward manifestation of what the taxes are paying for). There were many arguments on the subject of whether or not certain tax laws could be considered constitutional, and eventually, by 1913, they came up with the Sixteenth Constitutional Amendment where Congress was given the power to tax citizens for any income they may come into possession of.

This 1913 Amendment is one of the major milestones that the history of American taxation marks as one of the most defining moments in the development of the modern income tax system. The fiscal reformers and the federal government at this time had come to devise a means of compromise, modestly taxing the masses without suffering any major, significant losses at this point. This doesn’t mean to say, however, that the Sixteenth Amendment did not have opposition, as having some form of centralized taxation (this is the birth of the Internal Revenue Service – now commonly known as the IRS – after all) seems to echo the Imperialism of the Roman Empire before Augustus: prone to power-hunger and corruption. But the Amendment was still ratified.

Around the same point, President Woodrow Wilson, who had just been elected president at the time, included a plea for tariff (that is, the tax imposed on goods upon importation) reform in the speech he delivered on the day of his inauguration. He repeatedly claimed that changes must be made in terms of reforming the revenue tariffs being imposed on imported goods that America cannot produce for itself until it was agreed that the standard tariff rates be lowered from an average of forty percent to something more like twenty-nine percent. It is because of this that it was decided that there will be changes in the income tax system of the country, as the lowered tariff rates means less revenue (or income) for the government. The income tax that the people pay would supposedly make up for the losses.

This new income tax law that compensates for the losses states that each individual whose annual income is worth more than three thousand dollars would have to pay one percent to the government – although the same percentage is applicable to couples whose annual income amounts to more than four thousand dollars. This income tax system is also progressive, in that individuals (or couples) would have to pay one to six percent of their annual income, depending on how much they have made. The tax also has a system in which certain kinds of income would already be taxed before the individuals even touch it – it’s a form of “collection at source” method, and it is the basis of the modern withholding tax. Toward this end, the Bureau of Internal Revenue established a division – the Personal Income Tax Division – that would not only collect the new tax from the people but would also address questions about the changes in the levy.

When this new income tax system was made public in 1914, it was decided that it would not yet be fully implemented – they Bureau did not collect any money yet, and simply expected that the taxpayers would complete their four-page tax forms so that their accuracy may be checked by the field agents. Of course, this four-page tax form system was a tad complicated, which became an issue that was raised by the congress in 1915. The argument, however, was soon made moot because international trade suffered a seemingly sudden decline that began in 1914 as an international war began to break out, resulting in the War Revenue Act of 1914. the War Revenue Act of 1914 created a new set of excise taxes (that is, taxes on goods produced WITHIN the country) that would make up for what the country is losing from the declining import revenue.

This tax, however, was unable to completely make up for the losses, and eventually Congress had to think of an income tax that would be more effective, if a little bit expensive on the masses. The new income tax that they had devised became part of the Revenue Act of 1916, and it suggested that net incomes of over three thousand dollars (four thousand for married couples) would be subjected to two percent tax – twice that of the “normal rate” beforehand. They also used and raised a surtax (that is, a tax levied upon a tax in times of great need); incomes that reach more than half a million in net worth had a maximum of six percent tax beforehand, but the rates had been raised to thirteen percent tax on incomes that are worth more than two million. This new law was meant to ensure that they would be able to raise two hundred and five million dollars in revenue; the levy mostly concentrated on the richest taxpayers, so while the income tax was steep, it was also a bit fairer to the poorer citizens.

This new 1916 law also raised the income tax of corporations: while it used to only demand one percent of profit, it now demanded two; and it also demanded a capital stock tax. Other changes with regards to taxation at this point in American taxation history included a federal estate tax (that is to say, a tax on estates that are transferable between people – be it by will or some other form) that has an exemption of fifty thousand dollars and has rates that can go as low as one percent and as high as ten percent. A tax was also levied on manufacturers of military equipment in order to make some form of compromise with the people who are loudly voicing their opposition of America’s involvement in the war.

Still, there were issues to be addressed with regards to certain aspects of the previous income tax system – in particular, it would be the collection at source provisions. As such, the 1916 Revenue Law repealed this aspect of the tax collection system, deciding that the best course of action would be to simply ask the sources of income to provide the government the pertinent information with regards to income paid out to its many recipients (that is, their employees). - To Be Continued