The History of Taxation in the US

Vintage illustration features the Boston Tea Party

Keith Lance / Getty Images

Every year, people in the United States frantically race to get their taxes done by mid-April. While shuffling papers, filling out forms, and calculating numbers, have you ever stopped to wonder where and how the concept of income taxes originated?

The idea of a personal income tax is a modern invention, with the first, permanent U.S. income tax law in October 1913. However, the general concept of taxation is an age-old idea that has long shaped history.

Ancient Times

The first, known, written record of taxes dates back to ancient Egypt. At that time, taxes were not given in the form of money, but rather as items such as grain, livestock, or oils. Taxes were such an important part of ancient Egyptian life that many of the surviving hieroglyphic tablets are about taxes.

Although many of these tablets are records of how much people paid, some describe people complaining about their high taxes. And no wonder people complained! The taxes were often so high, that at least on one surviving hieroglyphic tablet, tax collectors are depicted punishing peasants for not having paid their taxes on time.

Egyptians were not the only ancient people to hate tax collectors. Ancient Sumerians had a proverb, "You can have a lord, you can have a king, but the man to fear is the tax collector!"

Resistance to Taxation

Nearly as old as the history of taxes — and the hatred of tax collectors — is resistance to unfair taxes. For instance, when Queen Boadicea of the British Isles decided to defy the Romans in 60 CE, it was in large part because of the brutal taxation policy placed upon her people.

The Romans, in an attempt to subdue Queen Boadicea, publicly flogged the queen and raped her two daughters. To the great surprise of the Romans, Queen Boadicea was anything but subdued by this treatment. She retaliated by leading her people in an all-out, bloody revolt, eventually killing approximately 70,000 Romans.

A much less gory example of resistance to taxes is the story of Lady Godiva. Although many may remember that in the legend, Lady Godiva of the 11th century rode through the town of Coventry naked, most probably do not remember that she did so to protest her husband's harsh taxes on the people.

Perhaps the most famous historical incident that relates to the resistance to taxes was the Boston Tea Party in Colonial America. In 1773, a group of colonists, dressed as Indigenous people, boarded three English ships moored in Boston Harbor. These colonists then spent hours smashing the ships' cargo, wooden chests filled with tea and then throwing the damaged boxes over the side of the ships.

American colonists had been heavily taxed for over a decade with such legislation from Great Britain as the Stamp Act of 1765 (which added taxes to newspapers, permits, playing cards, and legal documents) and the Townsend Act of 1767 (which added taxes to paper, paint, and tea). The colonists threw the tea over the side of the ships to protest what they saw as the very unfair practice of "taxation without representation."

Taxation, one might argue, was one of the major injustices that led directly to the American War for Independence. Thus, the leaders of the newly created United States had to be very careful as to how and exactly what they taxed. Alexander Hamilton, the new U.S. Secretary of the Treasury, needed to find a way to collect money to lower the national debt, created by the American Revolution.

In 1791, Hamilton, balancing the need of the federal government to collect money and the sensitivity of the American people, decided to create a "sin tax," a tax placed on an item society feels is a vice. The item chosen for the tax was distilled spirits. Unfortunately, the tax was seen as unfair by those on the frontier who distilled more alcohol, especially whiskey, than their eastern counterparts. Along the frontier, isolated protests eventually led to an armed revolt, known as the Whiskey Rebellion.

Revenue for War

Alexander Hamilton was not the first man in history with the dilemma of how to raise money to pay for a war. The need for a government to be able to pay for troops and supplies in wartime had been a major reason for ancient Egyptians, Romans, medieval kings, and governments around the world to increase taxes or to create new ones. Although these governments had often been creative in their new taxes, the concept of an income tax had to wait for the modern era.

Income taxes (requiring individuals to pay a percentage of their income to the government, often on a graduated scale) required the ability to retain extremely detailed records. Throughout most of history, keeping track of individual records would have been a logistical impossibility. Thus, the implementation of an income tax was not found until 1799 in Great Britain. The new tax, viewed as a temporary one, was needed to help the British raise money to fight the French forces led by Napoleon.

The U.S. government faced a similar dilemma during the War of 1812. Based on the British model, the U.S. government considered raising money for the war through an income tax. However, the war ended before the income tax was officially enacted.

The idea of creating an income tax resurfaced during the American Civil War. Again considered a temporary tax to raise money for war, Congress passed the Revenue Act of 1861 which instituted an income tax. However, there were so many problems with the details of the income tax law that income taxes were not collected until the law was revised the following year in the Tax Act of 1862.

In addition to adding taxes on feathers, gunpowder, billiard tables, and leather, the Tax Act of 1862 specified that the income tax would require those that earned up to $10,000 to pay the government three percent of their income while those that made over $10,000 would pay five percent. Also notable was the inclusion of a $600 standard deductible. The income tax law was amended several times over the next few years and eventually fully repealed in 1872.

Beginnings of a Permanent Income Tax

In the 1890s, the U.S. federal government was beginning to rethink its general taxation plan. Historically, most of its revenue had been from taxing imported and exported goods as well as taxes on the sale of specific products.

Realizing that these taxes were increasingly bearing on only a select portion of the population, mostly the less affluent, the U.S. federal government began looking for a more even way to distribute the tax burden.

Thinking that a graduated-scale income tax placed upon all citizens of the United States would be a fair way to collect taxes, the federal government attempted to enact a country-wide income tax in 1894. However, because at that time all federal taxes had to be based on state population, the income tax law was found unconstitutional by the U.S. Supreme Court in 1895.

To create a permanent income tax, the Constitution of the United States needed to be changed. In 1913, the 16th Amendment to the Constitution was ratified. This amendment eliminated the need to base federal taxes on state population by stating: "The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

In October of 1913, the same year the 16th Amendment was ratified, the federal government enacted its first permanent income tax law. Also in 1913, the first Form 1040 was created. Today, the IRS collects more than $1.2 billion in taxes and processes more than 133 million returns annually.

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Rosenberg, Jennifer. "The History of Taxation in the US." ThoughtCo, Oct. 2, 2020, Rosenberg, Jennifer. (2020, October 2). The History of Taxation in the US. Retrieved from Rosenberg, Jennifer. "The History of Taxation in the US." ThoughtCo. (accessed April 10, 2021).