“No Taxation Without Representation”: A History of Taxation in America

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While many Americans nowadays would likely consider taxation in its various forms simply part of everyday life, most taxes applicable today have only been in existence for barely half the country’s history.

The large scale use of tax paperwork such as the W-2, 1099 and 1096 forms used in payroll today ironically stemmed from the British imposing taxation on America during colonial rule. The “no taxation without representation” quote that appeared in 1768 summed up the grievance felt amongst American colonists through having to pay taxes to a distant country where they had no chance to have a say on how they were governed.

Indeed, the imposition of taxes by the British was a major cause of the American Revolution.

Stamp, sugar and tea taxes

The Sugar Act and Stamp Act were the catalyst to the colonists’ resistance to tax and eventual lead up to the American Revolution.

Strong protestations caused the British to repeal the Stamp Act, but the Townshend Revenue Act tried indirect taxation: British Chancellor of the Exchequer Charles Townsend levied a tax on everyday items such as paint, glass, paper and lead that were collected from the captain of the cargo ship when the goods were unloaded.

The Tea Act reduced duty on tea sold by the British India Tea Company in order to combat smugglers selling cheaper Dutch tea; this gave rise to their protests of dumping crates of tea into Boston Harbor in the infamous Boston Tea Party.

Fierce opposition

Such was the strong opposition to direct taxation, the US government had to operate a ‘stealth’ tax method to raise revenues through duties on goods such as liquor, sugar, tobacco and even certain types of documentation.

Government tried again with direct taxation in the 1790s with a property tax designed to help pay for a war with France; it didn’t go well so they went back to indirect taxation methods such as levying duties and excise taxes on certain items.

It would take another war to finally usher in revenue-based taxation.

Another war ushers in modern US tax system

Huge levels of debt were racked up during the American Civil War, so to help pay it the Revenue Act of 1861 became what is basically the American tax system: the Internal Revenue Service (IRS) came into being and those generating incomes of over $800 were taxed.

Income taxes were brought in and adjusted as government sought to refine the system, and in 1913 the 16th Amendment and a tax on incomes over $3000 was introduced – although it affected less than one per cent of Americans.

More war, more taxes

World War I prompted higher tax rates and lower exemptions, along with taxes on estates and business profits, boosted government coffers to the tune of $3.6 billion in 1918 and, although taxes were lowered post war, revenues nearly doubled to $6.6 billion in 1920.

The Second World War saw taxes rise again as America geared up to enter the war. By 1945 some 43 million Americans were taxpayers and revenues passed $45 billion.

Other taxes

Various other taxes have appeared and been refined and adjusted over the years: estate tax – initially enacted in 1797 – has been repealed and re-introduced over the years and gift tax surfaced in 1924.

Sales tax first appeared in West Virginia in 1921, and by 1940 was effective in some 30 states overall as they embraced the idea of generating some sorely needed revenues in the wake of the Great Depression: nowadays only a few US states don’t have it.

A raft of other taxes exist, including taxation on cigarettes, energy, aviation, property and even telecommunications.

Tax freedom day

Such is the tax burden faced by Americans today, the Tax Foundation calculated back in 2009 the average American would, from the start of the year, have to work to April 11th to earn the amount of money they’d be paying in tax during the course of the year.

It’s a far cry from the days of the Stamp Act and the Boston Tea Party.