Tuesday, July 12, 2016

A Brief Look at Tax Changes Throughout US History

Image courtesy Jimmie | Flickr
Benjamin franklin said it “In this world, nothing can be said to be certain, except death and taxes”. And he was totally right. Taxes have been in our lives forever, since we can remember our grandparents paid taxes, our parents paid taxes and we ended up paying taxes as well. We also know that these taxes tend to change, not to be cheaper or softer, and tend to regulate almost any activity in our day to day lives.
But how has taxation changed in the United States? More importantly, what are those changes that have marked the history of the tax system in the Unites States? Surprisingly, at the beginning, America was tax-free for much of its early history. At least, it was free of direct taxation like income tax. We have to remember that it was taxation that led to the revolution against the British in 1773 and after that, one of the first challenges the new system faced was the Whiskey Rebellion. This rebellion was all about groups of Pennsylvanian farmers angry about the tax on whiskey burning down tax collectors' houses and tarring and feathering any collectors too slow to get away. It is well remembered because the congress handled the situation using military force because they had the right to collect indirect taxes for the nation.
Since this date, taxation has had many changes, some good and necessary, others not so favourable for some people and at times unfair. Let’s take a look at those moments in taxation history that are worthy to remember and that gave an amazing boost to the North American economy.
Near the previous date, in 1790, taxation had a big addition to its variety. A war with France led the government to impose a property tax and a further modification to it in 1812 with the first income tax approach after a civil war. Of course the consequences of the war, specially a war against oneself as a civil war is, are totally negative. The American Civil War was very expensive for the nation because there was an amazing rate of debt that had to be acquired in order to carry out such war. In order to help pay for the war, the Congress passed the Revenue Act of 1861 which taxed incomes exceeding $800, and was not rescinded until 1872. Many scholars consider that it was this act that created most of what it is considered as the modern tax system. That same year the U.S. Internal Revenue Service (IRS) was founded as a consequence of arranging such taxes and making the government machinery work perfectly.
In 1895 there was a big game changer.  Although the Constitution forbade any direct taxes that were not levied in proportion to each state's population, the Supreme Court declared a flat tax contained in the 1894 Wilson-Gorman Tariff Act unconstitutional. This was a huge victory for all the taxpayers because now it was a bit fairer the way they were going to be charged for their taxes. This started a feeling in people´s hearts that taxes could also bring negative consequences to world trade and for underprivileged people. After this, the 16th Amendment was introduced in 1913 and that gave way to one type of income tax for the population and a further income tax for people with an annual income of over $3,000. This tax touched less than 1% of Americans and gave the government the possibility to control high incomes that came from anonymous societies or big partnerships and that were free from being charged as a group. (This was one of the mechanisms used to get to Al Capone´s finances and money movements)  
Image courtesy DonkeyHotey | Flickr
For the Second World War and for his new approach to the country called The New Deal, Roosevelt introduced many taxes and increased many others. For Roosevelt´s New Deal there was a huge deficit that had to be covered by imposing and collecting more taxes. By the end of 1936 there was a top tax rate 76% and the economy couldn’t take it. Taxes were then raised several more times and only the corporate tax changed for good lowering its tariff. The war came and America needed money to support their allies so a more aggressive taxation was imposed. By 1945, 43 million Americans paid tax and the amount of taxes collected went from $9 billion in 1941 to $45 billion in 1945.
All these changes in taxation in the United States came after big issues in the government or society or after wars in and outside of the country. We all know that taxes are totally necessary, but we also known that those same taxes make our lives a little bit more difficult. Learn more about taxation in this article

No comments:

Post a Comment