Tax & AccountingJune 28, 2021

From tariffs on tea to income taxes

Wolters Kluwer Tax & Accounting looks at a timeline of the history of taxation developments in the United States.

What: Taxes have played a major role in the history of the United States. The American Revolution was in large part the result of Britain imposing taxes on the colonies without the colonies having representation in Parliament. The Constitution came about in substantial part due to the Articles of Confederation’s failure to give the federal government taxing power. The federal income tax required a further amendment to the Constitution to become the law of the land. 

Why: Most new Presidents in recent history have campaigned on, proposed, and frequently enacted major income tax law changes in their first couple of years in office. With the 4th of July holiday approaching, we take a look back at significant taxation developments over the course of history:

  • In the early colonial period, colonial assemblies and royal governors addressed tax issues for each colony with little involvement by Britain
  • From 1756 to 1776, the French and Indian War resulted in significant debts for Britain. Since the war helped to provide for colonial security, Britain tried to get the colonies to help pay off these debts through taxes on sugar, stamps for printed materials, and duties on glass, paint, lead, paper, and tea. After growing colonial opposition to “taxation without representation”, many of these taxes were repealed except the tax on tea. The Boston Tea Party in 1773 resulted in further British punitive legislation that led the colonies to unify in the push for independence 
  • From 1776 to 1787, under the Articles of Confederation, the federal government had no power to tax and looked to loans or financial support from the new states 
  • In 1787, the Constitution was adopted and granted the national legislature the exclusive power to impose tariffs, along with the flexibility to collect excises and levy taxes on individual citizens
  • From 1787 to 1862, the federal government primarily relied on tariffs to fund expenses 
  • In 1862, an income tax was enacted as an emergency measure to help fund the Civil War, which was allowed to lapse in 1872 
  • In 1894, a two percent federal income tax was enacted, but was ruled unconstitutional by the Supreme Court in Pollack v. Farmer’s Loan and Trust in 1895
  • In 1913, the 16th Amendment to the Constitution was ratified permitting an income tax, and the Revenue Act of 1913 was enacted, imposing a one percent income tax on one out of every 271 citizens and substantially reducing tariffs
  • In 1939, the revenue statutes were codified into the Internal Revenue Code and one out of 32 citizens paid a 4 percent income tax
  • In 1943, withholding on wages and salaries was introduced to help pay for World War II, with one of every three citizens owing an income tax
  • In 1954, the Internal Revenue Code of 1954 was enacted, overhauling the income tax system with 3,000 changes to the tax rules
  • The Tax Reform Act of 1986 represented the first significant effort to simplify the Tax Code
  • From 1986 to the present, almost every new Administration has proposed and has been able to enact significant tax legislation during their first two years in office, resulting in regular changes to the U.S. income tax and increasing tax complexity 
  • The federal government still imposes tariffs on imported tea

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help discuss the history of U.S. taxation. 

PLEASE NOTE: These materials are designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional service.

Contact: To arrange interviews with Mark Luscombe and other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

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