It’s been said that there are two constants in life: death and taxes. However, taxes haven’t been around forever.
Sure, there were taxes in ancient Egypt, and ancient Roman governments charged taxes in times of war. But the idea of sales taxes, income taxes, payroll taxes, and other types of taxes is mostly a modern invention.
Where did taxes come from? Why do we pay taxes? Are taxes ever going away? Today, we’re explaining the entire history of taxes from ancient times to the modern day.
Taxes in Ancient Egypt
Egyptian pharaohs used tax collectors – called scribes – to collect money from their citizens. This wasn’t typically an income tax. Instead, it was a tax on a specific type of good. Once, the pharaohs charged a tax on cooking oil, for example.
Tax scribes would travel around to audit Egyptian houses to ensure they were using an appropriate amount of cooking oil, and that they weren’t using other leftover oils as a replacement for oil. The Egyptian pharaohs wanted the citizens to use their cooking oil because they earned tax revenue from it.
There’s also evidence that ancient Egyptians used to tax citizens a type of income tax to help finance wars against their neighbors. This wasn’t specifically an income tax – it was more of a “wealth tax”, and Egyptians were fined according to the value of possessions they owned.
The idea of taxing citizens to pay for a country’s wars is a frequent theme throughout history. In fact, as you’ll learn further down, the first American income tax was designed specifically to fight a war.
Ancient Greece and Taxes
Ancient Greeks paid taxes periodically to finance various wars. The Athenians, for example, imposed a tax called the eisphora. No Athenian citizen was exempt from the tax. The money raised from the tax was meant to be used for wartime expenditures.
Once the war was over, the Athenian government would rescind the eisphora, and the Greeks would continue living untaxed. There were even some cases where the Athenian government would rescind the tax before the war was over because they had already used the money to build sufficient equipment and weapons.
Athens was also known for its monthly foreigner tax. If you did not have an Athenian mother and father, then you had to pay a tax to live in Athens. That tax was one drachma for men and one half drachma for women. This tax was called the metoikion.
Taxes in the Roman Empire
The Romans introduced a number of ideas that would have a profound impact on civilization – including the world of taxes.
The Romans introduced the concept of customs duties on imports and exports. These duties were called portoria.
Caesar Augustus wasn’t just known as a great Roman leader for his wartime abilities; he was also known for his brilliant tax strategies. One of the biggest chances he introduced to Rome’s tax strategy was to eliminate the “publicani” as tax collectors. Publicani were agents of the central government who traveled across the Roman Empire to collect taxes.
Understandably, Roman colonies didn’t appreciate when a foreigner from Rome came to demand money, so Caesar Augustus implemented a new strategy: he transferred the responsibility of tax collections to the individual cities and colonies.
At the same time, Caesar Augustus instituted forward-thinking taxes like an inheritance tax, which was used to provide retirement funds for the military. The tax was assessed at 5% of all inheritances (except gifts to children and spouses).
Caesar August’s inheritance tax had a powerful impact on history. By the time the English and Dutch were creating their own tax laws centuries later, they were still referencing Caesar Augustus’s original inheritance taxes.
Ancient Rome also had a sales tax. During the time of Caesar Augustus, the sales tax was 4% for sales and 1% for free citizens. Julius Caesar was the first to implement a sales tax. During his rule, sales tax was a flat 1% across the Empire.
Taxes in Ancient Great Britain
Great Britain’s tax history began in Roman times. In fact, there was a massive war over taxes. Queen Boudicca – the queen of East Anglia – led her famous revolt due to corrupt Roman tax collectors. Legend states that she killed all Roman soldiers within 100 miles of her territory before seizing London. Eventually, her revolt created an army of 230,000 people and led to 80,000 deaths across Great Britain before the revolt was crushed by Emperor Nero – all because she didn’t like paying taxes!
After the fall of Rome, Saxon kings imposed their own taxes on the people of Great Britain. These taxes were called “danegeld”, and they were assessed based on the value of land and property. Kings of the land also imposed significant customs duties.
Lady Godiva was another well-known figure in English tax history. Allegedly, Lady Godiva’s husband Leofric, Earl of Mercia, promised to reduce high taxes on his citizens when Lady Godiva agreed to ride naked through the streets of Coventry in the 11th century.
Taxes and wars were a common theme throughout the Middle Ages in France and England. The 100 Years War initially began because of a noble rebellion over oppressively high taxes in Aquitaine.
England is also attributed with having one of the first progressive taxes, where taxes were higher on wealthier people than on poorer people. Records show that the Duke of Lancaster paid a tax 520 times higher than the average peasant.
The poor were treated comparatively well by England’s early tax system. Poor people paid little or no taxes, and the majority of the tax burden was carried by the wealthier classes – like clergy, nobles, and merchants (who paid a tax on their movable property).
England would later formalize the idea that wealthy people should pay more taxes than poor people. The King’s Writ declared that citizens of England should be taxed based on their status and means.
England Invents New Taxes in the 17th Century
Progressive taxes weren’t the only English invention. England is also one of the first countries to invent a lot of taxes we take for granted in the modern world.
England created land taxes and various excise taxes throughout the 17th century, many of which were designed to finance Oliver Cromwell’s war. Excise taxes were imposed on essential commodities like grain and meat.
Excise taxes took an opposite approach to England’s other taxes: they were regressive and not progressive. That means they placed a higher burden on the poor. The burden was so great that the taxes led to the Smithfield Riots of 1647. Rural laborers were unable to afford food for their families. Making matters worse is that hunting on common lands was forbidden: it was a privilege reserved for the higher classes.
The World’s First Income Tax
Great Britain is typically attributed with inventing the world’s first income tax. In the 1800s, Great Britain would periodically introduce income taxes to pay for various wars.
England is best known for introducing its income tax in 1800 to help deal with Napoleon. That tax would later be repealed after 1816 – one year after Napoleon was finally defeated at the Battle of Waterloo.
After the tax was repealed, the government agreed that income taxes should only be used to finance wars. The government was so serious about this commitment that they publicly burned all records of the income tax (although copies of the tax were retained in the basement of an English tax court).
Taxes in Colonial America
Taxation in Colonial America had a profound effect on American history. Colonial Americans had paid taxes for years under the Molasses Act. Starting in 1764, the Molasses Act was modified to add more taxes to imported goods like molasses, sugar, wine, and other commodities.
The English government was disappointed by the amount of revenue from their Molasses Act taxes. Thus, they created the Stamp Act the next year, in 1765. This act proposed a direct tax on all newspapers printed in Colonial America, including most commercial and legal documents.
Ultimately, all of these taxes would lead Americans to revolt against the British in 1773. After the Revolutionary War, the new American government was (understandably) wary of taxing their people.
Taxes in Early America
The new nation of America didn’t want to tax its people. For most of America’s early history, the country was tax-free. However, the government still had to collect revenue – so they collected it through tariffs and duties on certain items. Excise taxes were collected on liquor, tobacco, and sugar – similar to the taxes that were collected under British rule.
The new nation of America had just fought a war to escape from taxation. Angered by the new taxes, American citizens launched the Whiskey Rebellion. A group of Pennsylvanian farmers were angry about the new tax on whisky, so they burned down the houses of tax collectors across the state. Tax collectors were tarred, feathered, and forced to flee. Congress suppressed the revolt with military force.
The Whiskey Rebellion didn’t scare the US government away from taxes forever. In the 1790s, the US government was forced to assess a property tax to finance its war with France.
Two decades later, the US government added new taxes to finance the War of 1812 against the English, including higher duty fees and excise taxes.
All of these taxes, however, were minor compared to the taxes America was forced to collect to finance the US Civil War.
America Implements Its First Income Tax for the US Civil War
The US Civil War was an expensive war. It was the world’s first major industrial-era war. It led to a huge cost in equipment, weapons, machinery, and human lives. All of these things were paid for with new taxes on the American people.
In 1861, just months into the war, America was facing huge amounts of debt. In response, Congress passed the Revenue Act of 1861. This act charged income taxes on all incomes over $800.
The government collected income taxes throughout the American Civil War, all the way up to 1872, when the Revenue Act was repealed. Nevertheless, the foundations were laid for the modern US tax system.
Rewriting the US Constitution to Permanently Add Income Tax
One of the best parts of the original US Constitution was that it specifically prohibited directly taxing the American people in a way that was not proportional to each state’s population (this was actually the reason the Revenue Act was repealed in 1872).
Things had to change. The government was floundering in debt, and they needed new sources of revenue. The Wilson-Gorman Tariff Act of 1894 tried to tax the American people again, although it was declared unconstitutional in 1895.
The US government had a problem: they needed taxes to build the country, but taxes were unconstitutional. So what did they do? They changed (“amended”) the US constitution. Woodrow Wilson ratified the 16th Amendment in 1913, paving the way for an income tax. The amendment specifically removed the taxation according to proportional representation clause.
Soon after, the government created an income tax targeted at citizen with an annual income over $3,000. The tax affected fewer than 1% of all Americans.
This early income tax had a weird problem: the law specifically used the phrase “lawful income” – which meant Prohibition-era gangsters like Al Capone had an out clause. Later, the law was changed to simply refer to “income”, which is why Al Capone was ultimately charged with tax evasion.
World Wars and Income Taxes
World Wars are expensive. To finance the war, the United States introduced three Revenue Acts, cranking up tax rates and increasing the number of Americans who had to pay taxes. 5% of all Americans were now paying taxes. The government introduced new taxes for estates and excess business profits.
After the First World War, taxes were gradually rolled back. The 1920s led to a booming economy, and tax revenue continued to increase until the Great Depression.
The New Deal and Rising Taxes
Franklin Delano Roosevelt’s New Deal required increased taxes across the nation. The New Deal ran a heavy deficit, and the government needed revenue from somewhere. In 1936, America’s highest tax bracket was paying a 76% marginal tax rate.
Taxes continued to increase as the Great Depression deepened and the Second World War began. In 1940, Americans with incomes of $500 faced a 23% tax. America’s wealthiest were paying an unprecedented 94% marginal tax rate. By 1945, 43 million Americans were paying taxes out of a total population of 140 million.
Nixon Lowers Taxes Across America
Tax rates were enormous throughout the 1950s – the highest tax rate was over 80%. Throughout the 1960s and 1970s, America went through an inflationary period. Government deficits grew. Taxes weren’t indexed for inflation, which meant that the real value of people’s incomes continued to decrease.
In response, Nixon would lower taxes with a series of Tax Acts throughout the 1980s, including the Economic Recovery Tax Act of 1981. All individual tax brackets were lowered, and then continued to be lowered throughout the 1980s.
Bush in the Early 2000s and the Future of Taxes
Taxes remained comparatively low throughout the 1990s. In the early 2000s, President George Bush scaled back taxes by approximately 3% for each bracket. Taxes have remained mostly unchanged to the present day.
Where Are Taxes Going in the Future?
Ultimately, the history of taxes takes us from ancient Egypt to present day in America. Today, every country has its own unique taxes – from import/export taxes to income taxes. These taxes often have their roots deep in history, with the first taxes having been seen in ancient Greece and Rome.
So the next time you want to blame someone for your taxes, consider blaming the ancient Greeks and Romans – not your current government.