Taxes have existed as long as the civilized world. The IRS is the latest incarnation of what we know as tax collectors. Ancient Egyptian pharaohs used tax collectors called scribes. Caesar Augustus of Rome was the first to transfer tax duties from the federal government and make tax collection the jurisdiction of cities. And Julius Caesar was the first to impose an actual sales tax on his citizens. So, sales tax is not a new concept by any means. Excise tax, the taxation of certain non-essential goods, is also a form of sales tax.
The American history of sales tax began when the colonies were founded; taxes were developed as well. England imposed the Sugar Act and the Tax Act on the American colonies to fund its battles against France. Once the colonies broke away from England, they, too imposed taxes on their citizens, many of which were met with rebellion. The Whiskey Rebellion of 1794 was a citizen protest against the taxation of certain beverages, while the Fries Rebellion occurred in 1798 as a response to the Property Tax Act
imposed that same year.
Personal income tax was first suggested during the War of 1812 but was never imposed. The tax was introduced again in 1861, but again it was not imposed. However, in 1862, President Lincoln signed the Federal Tax Act into law. The rate was 3 percent on income above $600 but below $10,000, and 5 percent for income over $10,000. Rent or rental property value could be deducted from income to determine the tax liability. This tax was passed to help fund the Civil War. Two years later, the amended version, the Tax Act of 1864, was passed to continue funding the war between the states, and a new taxable rate was created. The rates for the Tax Act were 5 percent on income between $600 and $5,000; 7.5 percent on income between $5,001 and $10,000 and 10 percent on income above $10,000. The rent deduction was limited to $200, but a deduction for repairs was allowed. If this structure seems familiar, it should; it is the basis for the tax structure that we use today.
Our current tax liability occurs on the federal, state, and local level. Federal tax (personal income tax) is paid annually. Social security tax is taken out of a person’s pay in small increments and is used to fund the federal pension and medical insurance programs for persons over the age of 65. All other taxes are handled on either a state or local level and each state is allowed to determine which taxes it chooses to levy on its citizens. Most states, if they impose a sales tax, limit what can or cannot be taxed and are free to set their own tax rates. For example, Ohio has a straight tax of 5.5 percent on food, clothing, and miscellaneous items, while West Virginia has a 6 percent sales tax on clothing and miscellaneous items but only a 3 percent sales tax on food.
Benjamin Franklin quipped, “The only things certain in life are death and taxes.” So far, he’s still right.
Image Credit: From FreeDigitalPhotos.net, Money, by Salvatore Vuono