Taxation & History

  It has been said that in life there are two things that you have to do. You have to pay your taxes and you have to die. Tax is often painted as a necessary evil, a requirement for a functional government and social programs. Is this true or are we simply conditioned to accept it as fact? There are many different kinds of taxes and many different ways of implementing them, but are they really required to have a government? To help understand taxes and their role in the world, we should look at the past, at the recorded history of taxes and their effect on the societies that implemented them.

The earliest recorded history of taxation stems from the ancient Egyptians, where the practice is shown in illustrations of tax collectors in tombs dating around 2000 B.C. One of the taxes these Egyptians endured was on cooking oil, and it was stringently enforced. Tax collectors would go so far as to inspect a household to verify that the occupants were not using fat or other drippings in an effort to avoid paying the tax. Egypt also had taxes on foreigners and slaves, and a set of laws that could make the former become the latter. Some attribute general lawlessness and corruption, especially in the tax bureau, with the demise of Egypt and its ancient society.

The ancient Romans also had a tax system. Their tax system was very detailed and covered a wide variety of things, including sales, inheritance, imports and exports. Among the more unusual taxes levied by the Romans were taxes for being Jewish and a tax on urine (It was used during the leather tanning process). Roman taxes extended beyond Rome itself and were applied to all of its territories. Caesar Augustus is credited with the creation of an inheritance tax that formed the backbone for similar taxes later used by other governments. Halfway through the first century A.D., dissidents in the British Isles revolted due to tax corruption, killing much of the Roman military and government presence at the time. Emperor Nero later crushed the revolt and new officials were appointed to govern the realm. Many scholars believe that extreme taxation was a key factor in the fall of the Roman Empire. Even the Moslems, who freed much of the ancient Roman world, eventually followed the path of heavy taxation. Their tax collectors are historically pictured as cruel and unjust, rivaling the worst that the Romans had to offer.

Like the Egyptians and Romans, the Greeks (Athenians) also used taxation. Taxes were used by the Greeks to fund their wartime activities. It is notable, though, that the Greeks would cancel the tax once it was no longer required, and would refund the collected monies from plunder and tributes acquired by war. The Greeks also levied a tax on foreigners who did not have both an Athenian mother and father. So how did the Greeks get anything done when they werent at war? Wealthy citizens and community leaders would make voluntary contributions to the community. Parks, public works, parties and celebrations were often possible due to donations from the leading citizens. This would include purchases of military equipment and the hosting of athletic games, too. Tradition and public sentiment fueled this practice and the rich citizens were expected to contribute a certain amount and typically exceeded this amount. When a structure, park or public utility was needed, the wealthy citizen actually built it. The city would honor the responsible party for his gift to the community. Understand, though, that the philosophy of these people was that wealth and property were acquired and managed by those best able to do so. They held these things as a sort of public trust for the whole community, something which no society or culture in the world has been able to duplicate.

The British Isles appears again in our history of taxes with several honors. First is the legend of Lady Godiva, who made a deal with her husband to ride naked through Coventry if he would lower the high taxes on its residents. Later, the 100 Years War between England and France would get fired back up in 1369 due, in part, to exorbitant taxes. It is notable that, except in the examples above, the taxes were often scaled properly, with the nobility or rich paying a more proportioned amount. In 1404, the English introduced the worlds first income tax. This tax was short-lived and after it was eliminated, every document and record about it was destroyed in an effort to erase it from the world. Two hundred years later, those taxing English were at it again with a new round of excise and land taxes. Even King Charles I was eventually executed for treason in a disagreement that originally started as a dispute over rights of taxation. Talk about losing your head in an argument. The excise tax lead to rioting when the taxes were raised so high that poor rural laborers were unable to buy wheat and began starving. In 1799, the English were at it again with the British Income Tax Law. This tax was created to generate funds to fight Napoleon. It was a 10-percent income tax and was supposed to be abolished six months after the end of the war with Napoleon. A large majority eventually repealed the tax after the war, and Parliament once again ordered that all records of it be destroyed. Unfortunately, they were not.

The British involvement in taxes also made an appearance in a slightly different form, through the revolt of the 13 colonies over taxation without representation. Colonists were hit with several taxes and variants. Various tax acts encompassed the importing of such things as sugar, wine, molasses, textiles, coffee and dye. These acts were not successful in generating enough revenue, so new taxes were created, such as the Stamp Act. This new tax was levied on colonial newspapers and most commercial and legal documents, including diplomas and business licenses, and was to be paid directly to England instead of local legislatures. This act also encompassed such things as dice and playing cards. This tax was later repealed but replaced by other taxes, such as the 1773 Tea Act (a three-penny-per-pound tax) that also allowed the nearly defunct British East India Company to sell tea directly to the colonists without any middlemen, thus underselling American merchants and establishing what amounted to a monopoly. This is the tax that led to the famous Boston Tea Party, where colonists disguised themselves as Mohawk Indians and dumped tea from three ships into the bay. They did not want to pay the import tax on the tea and wanted to send it back to England, but the Royal Governor of Massachusetts refused to allow the ships to leave without the tea tax being paid. A flurry of acts followed over the next few years. This was possible because the colonists had no one in English Parliament to look out for their interests, which proved to be too much for them to stomach. Soon, independence was declared and eventually won through bloody conflict.

The end of the Revolutionary War left the newly freed colonists so strongly opposed to taxes that the first Congress was created without the ability to tax Americans. It wasnt until 1789 that Congress was given the power to levy taxes. Three years later they used this ability to create an excise tax on whiskey, the first of the so-called sin taxes. This tax was drafted by Alexander Hamilton to pay for the debts that the states had incurred, and the federal government had assumed responsibility for, during the revolution. In this time period the frontier was as close as western Pennsylvania and one of the chief consumables and products from this frontier was whiskey (a product of plentiful rye crops). The people on the frontier were considered by the wine- and port-drinking easterners to be unintelligent, backwards folk who wouldnt notice that they were bearing the brunt of the revolutionary debt. This 25-percent tax sparked the Whiskey Rebellion of 1794, which was quickly put down by President Washington (who once again assumed the role of general on the battlefield) and 12,000 soldiers. The leaders of the rebellion were later captured and pardoned by Washington after having been convicted of treason. This tax also involved the creation of tax collectors, who were authorized to intrude onto private property and who were paid a percentage of the tax take. It also authorized the rewarding of informers who reported unregistered stills. Thomas Jefferson, who spoke out against it publicly, later repealed the Whiskey Tax in 1802. In 1798, Congress levied its first property tax, covering such things as homes and slaves. After another war with the English in 1812, America adopted a sales tax on some luxuries, such as gold and jewelry. In 1817, however, Congress abolished all internal taxes and instead relied on tariffs on imported goods to fund the government.

The German states were the next to introduce an income tax, in the 19th century. These Prussians handled the matter a little differently, though. The taxpayers declared and paid their tax after being summoned before revenue authorities for examination. This inquisitorial system was quite effective and as a spin-off created an extensive Prussian surveillance network with numerous informants.

The Americans would again step into the limelight in 1861 with the Morrill Tariff, or the Tariff of Abomination, as it was also known. It was the highest tariff in American history and entailed a 47-percent mark-up on imported goods. The tariff was designed to prevent English industry from competing in America. This tariff hit the South hard because of its agricultural basis and higher need for imported goods, while at the same time benefiting sales and profit margins for Northern manufacturers. To add insult to injury, most of the money generated by the tariff was spent on needs and projects for the North. This proved to be too much and the Southern states seceded from the Union, citing the Declaration of Independence and recent issues with import taxes. Initially the North was indifferent to the South leaving the Union, but when they learned of the intention to create a free-trade zone that would damage their tariff driven industries, they were vehemently opposed. By 1862, to fund its war efforts, the North had implemented an income tax. Two years after the tax war began, president Lincoln issued the Emancipation Proclamation. Tobacco and distilled spirits were being taxed in 1868 after the end of the war, and the income tax was finally eliminated in 1872.

In 1894, near the turn of the century, the United States created an income tax and Britain adopted a new progressive estate tax (which would become the model for many other countries to follow). One year later the income tax was challenged in the Supreme Court and found to be unconstitutional. This two-percent tax was not levied on all of the population, though, being limited to the people that had an income above $4,000 (which was about two percent of the population at the time). In 1913, the Constitution was modified, or amended, for the 16th time to allow Congress to lay and collect taxes on incomes. The rate started at one percent of the income of an individual who earned more than $3,000 ($4,000 in the case of married couples). The rate increased to six percent for incomes over $20,000, and capped out at seven percent. In the 50s, the average rate for a household was around two percent. This is a stark contrast when compared with the household average of 24 percent by 1990, and somewhere around 30 percent today.

Skipping forward to the modern era, taxation is still the primary source of income in the United States, especially in times of war. In 1994, taxes accounted for 96 percent of all federal revenue. An interesting statistic is that in 1943, corporate taxes accounted for 39.8 percent of total federal revenues, and social insurance contributions accounted for 12.7 percent. By contrast, in 1996, corporate taxes accounted for 11.8 percent and social insurance contributions amounted to 35.1 percent of federal revenues. This can be compounded when you realize that when corporate taxes are raised, that tax is passed along to the consumers by product price increases. This matter is made worse when one considers that the small percentage of the population that possesses the larger percentage of the countrys wealth pays the least amount of the taxes. A tax is called progressive when it scales with income. This has been practiced at least as far back as the middle ages. It is interesting that our modern, civilized society has such a difficult time with this concept. American leaders repeatedly make the mistaken assumption that the cure to the countrys economic problems is to give the wealthy more tax breaks so that they will have more money to invest. It has been proven, looking back at the Ford administration, that the answer to a sluggish economy is to put money back into the hands of the consumers and common people who fuel this country and by doing so, build confidence in the stock and savings markets. Trickle down economics do not work.

Aside from the mathematics and monetary concerns, the methods that are employed in the collection and acquisition of the tax funds from the populace are also questionable. Throughout history there are records of villainy, maliciousness and black-hearted deeds committed in the name of tax collection. Every taxing civilization seems to have suffered at some point at the hands of these minions. Humanity is placed aside and what is owed is taken with extreme prejudice and little regard for those affected. Homes and properties can and have been confiscated in the name of abstract debts to society. Tax collectors have held a position of contempt and disdain throughout history, a reputation that in many is deserved. The modern world is still plagued by tax collecting organizations that operate in the extreme, having long ago sacrificed their humanity in the name of currency.

Unlike the ancient Greeks, the taxpayer is not lauded for his donations. He has no knowledge of where the money he has given goes or for what purpose or intent it is used. The gift is not voluntary, it is mandatory, and failure to comply can result in imprisonment. The taxpayer gives only what he must and often harbors resentment against the system that takes it from him. The individual is not asked what he is able to contribute or what he is willing to contribute, he is told what he must contribute and it is typically paid to the government before the person even receives his or her wages.

This of course brings us to the larger picture of what purpose government actually serves. Does government create jobs? Does it protect citizens? Is it simply there for administrative purposes? Clearly our government is a representation of governments in the world community comprised of governments. The government handles the organization of our military, our law system and our way of life but only as an abstract, because people, not governments, handle these deeds. The role of governments and their validity is beyond the scope of this article, but it is worth noting and questioning its purpose, especially when it begins to intrude or infringe on the lives of citizens. Many believe that an empire can tax itself to death and come apart at the seams. Unfortunately, we may find out the hard way whether this is true or not.

The Piper ( piper@toosquare.com )