No Taxation Without Representation or Taxation With Representation. Are We Better Off?
Understanding why we declared our independence from the King of England and who do we need to emancipate ourselves from today?
I cannot help but think of why we cast off the tyrannical overlord seated upon the throne of England. That set us off on our own path only to collectively elect over 200 years worth of representatives who have bled us financially to an extent that would have rendered old King George green with envy.
Colonial and early Americans paid a very low tax rate, both by modern and contemporary standards, just 1-1.5%. British tax rates, just prior to the revolution, stood at between 5-7%, dwarfing Americans’ tax rates. The colonies paid no income taxes, no corporate taxes and no payroll taxes. The American colonies, particularly the agricultural south enjoyed tremendous wealth. Taxes were levied on imported goods and sales taxes on certain select goods, with the bulk of tax levies going to the Kings coffers. Said tariffs comprised 90% of taxes collected in the 18th century.
British Parliament, in the mid 18th century, began imposing excise taxes, which when combined with harsh and overreaching policies of the British Crown infuriated the Colonists into revolt.
The Sugar act of 1764 placed a tax on sugar and molasses imported into the colonies which were the main ingredients used to make rum. The Stamp act of 1765 placed a tax on all printed materials. The Townshend acts of 1767 and 1768 placed indirect taxes on imported British goods such as glass, lead, paper, paint and tea.
Colonists protested these taxes. The most famous of which was the Boston Tea Party. The British reprisals to the Colonial revolts and the use of British troops to collect taxes put the colonies on the path to declaring independence and assuming self governance.
Following the Revolutionary War where our founding fathers pledged their lives, their treasure and their sacred honor, we found ourselves practically bankrupt. Considering that taxation was fresh in the minds of the colonies the newly formed government had to find a creative manner in which to raise capital.
Although the colonies enjoyed what was arguably the greatest standard of living on earth prior to the Revolutionary War, the separation of Colonial financial interests from British credit and cash flow, the debt incurred fighting for independence and the upset of the global economies of the day thrust our new nation into a depression comparable to the great depression of the 1930s. Fighting the war against Britain came with enormous costs. Real property was destroyed, lives were lost, enormous debt was incurred via loans from foreign governments such as the French and the Dutch and trade came to a halt. Now that the colonies gained independence, formed a new government and had elected representatives to oversee any new taxation, it was time to solidify the nascent nations financial footing.
The newly adopted Constitution of 1789 granted the federal government the authority to manage the governments finances and raise revenue through Taxation. Taxation however only partially paid for debts incurred. The bulk of American foreign debts were paid via the assumption of our foreign debts by private investors in America and in Europe.
American credit rating abroad was improved and the ability to obtain low interest foreign loans was reestablished. However, we weren’t out of debt. Federal expenditures exceeded available cash thru ought the 1790s. The debt was restructured and the improved credit rating abroad allowed us the ability to borrow more cash. The Louisiana purchase of 1803 was financed with low interest foreign loans.
The independent nation collected taxes on imports such as whiskey, and (for a while) on glass windows. States and localities collected poll taxes on voters and property taxes on land and commercial buildings. In addition, there were the state and federal excise taxes.
With rare exceptions, federal expenditures have never been in balance with the nation’s income. President Jackson did pay off the nation’s debt completely in 1835. However this precipitated a financial panic and depression shortly thereafter.
The national debt skyrocketed during the Civil war. To help pay for its war effort, Congress imposed its first personal income tax in 1861. It was part of the Revenue Act of 1861 which collected 3% of all incomes over $800. Congress also enacted the Revenue Act of 1862, which levied a 3% tax on incomes above $600, rising to 5% for incomes above $10,000. However, this income tax was repealed in 1872.
The National debt was again paid down by the turn of the 20th century.
State and federal inheritance taxes began after 1900, while the states (but not the federal government) began collecting sales taxes in the 1930s.
Tariffs have played different parts in trade policy and the economic history of the United States. Tariffs were the largest source of federal revenue from the 1790s to the eve of world war one.
In 1913 Congress passed the 16th Amendment implementing the federal income tax. The top tax bracket was 7% on incomes above $500,000. The lowest being 1 %. World War one resulted again in increased debt.
In order to finance U.S. participation in World War One, Congress passed the 1916 Revenue Act, and then the War Revenue Act of 1917. The highest income tax rate jumped from 15 percent in 1916 to 67 percent in 1917 to 77 percent in 1918.
After the war, federal income tax rates dropped to 25 percent from 1925 through 1931.
Congress raised taxes again in 1932 during the Great Depression from 25 percent to 63 percent on the top earners.
During World War II, Congress introduced payroll withholding and quarterly tax payments. President Franklin D. Roosevelt proposed a 100% tax on all incomes over $25,000, stating that the success of the war effort required both revenue and public income equity. When Congress did not enact that proposal, Roosevelt issued an executive order attempting to achieve a similar result through a salary cap on certain salaries in connection with contracts between the private sector and the federal government. In 1944, the top rate peaked at 94 percent on taxable income over $200,000 ($2.5 million in today’s dollars).
For tax years 1944 through 1951, the highest marginal tax rate for individuals was 91%, increasing to 92% for 1952 and 1953, and reverting to 91% 1954 through 1963.
Thru ought the 1950s, 60s and 70s, the top federal income tax rate remained high, never dipping below 70 percent.
The Economic Recovery Tax Act of 1981 slashed the highest rate from 70 to 50 percent, and indexed the brackets for inflation.
Then, the Tax Reform Act of 1986, claiming that it was a two-tiered flat tax, expanded the tax base and dropped the top rate to 28 percent for tax years beginning in 1988
During the 1990s, the top rate jumped to 39.6 percent.
However, the Economic Growth and Tax Relief and Reconciliation Act of 2001 dropped the highest income tax rate to 35 percent from 2003 to 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained the 35 percent tax rate through 2012.
The American Taxpayer Relief Act of 2012 increased the highest income tax rate to 39.6 percent. The Patient Protection and Affordable Care Act added an additional 3.8 percent on to this making the maximum federal income tax rate 43.4 percent.
The highest income tax rate was lowered to 37 percent for tax years beginning in 2018. The additional 3.8 percent is still applicable, making the maximum federal income tax rate 40.8 percent.
There is no doubt that a nation’s financial matters are enormously complex. Practically all aspects of our economy are a myriad of interwoven interests. Our elected leaders have managed to fleece the population of this great nation to the extent that would make a sheep shiver in summer. Of course the reasons are many why taxes need to be raised. War, peace, infrastructure, debt, the congressional delegates need new clothes. Professional thiefs run our country. Who are they robbing? All of us.
Looking back, I’m sure we would all like to live in an America where our tax rates were reminiscent of those days prior to the formation of our great country. As for King George? I’m sure he is getting the last laugh.
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