A Brief History of Income Tax in America - Part 1
by Bob Williams
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In the Beginning …
Part 1. 1600–1776
Let’s acknowledge that elephant in the room right now: Taxes have always been a fact of life on the American continent, from the first day the Europeans landed here. The only Americans who didn’t know taxes in those early days were the original residents – the Indian tribes who wondered what all the fuss was about in the first place.
But from the day the King of England and Parliament knew there were colonists on the ground in the New World, they were looking for a way to make them pad the Crown’s coffers. According to the Tax History Project at Tax Analysts.com, the first attempt to regulate colonial trade came as early as 1651, when Puritans convinced Parliament to require all goods imported into England or the colonies to be carried on English or colonial ships. But the act was basically ignored by the colonists, and it went unenforced for the most part.
In 1663, Parliament went a step further, passing the Staple Act, which said certain goods – namely sugar, tobacco and indigo – could only be shipped exclusively to England, where they would then be re-exported to other countries (at a bigger profit for English merchants, of course). The same applied for any exports from other European countries bound for the colonies. This was much more successful as a money-making plan, as duties from the Virginia and Maryland colonies alone accounted for 25 percent of the English customs revenue at the time.
By now, you should get the picture. England saw her American colonies as a cash cow for her and her merchants – as long as the colonies weren’t competing with them. The colonists, meanwhile, saw the folks back home as undermining their ability to make a living.
This was pretty apparent by 1699, when the Woolen Act passed Parliament. It banned the export and sale between the colonies of certain finished textiles in an effort to protect the English textile industry. The colonies were limited to shipping only raw materials, not the finished goods.
Through the first half of the 18th century, the colonists watched as Britain engaged in this war or that war – and came up with new restrictions on colonial trade to help foot the bill. But the British legislation had an important loophole that the colonists exploited to the maximum. All the various Navigations Acts passed by Parliament had allowed the colonies to own ships and transport goods. That had allowed colonial merchants to gain control of 95 percent of the trade between England and the West Indies, the hot spot of the time.
Turning Up the Heat
But the King and Parliament persisted in tightening the screws on the colonies, so that by the 1760s, things were heating up over here. Up to this point, the onerous British legislation had been aimed at regulating commerce between England and the colonies. Now, though, it gets personal.
The Stamp Act of 1765 took taxation to the individual colonist, requiring them to buy stamps from royal officials for mandated use on legal documents, playing cards, newspapers and titles to land. The stamps could only be purchased with silver coin, and British vice-admiralty courts were in charge of prosecuting the scofflaws – not colonial courts.
Reaction was swift and widespread. Colonists responded by refusing to buy British goods, and the boycott got the attention of English merchants. An organization called the Sons of Liberty ransacked the homes of British officials, and tax collectors were tarred and feathered. While the Stamp Act was eventually repealed, it set in motion events that had dire consequences for the British.
In 1773, the Tea Act was passed by Parliament to help shore up the financially ailing East India Tea Company. It basically gave the Company a monopoly over the English tea market and allowed direct sales to the colonies. American merchants were cut out entirely. The colonists saw this last straw as an underhanded act to force Parliament’s power of taxation onto the colonies.
The fuse was lit. The bomb that would become the American Revolution was about to explode.
Next time: A New Kind of Tax.
(Thanks to TaxAnalysts.org for historical guidance and the use of some of the images used in this series. Tax Analysts is a nonprofit publisher providing the latest in-depth tax information worldwide.)
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