The history of taxation in the United States begins with the colonial protest against British taxation policy in the 1760s, leading to the American Revolution. The independent nation collected taxes on imports ("tariffs"), 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. State and federal inheritance taxes began after 1900, while the states (but not the federal government) began collecting sales taxes in the 1930s. The United States imposed income taxes briefly during the Civil War and the 1890s. In 1913, the Sixteenth Amendment was ratified, allowing Congress to levy an income tax on individuals and entities.

Colonial taxation

Taxes were low at the local, colonial, and imperial levels throughout the colonial era. The issue that led to the Revolution was whether Parliament had the right to impose taxes on the Americans when they were not represented in Parliament.

Influential colonial taxation policies

Stamp Act 1765

The Stamp Act 1765 was the fourth Stamp Act to be passed by the Parliament of Great Britain and required all legal documents, permits, commercial contracts, newspapers, wills, pamphlets, and playing cards in the American colonies to carry a tax stamp. It was enacted on November 1, 1765, at the end of the Seven Years' War between the French and the British, a war that started with the then-young George Washington attacking a French outpost. The stamp tax had the scope of defraying the cost of maintaining the military presence protecting the colonies. Americans rose in strong protest, arguing in terms of "No Taxation without Representation". Boycotts forced Britain to repeal the stamp tax, while convincing many British leaders it was essential to tax the colonists on something to demonstrate the sovereignty of Parliament.

Townshend Revenue Act

The Townshend Revenue Act were two tax laws passed by Parliament in 1767; they were proposed by Charles Townshend, Chancellor of the Exchequer. They placed a tax on common products imported into the American Colonies, such as lead, paper, paint, glass, and tea. In contrast to the Stamp Act 1765, the laws were not a direct tax that people paid daily, but a tax on imports that was collected from the ship's captain when he unloaded the cargo. The Townshend Acts also created three new admiralty courts to try Americans who ignored the laws.

Sugar Act 1764

The tax on sugar, cloth, and coffee. These were non-British exports.

Boston Tea Party

The Boston Tea Party was an act of protest by the Sons of Liberty against Parliament's Tea Act in which they dumped many chests of tea into Boston Harbor. The cuts to taxation on tea undermined American smugglers, who destroyed the tea in retaliation for its exemption from taxes. Parliament reacted harshly, and the conflict escalated to war in 1775.

Capitation tax

Capitation taxes, also known as poll taxes, were initially created in the 1890s. Poll taxes are a fixed tax on individuals, regardless of income; voters must pay the tax before they are permitted to cast a ballot. These taxes were occasionally paired with literacy tests to prove qualification to vote.

Revenue from poll taxes acted as a major source of funding for state governments. To increase this revenue, poll taxes were also frequently extended to the process of obtaining hunting, fishing, and driving licenses.

Poll taxes were a prerequisite to voting registration in many states. Often, legislatures required the tax to be paid on a day separate from the polls. Voters were then required to bring proof of payment on election day. This caused issues for various workers that had to move frequently and were unable to maintain proper bookkeeping.

These taxes were widely utilized as a form of voter prevention in southern states after the abolition of slavery. They were introduced as part of the Jim Crow laws to deter black Americans from voting. However, capitation tax laws did not directly state a specific group of people and the tax requirements applied to all races and both sexes. Therefore, poll taxes were also often used to discriminate against women who attempted to vote. Some poor white male voters were deemed exempt from poll taxes via grandfather clause if they had an ancestor who could vote prior to the Civil War.

The Twenty-Fourth Amendment terminated the use of poll taxes in federal elections in 1964. Alabama, Arkansas, Mississippi, Texas, and Virginia continued to utilize poll taxes for state elections until Harper v. Virginia Board of Elections, a U.S. Supreme Court case held in 1966. The court ruled that capitation taxes enforced in state elections are also unconstitutional.

Tariffs

Income for federal government

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 I until it was surpassed by income taxes. Since the revenue from the tariff was considered essential and easy to collect at the major ports, it was agreed the nation should have a tariff for revenue purposes.Miller, 1960, p. 15Hamilton Tariff#Import Duty Legislation and American Sectional Interests

Protectionism Another role the tariff played was in the protection of local industry; it was the political dimension of the tariff. From the 1790s to the present day, the tariff (and closely related issues such as import quotas and trade treaties) generated enormous political stresses. These stresses lead to the Nullification crisis during the 19th century, and the creation of the World Trade Organization.

Origins of protectionism

When Alexander Hamilton was the United States Secretary of the Treasury he issued the Report on Manufactures, which reasoned that applying tariffs in moderation, in addition to raising revenue to fund the federal government, would also encourage domestic manufacturing and growth of the economy by applying the funds raised in part towards subsidies (called bounties in his time) to manufacturers. The main purposes sought by Hamilton through the tariff were to: (1) protect American infant industry for a short term until it could compete; (2) raise revenue to pay the expenses of government; (3) raise revenue to directly support manufacturing through bounties (subsidies).Report on Manufactures This resulted in the passage of three tariffs by Congress, the Tariff of 1789, the Tariff of 1790, and the Tariff of 1792 which progressively increased tariffs.

Sectionalism

Tariffs contributed to sectionalism between the North and the South. The Tariff of 1824 increased tariffs to protect the American industry in the face of cheaper imported commodities such as iron products, wool, and cotton textiles, and agricultural goods from England. This tariff was the first in which the sectional interests of the North and the South truly came into conflict because the South advocated lower tariffs to take advantage of tariff reciprocity from England and other countries that purchased raw agricultural materials from the South.

The Tariff of 1828, also known as the Tariff of Abominations, and the Tariff of 1832 accelerated sectionalism between the North and the South. For a brief moment in 1832, South Carolina made vague threats to leave the Union over the tariff issue.Tariff of 1832 In 1833, to ease North-South relations, Congress lowered the tariffs. In the 1850s, the South gained greater influence over tariff policy and made subsequent reductions.Tariff of 1857

In 1861, just before the Civil War, Congress enacted the Morrill Tariff, which applied high rates and inaugurated a period of relatively continuous trade protection in the United States that lasted until the Underwood Tariff of 1913. The schedule of the Morrill Tariff and its two successor bills were retained long after the end of the Civil War.Frank Taussig

Early 20th century protectionism In 1921, Congress sought to protect local agriculture as opposed to the industry bypassing the Emergency Tariff, which increased rates on wheat, sugar, meat, wool and other agricultural products brought into the United States from foreign nations, which protected domestic producers of those items.

However, one year later Congress passed another tariff, the Fordney–McCumber Tariff, which applied the scientific tariff and the American Selling Price. The purpose of the scientific tariff was to equalize production costs among countries so that no country could undercut the prices charged by American companies.Fordney–McCumber Tariff The difference in production costs was calculated by the Tariff Commission. A second novelty was the American Selling Price. This allowed the president to calculate the duty based on the price of the American price of a good, not the imported good.

During the outbreak of the Great Depression in 1930, Congress raised tariffs via the Smoot–Hawley Tariff Act on over 20,000 imported goods to record levels, and, in the opinion of most economists, worsened the Great Depression by causing other countries to reciprocate, thereby plunging American imports and exports by more than half.

Era of GATT and WTO

In 1948, the US signed the General Agreement on Tariffs and Trade (GATT), which reduced tariff barriers and other quantitative restrictions and subsidies on trade through a series of agreements.

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). Whereas GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.

Excise tax

Federal excise taxes are applied to specific items such as motor fuels, tires, telephone usage, tobacco products, and alcoholic beverages. Excise taxes are often, but not always, allocated to special funds related to the object or activity taxed.

During the presidency of George Washington, Alexander Hamilton proposed a tax on distilled spirits to fund his policy of assuming the war debt of the American Revolution for those states which had failed to pay. After a vigorous debate, the House decided by a vote of 35–21 to approve legislation imposing a seven-cent-per-gallon excise tax on whiskey. This marks the first time in American history that Congress voted to tax an American product; this led to the Whiskey Rebellion.

Income tax

The history of income taxation in the United States began in the 19th century with the imposition of income taxes to fund war efforts. However, the constitutionality of income taxation was widely held in doubt (see Pollock v. Farmers' Loan & Trust Co.) until 1913 with the ratification of the 16th Amendment.

Legal foundations Article I, Section 8, Clause 1 of the United States Constitution assigns Congress the power to impose "Taxes, Duties, Imposts, and Excises", but the same clause also requires that "Duties, Imposts, and Excises shall be uniform throughout the United States".