Hershey Reyes

BSA 1-A

The Definition of Income Tax:

The income tax is a direct tax which is levied on the net income of private individuals and corporate
profits. Income tax systems range from flat tax to extensive progressive tax systems.

Tax History - An Introduction

Taxes in general have been around since the beginning of civilization. The earliest known tax was
implemented in Mesopotamia over 4500 years ago, where people paid taxes throughout the year in the
form of livestock, which was the preferred currency at the time. The ancient world also had estate taxes,
or death taxes. The earliest recorded evidence of a death tax came from ancient Egypt, where they
charged a 10% tax on property transferred at time of death in 700 BC.

Since then the way we pay taxes has changed significantly. However, some ancient taxes still persisted
into the modern world. In 2006, China eliminated what was the oldest still-existing tax in history. An
agricultural tax was created 2,600 years ago and was eliminated in 2006 to help improve the well-being of
rural farmers in China.
https://www.efile.com/tax-history-and-the-tax-code/
01.01 HISTORY OF TAXATION
Origins of Taxation

Taxation dates back to the earliest recorded history. In Egypt, tax collectors are depicted in tomb
paintings dated at 2000 BC. Egyptian Pharaohs taxed cooking oil, and tax collectors ensured that
citizens didn’t use substitutes to avoid the tax. In ancient Greece, no one was exempt from special taxes
that were imposed to pay for wartime expenditures. Ancient Rome had an elaborate tax system that
included sales taxes, inheritance taxes, land taxes, poll taxes, and taxes on imports and exports.
During the occupation by the Roman Empire, the first taxes were imposed in England. When Rome fell,
the Saxon kings imposed customs duties and taxes on land and property. During the reign of Charles I
(1625-1649), taxes were imposed on land, and excise taxes were collected. In 1404, Parliament passed
the world’s first income tax, but the tax was so unpopular it was rescinded. The British enacted a
precursor to the modern income tax in 1800 to finance the war with Napoleon.
Federalism
Simply defined, federalism is the political philosophy of a government in which sovereignty is
constitutionally divided between a central governing authority and constituent political units, such as
states, creating what is often called a federation. Traditionally, those who favor this notion of divided
sovereignty favor a stronger central government and weaker provincial governments. Historically in the
United States, however, we have favored a weaker federal government and stronger state governments.
This conceptually converse philosophy is commonly referred to as a confederation.
Federalism and Democracy
Federalism provides for a system that anchors pluralist democracy and enhances democratic
participation. Federalist theory argues that federalism helps to uphold due process and limit arbitrary
action by the state. Federalism can limit government power to infringe on rights by creating a legislature
or other level of government that will lack the constitutional power or the desire to do so. Additionally,
the legalistic decision making processes of federal systems limits the speed with which government can
act.
Federalism and the U.S. Constitution
Before the U.S. Constitution was written, each American state was essentially sovereign. The
Constitution created a national government with sufficient powers to unify the states, but did not
overpower or replace state governments. This federal arrangement, in which the central national
government exercises power over some issues and the state governments exercise power over other
issues, is one of the basic characteristics of the U.S. Constitution that checks governmental power. Other
such characteristics are the separation of powers among the three branches of government. State
governments can also exercise checks and balances on the national government to maintain limited
government over time.

Federalism and Taxation

The divided sovereignty of federalism creates multiple layers of governance that all require a funding
source to operate. As a result, we have many corresponding layers of taxation that exist, each possessing
their own set of unique complexities and policy implications. The property tax is one such example of a
layer of taxation born out of the federalist system.
Taxation in America
Since the beginning of American history, the states have maintained the right to impose taxes. When the
first Congress of the United States was created under the Articles of Confederation, it had no power to
levy taxes. The founding fathers viewed direct taxes as dangerous because they give government great
power over its citizens and, in order to assess such taxes, agents must look into the private lives of the
citizens. They agreed that direct taxes are safer if administered by the states, where elected
representatives are closer to the people.
Indirect taxes, on the other hand, were viewed as less dangerous because people could avoid them by not
purchasing the items being taxed. This assumes the establishment of taxes only on those items that
considered nonessential, such as liquor or tobacco, often called luxury or sin taxes. Furthermore, the
process of collecting indirect taxes does not endanger the individual’s right of privacy.
For these reasons, the delegates to the Constitutional Convention agreed that indirect taxes would be
more appropriate for the federal government. While the Constitution gave Congress the power to levy
taxes, it provided two provisions:
1. The federal government was to derive its primary revenue from indirect taxes, and those were to be
uniform in all states.
2. In the event of war or similar emergencies, the federal government, with the consent of Congress,
would have the authority to levy direct taxes through the states to their citizens, but these were to be
proportional to the number of representatives that each state had in Congress.
In 1789, colonial governments had a limited need for revenue, and the colonies imposed different types
of taxes. The southern colonies taxed imports and exports, and the middle colonies imposed a property
tax and a head or poll tax on each adult male. The New England colonies raised revenue through general
real estate taxes, excise taxes, and taxes based on occupation.
History of the Federal Property Tax
Congress followed the provisions of the Constitution and levied direct taxes, in the form of a federal
property tax, on the citizens of America in times that were believed to be national emergencies.
In 1798, Congress established a federal property tax for the expansion of the Army and Navy in the
event of possible war with France. The direct tax amount on American property included land,
dwellings, and slaves. It was in the amount of $2 million and was apportioned among the states on the
basis of the current census. The purpose of the tax was to eliminate part of the debt incurred by the
Revolutionary War. Reduction of the national debt was viewed as an emergency that would justify
imposing a direct tax.
Legislators charged federal officials with assessing property and collecting the tax, but a local board of
commissioners was convened in each state to provide assessment regulations that would reflect local
needs and customs. It did not provide for any deductions or exemptions, but it was progressive in nature,
with larger homes paying more per $100 of value than other homes.
Assessment rolls from the first federal property tax show the property owner’s name and occupation and
describe the principal dwelling in terms of construction materials, square footage, and number of stories
and windows. Land holdings and other structures on a property were documented. In the case of farms,
this included barns and other agricultural buildings. The records also listed the number of slaves. The tax
not only applied to homes and farms but also to mills, shops, warehouses, tenant-occupied properties,
and other commercial sites.
The first direct tax in the United States was constitutional because Congress had stated the purpose and
the amount. The measure had been debated and passed, and the tax would expire once collected.
Despite its constitutionality, the tax was met with considerable resistance and led to a revolt among
German settlers along the Eastern Seaboard. Pennsylvania’s quota of the $2 million tax was $273,000,
which fell mainly on land and houses. Primarily, the valuation of houses was estimated by counting the
number and size of windows, a practice inherited from England. When the tax assessors arrived, the
German residents thought they were reviving the hated European hearth tax, a tax levied on each
fireplace and its size. They believed the idea of being taxed on the size of a house, the size and number
of windows in that house, and the amount of land owned was similar to the hearth tax. They organized
into small bands, set out to assault the assessors and drove them from the district. When some of the
rebels were arrested and put into prison, an auctioneer named John Fries led a march on the courthouse
and freed them. President John Adams called out the militia. Fries was captured, tried, and convicted of
treason but later received a presidential pardon.
The second time a direct tax was levied in accordance with the apportionment requirements of the
Constitution was in 1813, principally to pay for the War of 1812. The amount was for $3 million. A
third direct tax was assessed in 1815 for the same purpose in the amount of $6 million. The terms of
assessment and proportion among the states were given the option of levying the tax entirely on their
own, saving the federal government the expense of administering the project. The states could take a 15
percent discount if they paid within six months, and a 10 percent discount if they paid within nine
months. The federal government also created tax districts, each with its own private tax assessor and
collector who earned a commission from the taxes they collected.
On August 5, 1861, Congress enacted the nation’s fourth direct tax revenue bill for the stated amount of
$20 million. It was similar to the previous bills except slaves were no longer taxed as property – only
land, “improvements,” and dwellings. Tax collectors were allowed to sell the property of citizens that
did not pay their share of the tax, but essential property such as homes, tools of trade, and household
utensils could not be sold to pay tax debts. To protect the public from abusive tax collectors, penalties
applied to collectors who used extortion or otherwise broke the law to make collections.
Congress enacted the 16th Amendment in 1913 imposing a federal income tax that provided a constant
flow of revenue and eliminated the need to impose federal property taxes.
History of State and Local Property Taxes
A survey of the tax systems, especially property tax usage, of the 16 existing states in 1796 showed that
real property components, such as land and buildings, constituted most of the property tax base,
supplemented by tangible items such as household possessions and intangible items such as interest on
loans. Arbitrary assessment procedures, numerous tax rates, and various exemptions plagued local
property tax administration.
Some states used the property tax only sporadically. For example, Maryland levied it mainly to finance
the Revolutionary War. Pennsylvania, Delaware, and New York used it because other tax and non-tax
revenues were insufficient to cover expenses or finance debt. Otherwise, license taxes, public land sales,
and income from state investments generally provided needed revenue.
Around 1820, several states initiated a reform in property taxation through a general property tax. The
general property tax attempted to impose a uniform tax rate on all forms of property subject to taxation
through constitutional or statutory means, reflecting the Jacksonian belief that the actual value of
property best represented taxpaying ability. However, unlike land, tangible and intangible personal
property was mobile and became harder to locate for tax purposes. As the process of industrialization
unfolded around the mid-1800s, general property tax complaints became more widespread as critics
argued that increasing amounts of household and business property were exempt from taxation, under
reported, or under assessed. The results were inequitable tax burdens within and among property classes.
This led to the initiation of the state assessment of railroad, express, and telegraph property in the two
decades after the Civil War, which often resulted in modified general property and other special taxes.
Unable to meet interest and principal payments from defaulting bonds as a result of the Panic of 1837,
many states reluctantly raised property taxes, expanded special corporate and license taxes, and even
experimented with inheritance and income taxes. Approximately one-third of the states derived more
than fifty percent of their total state tax revenues from non-general property taxes by 1902. Most of
these states had gradually embraced the relegation of the general property tax to local entities. A portion
of these state-administered special taxes was often returned to localities through state aid or tax sharing
payments.
Rising property tax rates in the 1920s, significant property tax delinquencies in the 1930s and further
efforts to reach intangible property prompted the adoption of other taxes. By 1940, 33 states had an
individual and/or corporate income tax. State income tax usage accelerated the movement toward less
dependence on the general property tax. A majority of states received more than 50% of their total tax
revenue from specialized corporate, special property, inheritance, poll, business licenses, and income
taxes for the first time in 1924.
Today, the states acquire the necessary revenue to provide public services to their citizens such as public
schools, police protection, health and welfare benefits, and the operation of the state government
through tax collection, fees and licenses, as well as money from the federal government. Personal
income tax, corporate income tax, sales tax, and real property tax are among the common types of taxes
that many states currently impose.
A Brief History of Minnesota Taxes
The power of taxation is generally provided in the organizational charters and constitutions of newly
formed governments. Minnesota had been claimed as a possession of several countries prior to its
ownership by the United States. As such, it had been subject to the laws established by the various
provincial and colonial charters and territorial constitutions.
The first governmental organization of which Minnesota became subject to as a United States possession
began with the Northwest Ordinance of 1787. This ordinance established a temporary territorial
government for the lands lying north and west of the Ohio River. The eastern portion of Minnesota was
included in this area.
At the time of the passage of the Northwest Ordinance, the northern and western portions of Minnesota
were possessions of the British and French governments. In 1803, the United States purchased a large
area of land from the French government with the Louisiana Purchase. The western portion of
Minnesota then became a United States Possession.
The northern portion of Minnesota remained a part of the British Empire until the Treaty of Ghent in
1814 and the subsequent Convention of 1818 which ceded the land to the United States. These
agreements ended the War of 1812 and established the boundary between the United States and British
territories.
The former French and British areas in Minnesota were organized into the territories of Louisiana then
Missouri. As the territories were dissolved and reorganized because of the formation of new states,
Minnesota became a part of Michigan, Wisconsin, and Iowa territories. After the States of Iowa and
Wisconsin gained statehood in 1846 and 1848, Minnesota and large portions of North and South Dakota
were organized into the Territory of Minnesota by the Organic Act of 1849.
That year, the first territorial assembly established a property tax levy to support schools, nine years
before Minnesota became a state.
The Minnesota Enabling Act of 1857 authorized the inhabitants of the Territory of Minnesota to form a
State Constitution and State Government. In May of 1858, Congress ratified the Constitution of the State
of Minnesota and admitted the State into the Union with the Act of Admission of 1858.
Property taxes remained the main source of revenue until the 1920s, when the growing number of
automobiles in the state forced the legislature to find a way to pay for a state highway system. In 1920,
the amendment to the state constitution that authorized a trunk highway system also provided for a 2
percent registration tax on the purchase of motor vehicles. Five years later, a $0.02 per gallon gas tax
was established to meet the growing need for additional highway funds.
The next major change in the state’s tax system came as the hardships of the Great Depression made
property taxes harder to collect. Between 1929 and 1933, the number of property tax delinquencies in
the state doubled. At the same time, citizens looked to the state for services that local governments,
charities and other private resources were unable to provide. The need for more revenue to meet citizen.
demand, combined with the need for tax relief for property owners, led the legislature to establish the
state income tax. Minnesota adopted individual and corporate income tax systems in 1933.
The shift toward income tax and away from property tax as the major source of state revenue continued
in the 1950s and 1960s. In 1967, the state eliminated the state property tax and turned over the collection
of property taxes to the counties. The Department of Revenue continued to assist local government
officials in administering the property tax system, but the primary responsibility for assessing property
and collecting taxes was delegated to the counties.
In that same year, the state instituted the sales tax, in part to offset the loss in revenue it experienced by
turning property taxes over to local governments. However, the department established a system for the
uniform valuation and taxation of property and continued to provide property tax relief in the form of
state aid to local governments.
Property Tax Authorization
Minnesota's power of taxation is shaped by Article X of the Constitution of the State of Minnesota. The
article states that the power of taxation will never be surrendered, suspended or contracted away. The
article also states that the taxes will be uniform upon the same class of subjects and will be levied for
public purposes. This "uniformity" clause is important in that it permits the use of different tax rates to
be applied to different classes of property.
Article X also exempts certain types of properties from taxation. The article exempts public burying
grounds, public school houses, public hospitals, academies, colleges, universities, all seminaries of
learning, all churches, church property, houses of worship, institutions of purely public charity, and
public property used exclusively for public purposes. The Legislature may, however, define or limit the
properties exempted by this article, except for churches, houses of worship, and properties used solely
for educational purposes by colleges, universities, academies, and seminaries of learning.
This article also contains constitutional provisions for taxation of forest lands and yield tax on forest
products, occupation taxes on ores, motor fuels taxes, aircraft taxes, and taconite taxes.

01.01 history of taxation - Minnesota Department of Revenue

PDFwww.revenue.state.mn.us › at_manual

History of Taxes
It’s been said that there are two constants in life: death and taxes. However, taxes haven’t been around
forever.
Sure, there were taxes in ancient Egypt, and ancient Roman governments charged taxes in times of war.
But the idea of sales taxes, income taxes, payroll taxes, and other types of taxes is mostly a modern
invention.
Where did taxes come from? Why do we pay taxes? Are taxes ever going away? Today, we’re explaining
the entire history of taxes from ancient times to the modern day.

Taxes in Ancient Egypt

Egyptian pharaohs used tax collectors – called scribes – to collect money from their citizens. This wasn’t
typically an income tax. Instead, it was a tax on a specific type of good. Once, the pharaohs charged a tax
on cooking oil, for example.
Tax scribes would travel around to audit Egyptian houses to ensure they were using an appropriate
amount of cooking oil, and that they weren’t using other leftover oils as a replacement for oil. The
Egyptian pharaohs wanted the citizens to use their cooking oil because they earned tax revenue from it.
There’s also evidence that ancient Egyptians used to tax citizens a type of income tax to help finance wars
against their neighbors. This wasn’t specifically an income tax – it was more of a “wealth tax”, and
Egyptians were fined according to the value of possessions they owned.

The idea of taxing citizens to pay for a country’s wars is a frequent theme throughout history. In fact, as
you’ll learn further down, the first American income tax was designed specifically to fight a war.
Ancient Greece and Taxes
Ancient Greeks paid taxes periodically to finance various wars. The Athenians, for example, imposed a
tax called the eisphora. No Athenian citizen was exempt from the tax. The money raised from the tax was
meant to be used for wartime expenditures.
Once the war was over, the Athenian government would rescind the eisphora, and the Greeks would
continue living untaxed. There were even some cases where the Athenian government would rescind the
tax before the war was over because they had already used the money to build sufficient equipment and
weapons.
Athens was also known for its monthly foreigner tax. If you did not have an Athenian mother and father,
then you had to pay a tax to live in Athens. That tax was one drachma for men and one half drachma for
women. This tax was called the metoikion.

Taxes in the Roman Empire

The Romans introduced a number of ideas that would have a profound impact on civilization – including
the world of taxes.
The Romans introduced the concept of customs duties on imports and exports. These duties were called
portoria.
Caesar Augustus wasn’t just known as a great Roman leader for his wartime abilities; he was also known
for his brilliant tax strategies. One of the biggest chances he introduced to Rome’s tax strategy was to
eliminate the “publicani” as tax collectors. Publicani were agents of the central government who traveled
across the Roman Empire to collect taxes.
Understandably, Roman colonies didn’t appreciate when a foreigner from Rome came to demand money,
so Caesar Augustus implemented a new strategy: he transferred the responsibility of tax collections to the
individual cities and colonies.
At the same time, Caesar Augustus instituted forward-thinking taxes like an inheritance tax, which was
used to provide retirement funds for the military. The tax was assessed at 5% of all inheritances (except
gifts to children and spouses).
Caesar August’s inheritance tax had a powerful impact on history. By the time the English and Dutch
were creating their own tax laws centuries later, they were still referencing Caesar Augustus’s original
inheritance taxes.
Ancient Rome also had a sales tax. During the time of Caesar Augustus, the sales tax was 4% for sales
and 1% for free citizens. Julius Caesar was the first to implement a sales tax. During his rule, sales tax
was a flat 1% across the Empire.

Taxes in Ancient Great Britain

Great Britain’s tax history began in Roman times. In fact, there was a massive war over taxes. Queen
Boudicca – the queen of East Anglia – led her famous revolt due to corrupt Roman tax collectors. Legend
states that she killed all Roman soldiers within 100 miles of her territory before seizing London.
Eventually, her revolt created an army of 230,000 people and led to 80,000 deaths across Great Britain
before the revolt was crushed by Emperor Nero – all because she didn’t like paying taxes!

After the fall of Rome, Saxon kings imposed their own taxes on the people of Great Britain. These taxes
were called “danegeld”, and they were assessed based on the value of land and property. Kings of the land
also imposed significant customs duties.
Lady Godiva was another well-known figure in English tax history. Allegedly, Lady Godiva’s husband
Leofric, Earl of Mercia, promised to reduce high taxes on his citizens when Lady Godiva agreed to ride
naked through the streets of Coventry in the 11th century.
Taxes and wars were a common theme throughout the Middle Ages in France and England. The 100
Years War initially began because of a noble rebellion over oppressively high taxes in Aquitaine.
England is also attributed with having one of the first progressive taxes, where taxes were higher on
wealthier people than on poorer people. Records show that the Duke of Lancaster paid a tax 520 times
higher than the average peasant.
The poor were treated comparatively well by England’s early tax system. Poor people paid little or no
taxes, and the majority of the tax burden was carried by the wealthier classes – like clergy, nobles, and
merchants (who paid a tax on their movable property).
England would later formalize the idea that wealthy people should pay more taxes than poor people. The
King’s Writ declared that citizens of England should be taxed based on their status and means.
England Invents New Taxes in the 17th Century
Progressive taxes weren’t the only English invention. England is also one of the first countries to invent a
lot of taxes we take for granted in the modern world.
England created land taxes and various excise taxes throughout the 17th century, many of which were
designed to finance Oliver Cromwell’s war. Excise taxes were imposed on essential commodities like
grain and meat.
Excise taxes took an opposite approach to England’s other taxes: they were regressive and not
progressive. That means they placed a higher burden on the poor. The burden was so great that the taxes
led to the Smithfield Riots of 1647. Rural laborers were unable to afford food for their families. Making
matters worse is that hunting on common lands was forbidden: it was a privilege reserved for the higher
classes.

The World’s First Income Tax

Great Britain is typically attributed with inventing the world’s first income tax. In the 1800s, Great
Britain would periodically introduce income taxes to pay for various wars.
England is best known for introducing its income tax in 1800 to help deal with Napoleon. That tax would
later be repealed after 1816 – one year after Napoleon was finally defeated at the Battle of Waterloo.
After the tax was repealed, the government agreed that income taxes should only be used to finance wars.
The government was so serious about this commitment that they publicly burned all records of the income
tax (although copies of the tax were retained in the basement of an English tax court).

Taxes in Colonial America

Taxation in Colonial America had a profound effect on American history. Colonial Americans had paid
taxes for years under the Molasses Act. Starting in 1764, the Molasses Act was modified to add more
taxes to imported goods like molasses, sugar, wine, and other commodities.
The English government was disappointed by the amount of revenue from their Molasses Act taxes. Thus,
they created the Stamp Act the next year, in 1765. This act proposed a direct tax on all newspapers
printed in Colonial America, including most commercial and legal documents.
Ultimately, all of these taxes would lead Americans to revolt against the British in 1773. After the
Revolutionary War, the new American government was (understandably) wary of taxing their people.

Taxes in Early America

The new nation of America didn’t want to tax its people. For most of America’s early history, the country
was tax-free. However, the government still had to collect revenue – so they collected it through tariffs
and duties on certain items. Excise taxes were collected on liquor, tobacco, and sugar – similar to the
taxes that were collected under British rule.
The new nation of America had just fought a war to escape from taxation. Angered by the new taxes,
American citizens launched the Whiskey Rebellion. A group of Pennsylvanian farmers were angry about
the new tax on whisky, so they burned down the houses of tax collectors across the state. Tax collectors
were tarred, feathered, and forced to flee. Congress suppressed the revolt with military force.
The Whiskey Rebellion didn’t scare the US government away from taxes forever. In the 1790s, the US
government was forced to assess a property tax to finance its war with France.
Two decades later, the US government added new taxes to finance the War of 1812 against the English,
including higher duty fees and excise taxes.
All of these taxes, however, were minor compared to the taxes America was forced to collect to finance
the US Civil War.

America Implements Its First Income Tax for the US Civil War
The US Civil War was an expensive war. It was the world’s first major industrial-era war. It led to a huge
cost in equipment, weapons, machinery, and human lives. All of these things were paid for with new
taxes on the American people.
In 1861, just months into the war, America was facing huge amounts of debt. In response, Congress
passed the Revenue Act of 1861. This act charged income taxes on all incomes over $800.
The government collected income taxes throughout the American Civil War, all the way up to 1872, when
the Revenue Act was repealed. Nevertheless, the foundations were laid for the modern US tax system.

Rewriting the US Constitution to Permanently Add Income Tax

One of the best parts of the original US Constitution was that it specifically prohibited directly taxing the
American people in a way that was not proportional to each state’s population (this was actually the
reason the Revenue Act was repealed in 1872).
Things had to change. The government was floundering in debt, and they needed new sources of revenue.
The Wilson-Gorman Tariff Act of 1894 tried to tax the American people again, although it was declared
unconstitutional in 1895.
The US government had a problem: they needed taxes to build the country, but taxes were
unconstitutional. So what did they do? They changed (“amended”) the US constitution. Woodrow Wilson
ratified the 16th Amendment in 1913, paving the way for an income tax. The amendment specifically
removed the taxation according to proportional representation clause.
Soon after, the government created an income tax targeted at citizen with an annual income over $3,000.
The tax affected fewer than 1% of all Americans.
This early income tax had a weird problem: the law specifically used the phrase “lawful income” – which
meant Prohibition-era gangsters like Al Capone had an out clause. Later, the law was changed to simply
refer to “income”, which is why Al Capone was ultimately charged with tax evasion.

World Wars and Income Taxes

World Wars are expensive. To finance the war, the United States introduced three Revenue Acts,
cranking up tax rates and increasing the number of Americans who had to pay taxes. 5% of all Americans
were now paying taxes. The government introduced new taxes for estates and excess business profits.
After the First World War, taxes were gradually rolled back. The 1920s led to a booming economy, and
tax revenue continued to increase until the Great Depression.

The New Deal and Rising Taxes

Franklin Delano Roosevelt’s New Deal required increased taxes across the nation. The New Deal ran a
heavy deficit, and the government needed revenue from somewhere. In 1936, America’s highest tax
bracket was paying a 76% marginal tax rate.
Taxes continued to increase as the Great Depression deepened and the Second World War began. In 1940,
Americans with incomes of $500 faced a 23% tax. America’s wealthiest were paying an unprecedented
94% marginal tax rate. By 1945, 43 million Americans were paying taxes out of a total population of 140
million.

Nixon Lowers Taxes Across America

Tax rates were enormous throughout the 1950s – the highest tax rate was over 80%. Throughout the
1960s and 1970s, America went through an inflationary period. Government deficits grew. Taxes weren’t
indexed for inflation, which meant that the real value of people’s incomes continued to decrease.
In response, Nixon would lower taxes with a series of Tax Acts throughout the 1980s, including the
Economic Recovery Tax Act of 1981. All individual tax brackets were lowered, and then continued to be
lowered throughout the 1980s.
Bush in the Early 2000s and the Future of Taxes
Taxes remained comparatively low throughout the 1990s. In the early 2000s, President George Bush
scaled back taxes by approximately 3% for each bracket. Taxes have remained mostly unchanged to the
present day.

Where Are Taxes Going in the Future?

Ultimately, the history of taxes takes us from ancient Egypt to present day in America. Today, every
country has its own unique taxes – from import/export taxes to income taxes. These taxes often have their
roots deep in history, with the first taxes having been seen in ancient Greece and Rome.
So the next time you want to blame someone for your taxes, consider blaming the ancient Greeks and
Romans – not your current government.

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Types of Taxes

Consumption Tax
A consumption tax is a tax on the money people spend, not the money people earn. Sales taxes, which
state and local governments use to raise revenue, are a type of consumption tax. An excise tax on a
specific good, such as alcohol or gasoline, is another example of a consumption tax. Some economists
and presidential candidates have proposed a federal consumption tax for the U.S. that could offset or
replace taxes on capital gains and dividends.

Progressive Tax
This is a tax that is higher for taxpayers with more money. In a progressive tax system like the U.S.
federal income tax, wealthy individuals pay tax at a higher rate than less wealthy individuals. This is why
wealthy Americans are taxed more than middle-class Americans and middle-class Americans are taxed at
a higher rate than working-class Americans.
Regressive Tax
A regressive tax is one that is not progressive. This could either mean that the tax is lower for wealthy
individuals or that the tax is flat (everyone pays the same rate). Why is a flat tax regressive? People with
lower incomes would feel the effect of a flat tax more strongly than people with higher incomes. To a
multi-millionaire, a 15% tax wouldn’t translate to a substantial decrease in quality of life. To someone
making $30,000 a year, a 15% tax would mean a serious dent in spending power.
Proportional Tax
A proportional tax is the same as a flat tax. Taxpayers at all income levels would pay the same
“proportion” in taxes. As explained above, proportional taxes are regressive taxes. These types of taxes
are common in state-level sales taxes but not common at the federal level. Anyone who remembers the
2012 presidential campaign will remember a famous proportional tax proposal, the 9-9-9 Plan. That plan
was for a 9% business transaction tax, a 9% personal income tax and a 9% federal sales tax.
VAT or Ad Valorem Tax
The VAT tax is big in Europe but the U.S. has yet to adopt it. It’s a tax on the “added value” of a product,
the difference between the sales price and the cost of producing a good or service. It’s a form of
consumption tax that buyers pay when they make a purchase, similar to a sales tax.
So what’s the difference between sales tax and VAT? Sales tax is paid by the purchaser of a product.
Only that final stage in the product’s life is subject to taxation. VAT, in contrast, is applied at each stage
of the supply chain and then snowballed into the final purchase price. If you travel to a country with VAT
you probably won’t notice you’re paying it because it is included in the prices you pay. Sales tax, on the
other hand, is listed separately on receipts.
Property Tax
Property taxes are taxes you pay on homes, land or commercial real estate. If you’re deciding whether
you can afford to buy a home, you should take property taxes into account. Unlike a mortgage, property
tax payments don’t amortize. You have to keep paying them for as long as you live in a home – unless
you qualify for property tax exemptions for seniors, veterans or disabled residents.
Capital Gains Taxes
Capital gains taxes apply to investment income after an investment is sold and a capital gain is realized.
Because so many Americans don’t invest at all, they don’t pay capital gains taxes. There are also taxes on
dividends and interests stemming from simple interest from a bank account or dividends and earnings
from investments.
Inheritance/Estate Taxes
Estate and inheritance taxes are paid after someone dies. An estate tax is paid from the net worth of the
deceased. It’s a tax on the privilege of passing on assets to heirs. There is a federal estate tax, and some
states levy their own estate taxes as well. Inheritance taxes don’t exist at the federal level and are only law
in a handful of states. They’re taxes on the privilege of inheriting assets, and so are paid by the heir, not
the estate of the deceased.
Payroll Taxes
If you take your annual salary and divide it by the number of times you get paid each year, chances are
that number is higher than your actual paycheck. One reason could be that your healthcare premiums or
401(k) contributions are deducted from your paycheck. Another reason is payroll taxes. These taxes cover
your contributions to Medicare, Social Security, disability and survivor benefits and to federal
unemployment benefits. You’ll also have federal (and maybe state and local) income taxes withheld from
your paycheck. You can learn all about payroll taxes here.
Income Taxes
Income taxes do what the name implies. They tax the income you earn. Federal income taxes are both
progressive and marginal. Marginal means that there are different tax rates for different income brackets.
The top earners pay a high tax rate, but only on the amount of money they have in that top bracket.
So if you’re paying taxes for 2018 and you have $50,000 of taxable income, you will pay 10% on the first
$9,525, 12% on your income between $9,525 and $38,700 ($29,175 of your $50,000) and then you will
pay 22% on income between $38,701 and $50,000 ($11,300 of your $50,000). Since the highest income
bracket for you has a rate of 22%, you would say that you’re in the 22% bracket. However, that doesn’t
mean the government taxes all your income at 22%
The income tax brackets and rates for 2018 are different from previous years because of the new tax plan
passed in late 2017. To understand how these new tax rates will affect your taxes, check out our article on
Trump’s tax plan and how it will affect you.
https://smartasset.com/taxes/types-of-taxes

All “persons” living in the Philippines must pay tax. The National Internal Revenue Code defines
"person" as an individual, a trust, an estate, or a corporation. The term corporation includes partnerships,
joint stock companies, and associations registered or unregistered with the Securities and Exchange
Commission.
[related|post]The partners in general professional partnerships (lawyers, doctors, etc.) are liable for taxes
only in their individual capacities. In an individual proprietorship, where the owner is at the same time the
worker, the owner himself pays the taxes due from his business. The people comprising a corporation or a
partnership are taxed separately from the corporation or partnership for the income they receive from it.
The taxes to be paid by a person, a single proprietorship, a partnership, or a corporation vary depending
on their business or the goods they deal in. Some businesses pay value-added tax while others pay
percentage taxes. Also, some goods are subject to excise taxes while others—such as petroleum
products—are subject to VAT. As a rule, all income earned in a taxable year is subject to tax.
Income means all wealth flowing into the taxpayer, and it includes cash receipts, inventories, accounts
receivable, interest on bank deposits and deposit substitutes, royalties, dividends, and the proceeds from
the sale of property or shares of stock.
A domestic or resident foreign corporation pays the minimum corporate income tax—or 2 percent of its
gross income—starting on the fourth taxable year immediately following the taxable year in which it
started business operations. This means a corporation registered with the Bureau of Internal Revenue in
2000 pays the minimum corporate income tax in 2004, but if its regular income is higher than the
minimum corporate income tax, then it does not pay the tax.
Philippine citizens living here and corporations doing business here pay tax on all income they earn
within and outside the Philippines. Aliens doing business in the Philippines pay tax like ordinary
Philippine citizens, but Philippine citizens working and earning income abroad—including aliens and
foreign corporations based here or abroad—pay tax only on income they earn within the Philippines.
https://www.entrepreneur.com.ph/startup-tips/5-shopping-trends-that-aren-t-going-anywhere-in-2019-
adv-con?ref=native_scroll