Colorado Tax Attorney: Denver Tax Lawyer K. Mitchell » Independence Day Tax History: Trends

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Independence Day Tax History: Trends

Independence Day gives us all an opportunity to reflect on what it means to be an American. Even a cursory review of our nation’s short history reveals some interesting tax tendencies. Here is a very brief US tax history timeline:

1733 & 1764

The British parliament enacts the Sugar and Molasses Act imposed a duty on the import of non-English rum and molasses.

1765 & 1766

The British parliament enacts the Stamp Act which required the use of stamped paper for legal documents, diplomas, almanacs, broadsides, newspapers and playing cards to raise revenues for the British government to police the American colonies and then the British parliament repeals the Stamp Act due to tax evasion and rioting.

1773

Americans boarded British ships in the Boston harbor and dumped their tea cargo overboard in protest of the British government giving the East India company a monopoly over tea exported to the Colonies.

1776

The US declares its independence from Britain.

1781

Articles of Confederation drafted such that only the individual states had the power to tax and the tax was to be submitted by the states to the federal government.

1788

US Constitution ratified and grants federal government the ability to impose direct taxes upon citizens.

1791 & 1794

The US Congress passed the Whiskey tax to help fund public works post-War of 1812 and then US troops disbanded a group of farmers who refused to pay the Whiskey excise tax (otherwise known as “the Whiskey Rebellion.”).

1832 & 1833

The US Congress passed the Tariff of 1832 to tax imported British goods and then President Jackson brokered a deal with South Carolina to prevent the state from leaving the union due to the tax reducing foreign imports of South Carolina cotton.

1862

Congress enacts the first US federal income tax to pay for the civil war.

1872

Congress repeals the US federal income tax.

1894

Congress brings back the federal income tax.

1895

The Supreme Court rules that the federal income tax is unconstitutional.

1913

The Sixteenth Amendment was approved and Congress reinstated the federal income tax.

1935

Congress passes the Social Security Act of 1935 to provide a social safety net following the Great Depression.

Congress passes the Revenue Act of 1935 which imposed an income tax on the highest income earners (or a “wealth tax”) and then the Revenue Act of 1937 to try to prevent the wealthy from avoiding the tax.

1942

Congress passes the Revenue Act of 1942 which required employers to withhold money from employee pay in order to pay for World War II (AKA the “Victory Tax”).

1969 & 1986

The Tax Reform Acts of 1969 and 1986 modified the federal income tax.

1998

The Revenue Restructuring Act of 1998 reorganized an increasingly aggressive IRS.

Whether it is the Boston tea party or the Whiskey or Stamp Act riots, it appears that we Americans have a long history of being tax protesters – and physically violent tax protesters at that.

The peaceful tax protesters who we refer to as such today, such as the individuals that are prosecuted by the Department of Justice Civil and Criminal Tax Divisions, are, well, bland when compared with the tax protester of yesteryear. Modern-day peaceful tax protest leaders are also not celebrated as national heroes by the mainstream media as many historic tax protesters are (otherwise, the images of folks like Irwin Schiff would be found on US currency).

Just for fun, I often try to discuss these concepts to IRS auditors and tax collectors as they fuss over accounting for and collecting every penny from taxpayers. I can tell you that this is probably the best way to generate a blank stare from IRS employees (I am not referring to an evil blank stare, but rather a “the internal computer can’t compute” blank stare).

A second tax trend that is apparent is that we Americans fight quite a few wars, most often without the money to pay for our wars out of our current savings and earnings. This seems to often result in higher tax rates and/or taxes being imposed after the war to pay for the war.

Maybe Congress is changing this trend, as it is not talking about raising taxes but rather it is talking about collecting more of the taxes that are already levied (i.e., about closing the so-called “tax gap”).

For the non-tax professional, closing the “tax gap” really refers to allowing the IRS to more aggressively collect unpaid taxes. In other words, if you do not want a more aggressive IRS then you should pay attention to what political candidates support closing the “tax gap” – given the name, which is probably right about when you decide to change the TV channel – and if the candidate does support closing the “tax gap,” does he or she propose some alternative means to close the gap.

I would guess that, if given a choice, more Americans would prefer higher tax rates than a more aggressive IRS. What do you think?