A Very Brief History Of Taxation In America
By Susan Boskey
“100% of what is collected is absorbed solely by interest on the Federal Debt … all individual income tax revenues are gone before one nickel is spent on the services taxpayers expect from government.” ~The Grace Commission Report, 1984
As April 15 nears…thought you would find this research on taxation in America timely if not interesting.
No one living before the Constitution of 1787 could have believed the seven ways to Sunday Americans are now taxed. Under the Declaration of Independence and the first American constitution of 1777, The Articles of Confederation and Perpetual Union, association among the confederate states and a state’s interaction with federal authorities was 100% voluntary.
Though paying taxes was a voluntary act, the federal legislature (never referred to as government), did have legitimate operating expenses, and depended on property taxes collected from and given by the states voluntarily in varying amounts. It was this inconsistent funding that historians thereafter have considered the deal-breaker issue for what has been called the “failure” of this first American union.
A Second Constitution Provides New Powers of Taxation
The untold rest of the story? The Framers of the U.S. Constitution of 1787 seriously wanted centralized authority which was non-existent under The Articles. Far from being commoners, the Framers of the 1787 U.S Constitution were either landed gentry of prominent families, or had risen to the strata of aristocratic American society due to intelligence, education and intent, as did Benjamin Franklin, the tenth son of a soap maker. Make no mistake; these men gleaned knowledge about governance and taxation from the British Crown and the Church of England’s system of tithing. The U.S. Government came into existence with the establishment of the U.S. Constitution of 1787.
Not long thereafter, in 1791, Alexander Hamilton lobbied Congress. He wanted an excise tax to accelerate the payment of national debt incurred during the American Revolution. Also known as the Act of March 3, 1791, this tax law enforced government’s new ability to compel performance (force and the power of distraint giving authority to seize personal property for payment.) Unaccustomed to this new form of government and laws of the U.S. Constitution, some of the earliest Americans took offense. Hamilton’s excise tax incited them to rebel in the 1794 Western Pennsylvania Whiskey Rebellion. An excise tax laid on the manufacture of alcohol had not lawfully applied to them. Those who then lived in Pennsylvania, an original state established under The Articles, were called “free inhabitants” and lawfully remained so.
According to the law definition of territorial jurisdiction, only those living on land owned by said government are also subject to its laws. As of 1791 U.S. Government federal lands consisted of the Northwest Territory but excluded the original thirteen states of The Articles. Even so, President Washington sent in troops to silence the tax protesters of the Whiskey Rebellion.
In 1798, the Fries’ Rebellion led by John Fries of Pennsylvania, opposed the enforcement of a direct federal property tax. Even though the Whiskey and Fries’ Rebellions had not been waged on lands subject to U.S. Government territorial jurisdiction, the federal government captured and convicted rebel members for the supposed act of treason. John Fries was pardoned by President Adams after his conviction. Fries had been a “turn-coat” infiltrator for the government militia against those of the Fries’ Rebellion.
Theft of Private Property
“[E]very Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. The great and chief end therefore, of Mens uniting into Commonwealths, and putting themselves under Government, is the Preservation of their Property.” ~John Locke, English philosopher and political theorist, 1632-1704
The first income tax act Congress passed was the Tax Act of 1861. The Act stated the territorial jurisdiction of which and to whom the tax would apply: “every person residing in the U.S.” Yet, this tax was never enacted.
Soon to follow, Congress passed the Revenue Act of 1862 which led to the creation and opening of the Bureau of Internal Revenue (BIR) to collect the new income tax. For the first time, a tax on one’s labor was imposed on the people of the United States. Its purpose was to defray the many costs incurred by a Civil War already underway.
Again, in 1864, Congress authorized an additional income tax to augment the payment of war debt. This 1864 additional tax required Americans pay five percent when earning between $600 and $5,000, seven and one-half percent if between $5,001 and $10,000 and ten percent on anything above $10,000. After the Civil War, the rate modified to a flat rate of five percent and then to two and one-half percent. With the purpose of the income tax to pay off Civil War debt, the Revenue Act of 1862 was repealed and ended in 1872.
Until 1913, for forty-one years, no substantial effort was made towards the reinstatement of the 1862 income tax law. Prosperity in America reigned supreme during that period; the only tax funding the government was a tariff tax on imported goods. However, during that same period, the Supreme Court focused on several tax cases.
Supreme Court Tax Cases
An 1883 Supreme Court decision, Butchers’ Union Co. v. Crescent City Co., 111 U.S. 746, cited that one’s labor was, in fact, one’s property. Then, in another case, Pollock v. Farmers’ Loan & Trust Co, 1895, the very same Supreme Court that had supported the passage of the Tax Act of 1864, did an about-face and decided against a proposed Income Tax Act of 1894.
The Pollock v. Farmers’ Loan & Trust Co. 1895 Supreme Court decision against the Tax Act of 1894 determined it to be a direct-tax scheme and therefore unconstitutional. Given that taxation of real estate (personal property) was lawfully a direct tax, so also would be the taxation of any and all personal property, including money earned from one’s labor. Therefore, a tax on labor was exempt from the explicit tax powers of Congress granted in a portion of Article I, Sections 2 and 9 of the U.S. Constitution.
Article I. Sections 2 and 9:
“Direct taxes shall be apportioned among the several states,” and “no capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
Decisions of the United States Supreme Court were to be bound to the written law of the U.S. Constitution, the professed law of the land.
“This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding.” Article VI, U.S. Constitution