I am a procrastinator about some things, and taxes is one of them. So, I have been working frantically these last few days to figure out my income tax return and ended up not filing it electronically until 5:30 p.m. Whew! It is a relief. I made myself some notes, so I don’t forget things and draw out the process like I did this year. Hope I can remember to file it in a place where I can find it next year.
History
According to Wikipedia, the concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits and an orderly society with reliable records.
For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position and ownership of the means of production — typically land and slaves — were all common. Practices such as tithing — or an offering of first fruits — existed from ancient times and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.
Early examples
The first income tax is generally attributed to Egypt. According to the article “Ancient Egyptian Taxes and the Cattle Count” in the Ancient History Encyclopedia, during the ancient Egyptian Cattle Count, the king and his retinue would travel the land, assess the value of farmers’ crops and animals and collect a certain amount in taxes.
In the early days of the Roman republic, public taxes consisted of modest assessments on owned wealth and property. The tax rate under normal circumstances was 1%, and sometimes would climb as high as 3% in situations such as war. These modest taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth. The more a person had in property, the more taxes they paid. Taxes were collected from individuals.
In the year 10 AD, Emperor Wang Mang of the Xin Dynasty instituted an unprecedented income tax— at the rate of 10% of profits — for professionals and skilled labor. He was overthrown 13 years later in 23 A.D., and earlier policies were restored during the reestablished Han Dynasty which followed.
One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade. The tithe demanded that each layperson in England and Wales be taxed one tenth of their personal income and moveable property.
Modern era – United Kingdom
The inception date of the modern income tax is typically accepted as 1799, at the suggestion of Henry Beeke, the future Deal of Bristol. This income tax was introduced into Great Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new graduated or progressive income tax began at a levy of two old pence in the pound (1/120) on incomes over £60 — equivalent to £6,400 in 2019 and increased up to a maximum of two shillings in the pound (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million a year, but actual receipts for 1799 totaled only a little over £6 million.
Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. The image depicts the meeting of Britannia and Citizen François for the peace treaty. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities with France recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. Opponents of the tax — who thought it should only be used to finance wars — wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchqeuer, but copies were retained in the basement of the tax court.
In the United Kingdom of Great Britain and Ireland, income tax was reintroduced by Sir Robert Peel by the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150 — equivalent to £14,225 in 2019. Although this measure was initially intended to be temporary, it soon became a fixture of the British taxation system.
A committee was formed in 1851 under Joseph Hume to investigate the matter but failed to reach a clear recommendation. Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax and extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had become a grudgingly accepted element of the United Kingdom fiscal system.
Modern era – United States
The U.S. federal government imposed the first personal income tax on August 5, 1861, to help pay for its war effort in the American Civil War — 3% of all incomes over $800, equivalent to $22,800 in 2019. This tax was repealed and replaced by another income tax in 1862. It was only in 1894 that the first peacetime income tax was passed through the Wilson-Gorman tariff. The rate was 2% on income over $4000 — equivalent to $118,000 in 2019 — which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions. The U.S. Supreme Court ruled the income tax unconstitutional, the 10th Amendment forbidding any powers not expressed in the U.S. Constitution, and there being no power to impose any other than a direct tax by apportionment.
In 1913, the Sixteenth Amendment to the United States Constitution made the income tax a permanent fixture in the U.S. tax system. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. The amount of income collected via income tax has varied dramatically, from 1% in the early days of U.S. income tax to taxation rates of over 90% during World War II.
Systems of taxation on personal income
Green - No income tax on individuals
Light blue - Territorial
Dark blue - Residential
Pink - Citizenship-based
Around the world
Income taxes are used in most countries around the world. The tax systems vary greatly and can be progressive, proportional or regressive, depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons more difficult.
Countries that tax income generally use one of two systems: territorial or residential. In the territorial system, only local income — income from a source inside the country — is taxed. In the residential system, residents of the country are taxed on their worldwide (local and foreign) income, while nonresidents are taxed only on their local income. In addition, a very small number of countries, notably the United States, also tax their nonresident citizens on worldwide income.
Countries with a residential system of taxation usually allow deductions or credits for the tax that residents already pay to other countries on their foreign income. Many countries also sign tax treaties with each other to eliminate or reduce double taxation.
Countries do not necessarily use the same system of taxation for individuals and corporations. For example, France uses a residential system for individuals but a territorial system for corporations, while Singapore does the opposite and Brunei taxes corporate but not personal income.
Timeline of introduction of income tax by country
· 1803-16 United Kingdom
· 1840 Switzerland
· 1860 India
· 1861-72 United States
· 1872 France
· 1887 Japan
· 1891 New Zealand
· 1900 Spain
· 1903 Denmark, Sweden
· 1908 Indonesia
· 1911 Norway
· 1916 Australia, Russia
· 1918 Canada
· 1920 Finland, Poland
· 1921 Iceland
· 1924 Brazil, Mexico
· 1932 Bolivia, Argentina
· 1934 Peru
· 1937 China
· 1942 Venezuela
· 2007 Uruguay
Wage-based taxes
Retirement oriented taxes — such as Social Security or national insurance — also are a type of income tax, though not generally referred to as such. In the U.S., these taxes generally are imposed at a fixed rate on wages or self-employment earnings up to a maximum amount per year. The tax may be imposed on the employer, the employee or both at the same or different rates. Some jurisdictions also impose a tax collected from employers, to fund unemployment insurance, health care or similar government outlays.
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