Learn About Taxes:
Colonial and Post Revolutionary America
1764 - Colonists were already paying taxes under the Molasses Act when a modification brought about the Sugar Act in 1764 as a means to regulate trade. The Sugar Act included import duties on foreign molasses, sugar and wine among other things. The Sugar Act inspired minor protest in Massachusetts, New York and Pennsylvania, where distillers and merchants were hardest hit.
- The Stamp Act was next imposed when the Sugar Act failed to raise as much money as anticipated. The Stamp Act was passed by Parliament in order to cover about £60,000 of the £200,000 required to station troops in the colonies. The Stamp Act imposed a direct tax on all newspapers printed in the colonies as well as legal documents and other commercial forms of paper products such as playing cards.
- The Townshend Act was imposed to allow Parliament to collect duties on glass, paint, lead, paper, and tea imported into the colonies. The act was seen by Charles Townshend, Chancellor of the Exchequer, as a way to fund the salaries of governors and other colonial administrators in an effort to shift the balance of power in the Colonies.
- Parliament passed the Tea Act in an effort to help the financially troubled East India Company get back on its feet. The monopolizing East India Company now became the cheapest tea available, foreign or domestic, even with all the taxes amended onto the price. Colonists became irate at what they viewed as Parliament's underhanded way of getting them to conform its taxation on the Colonies. This led to the infamous Boston Tea Party, whereby Patriots in Massachusetts dressed up as Indians raided the cargo ship Dartmouth and dumped over 300 chests of East India Company tea into Boston Harbor.
- In attempt to punish the Colonists for the Bosto
n Tea Party and regain control over the insubordinate colonies, Parliament passed a series of Coercive Acts (which the Colonists referred to as the Intolerable Acts.)
- The Continental Congress passed the Articles of Confederation. The Articles did not grant Congress the power to tax, only the authority to request funds from states.
- Superintendent of Finance Robert Morris released a Report on Public Credit, calling for the Confederation government to assume the entire national debt, issue new interest bearing debt certificates, and impose tariffs and internal taxes to pay the interest costs. It was defeated in Congress as states objected to is proposal of a national tariff and wanted to continue determining their own trading policies. They were not about to accede to a new set of duties having just broken away from the British imposed duties.
- The Tariff of 1789 included a 5% ad valorum duty on all imports, along with a list of enumerated items to be taxed by duties of a specified amount. Next, in order to discriminate against British shipping in favor of French shipping, Madison made a call for tonnage duties to be levied in three categories: American ships (lowest rate), ships belonging to nations with commercial treaties with the United States, and those of nations with no such treaties (highest rate).
- At Alexander Hamilton's behest, Congress approved a Whiskey excise tax. Unlike the tariff, it constituted a direct tax on a specific class of producers, the spirit distillers. Designed to raise $800,000 for Hamilton's debt funding and assumption plan, the measure levied a tax on spirits ranging from 7 to 18 cents per gallon, and created an internal revenue service to collect it.
- The Whiskey Rebellion is started by settlers west of the Alleghenies in opposition to what they considered a discriminatory tax (the Whiskey Excise Tax.) Settlers rioted against the tax collectors and Washington was forced to send in troops.
- Congress enacted the Federal Property Tax to help raise money for funding the expansion of the Army and Navy in the event of a war with France. In opposition to the tax, the Fries Rebellion rises and is quelled with no injuries or deaths.
- The first income tax is suggested in the US during the War of 1812. Based on the British Tax of 1798, the tax applied progressive rates to income. Due to the signing of the treaty of Ghent, additional revenue was no longer needed and the tax was never imposed.
- The Tax Act of 1861 proposes that taxes shall be paid based on the annual income of every person regardless of the source of the income. The tax is passed but never imposed.
- The Tax Act of 1862 is passed whereby the rates of taxation were 3% on income in excess of $600 and 5% on income in excess of $10,000. The people accepted this tax as it was necessary for revenue to finance the Civil War, but the percentage of people who actually complied was relatively low.
- To raise additional revenue to support the Civil War, the Tax Act of 1864 was passed. Tax rates were now 5% for income between $600 and $5,000, 7.5% for income between $5001 and $10,000 and 10% on income in excess of $10,000.
After the end of the Civil War, the Tax Act of 1864 was modified. The rates were changed to a flat tax rate of 5%. The flat tax rate was lowered to 2.5% from 1870-1872.
- The tax is repealed and replaced with installed significant tariff restrictions.
- The 16th Amendment is passed, which allows Congress the power to tax the citizens on income from any sources.