History of US Tax System

The history of US tax system spans a long period of time. It started while the United States was made up of a number of colonies that were ruled by the French Empire, British Empire and Spanish Empire. Following its independence from the above-mentioned European colonies, the United States of America started the collection procedure of tariffs, poll taxes, as well as excise taxes. Income taxes were levied in the United States on a periodical basis simply due to the reason that the integrity of the income tax during that period was at doubt. The introduction of the 16th Amendment to the Constitution of the United States resolved the issue in the year 1913 and after that, the income tax is regarded as one of the principal ways of financing the Federal Government of the United States.

When the United States was a colony, the following taxes were prevalent in the country:

Colony of Britain

Sugar Act: The Sugar Act was legislated in the year 1764 by the Parliament of Great Britain. The act was passed for the purpose of collection of revenues. It updated the erstwhile Sugar and Molasses Act.

Stamp Act: The Stamp Act was passed in the year 1765 and it was also an initiative of the Parliament of Great Britain.

Townshend Revenue Act: This act was legislated in the year 1767 by the British Parliament.

Boston Tea Party: The Boston Tea Party was basically a movement of resistance versus Great Britain by the colonists in America regarding the Tea Act and this event happened in the year 1773. It acted like a prelude to the American Revolution.

A large number of tariffs have been imposed in the United States and they functioned as significant origins of federal revenue for a long period of time, nevertheless, income taxes outperformed them.

Some of the tariffs imposed by the United States Congress include the following:

• Tariff of 1789
• Tariff of 1790
• Tariff of 1792
• Tariff of 1824
• Tariff of 1828 (Also termed as Tariff of Abominations)
• Tariff of 1832
• Morrill Tariff of 1861
• Underwood Tariff of 1913
• Emergency Tariff
• Fordney-McCumber Tariff

In the year 1948, the GATT (General Agreement on Tariffs and Trade) Agreement was ratified by the United States Government. With the implementation of GATT, a number of tariff impediments, quantifiable limitations and subsidies were cut down with the help of a number of contracts. In the year 1993, GATT was revised and named as GATT 1994. One of the major events happening at that time was the establishment of WTO or World Trade Organization.

Excise taxes are also levied on particular commodities in the United States.

Income tax was first imposed in the United States in the 19th Century for financing war campaigns. In the year 1861, the personal income tax was first levied as a constituent of the Revenue Act of 1861. In the year 1862, the first federal legislative act levying a federal income tax was enacted by the United States Congress. After rescinding this income tax in the year 1872, a new income tax law was legislated as a component of Tariff Act 1894 by the U.S. Congress.

In the U.S., gift tax and estate tax were introduced in the latter part of the 19th century. One of the important acts passed in this context was the Revenue Act of 1924. The state version of the estate tax is known as inheritance tax.

The payroll (or Federal Insurance Contributions Act Tax) tax was introduced in the United States in the decade of 1930s for payment of social security expenses.

The Tax Reform Act of 1969 brought in the Alternative Minimum Tax, which was functional from the year 1970.

The capital gains tax came into stronger effect by the passing of the Revenue Act of 1921. The rates of capital gains tax were substantially raised in the Tax Reform Act of 1969 and the Tax Reform Act of 1976. The Taxpayer Relief Act of 1997 imposed decreased rates of capital gains tax on assets held for 1½ years and five years. The Economic Growth and Tax Relief Reconciliation Act was introduced in the year 2001 that offered a number of tax reliefs.