From the course: Finance Foundations: Income Taxes

The history of income taxes

From the course: Finance Foundations: Income Taxes

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The history of income taxes

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- You may have heard the Benjamin Franklin saying, "In this world, nothing can be said to be certain, except death and taxes." - Yep, taxes have been with us since civilization began. In order to perform essential services, governments need money. That money has most frequently come in the form of taxes. - [Man In Navy Blue Shirt] Taxes have been a part of human society for thousands of years. For example in ancient Egypt, peasants too poor to pay their taxes were required to provide forced labor on public projects, such as the pyramids. - [Man In Gray Shirt] An unpopular income tax was launched by Chinese Emperor Wang Mang in the year 9 A.D. The tax rate was 10% of profits. The Emperor was deposed 14 years later. - In early US history, the primary source of US federal government revenue was a tax on imports. These taxes were called tariffs. The first income taxes weren't collected in the United States until the American Civil War in the 1860's. Income taxes were not a permanent part of the US federal government financing until 1913. - Yes, and those first US income tax rates in 1913, ranged from 1% to just 7%. - Now, if you think about the practical difficulties associated with computing and collecting income taxes, you will understand why governments have historically relied on other taxes, such as property taxes, head taxes, that's a certain amount per person, and import/export taxes. - [Man In Gray Shirt] There are substantial practical difficulties with income taxes. First of all, what's income? What expenses are acceptable deductions when computing this income? How will the tax be collected? Will the reported income by verified? And if so, how? - Now one approach to this practical difficulty has been for governments to subcontract the collection of income taxes. In Biblical times, these tax collectors were called publicans. They're also called tax farmers. - One famous French tax farmer was Antoine Lavoisier, the father of modern chemistry, and the discoverer of the element oxygen. Tax farmers were a targeted group in the French Revolution, and Lavoisier was beheaded at age 51. - These days we don't use the term tax farmer. Governments around the world now collect their own income taxes. Some, more successfully than others. We'll discuss this when we talk about the extent of tax evasion around the world. - Right now, let's get an introduction to the theory and practice of income taxes.

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