History 101

Why do we have the taxes we have? I will attempt in a series of posts to expose historical tidbits of the tax code in the United States. Every week or so I will cover little known or understood historical tax issues that affect us today. On to today's lesson:

In colonial times, the Federal Government’s source of tax revenue came from tariffs, excise taxes, and customs duties. Each colony had greater responsibilities than the colonial government prior to the Revolutionary War. Each colony chose the taxes they would levy. Southern colonies relied heavily on import and export taxes; some middle colonies taxed property or had a poll tax; New England focused on real estate, excises, and occupation taxes.

The Constitution, adopted in 1789, endowed the Congress with the power to "…lay and collect taxes, duties, imposts, and excises, pay the Debts and provide for the common Defense and general Welfare of the United States." Many tax scams exist today claiming the Federal government has no authority to tax. As you can see, the government has the authority. Later, the 16th Amendment allowed income to be taxed, too.

Under President Jefferson, all direct taxes were abolished. From 1802 – 1812, only excise taxes were collected. War and economic difficulty are the leading cause of significant tax changes. The War of 1812 is no different. Internal taxes were again levied, but repealed in 1817. For 44 years the Federal Government collected no internal taxes. Most Government revenues came from customs duties and the sale of public lands during this time. How things have changed.

Debt is nothing new to the Federal Government. At the beginning, the Federal Government took responsibility for much of the each state’s debt. To fund the War of 1812, additional Treasury notes were issued. Only one President can claim a debt-free Federal Government under his term: Andrew Jackson. And it didn’t last for long, but that is another story.