On the night of Dec. 18, members of a secret organization called the Sons of Liberty, led by brew master Samuel Adams, disguised themselves as Indians and dumped 90,000 pounds of tea belonging to the East India Trading Co. into the Boston Harbor. The act was done in protest of the company's monopoly on the tea trade, which, thanks to tax subsidies provided by the British government, was able to undercut local tea importers' prices. The event is known for infuriating King George III like never before.
Having assumed the debt from the American Revolution, Secretary of the Treasury Alexander Hamilton pushed a tax on whiskey distillers to raise money and to situate the newly created federal government as a force to be reckoned with. In practice, the tax levied a heavier fee on small distillers while taking it easy on larger ones. Vehement opposition to the tax spawned a diffuse resistance in Pennsylvania, Washington and what is now West Virginia that at its most violent saw a tax collector tarred and feathered.
A property tax to fund the expansion of the Army and Navy for an undeclared war with France peeved auctioneer John Fries, who in response launched a rebellion in Pennsylvania. Fries and a band of 60 or so German farmers roved the state, bullying tax assessors and encouraging residents in their own acts of opposition. The insurrection ended after a face-off between Fries' band and local authorities at an inn, where the town marshal was holding a few rebels prisoner. Fries got his men back but was arrested shortly thereafter and found guilty of treason.
The Lincoln administration put in place the country's first progressive income tax (an attempt a year earlier to tax income at a flat rate didn't exactly take), the revenue of which was primarily used to finance the Civil War. The tax was widely viewed as an emergency measure and was repealed within a decade.
Journalist and economist Henry George published Progress and Poverty, which, put simply, conceived of a single land tax for private property and inspired a mini-"single tax"? movement, hinged on the lofty ideal of social equality. George's model was designed to raise employment rates by incentivizing landowners to hire help since they wouldn't have to pay a labor or production tax. The book sold 3 million copies shortly after it was released"â?a considerable amount, as the population of the United States at that time was a mere 50 million people.
The Bureau of Internal Revenue, which would later become the Internal Revenue Service in 1953 to emphasize its "service"? aspect, was created under the secretary of finance. It had about 70 employees. In comparison, the IRS now employs about 1,900 people, making it the largest federal bureaucracy.
With the passage of the 16th Amendment, Congress was given authority to tax on income. The average income that year was $1,296, and tax rates were between 1 percent and 6 percent. In five years, the highest tax rate would reach 77 percent.
The Bureau of Internal Revenue distributed Form 1040 for the first time; however, no money was collected during the first year. Instead, taxpayers simply returned the completed form to be checked for accuracy. In 1920, only 5.5 million returns, or 5 percent of the total population, showed any tax due.
The speech addressed to Congress pleaded for increased taxes on income, estate, and corporate excess profits to continue to fund World War I, which was in its fourth (and last) year. Taxes, however, were already sky-high: In 1917, the federal budget was almost as much as the total sum of annual budgets for the 125 years prior.
The Volstead Act, in conjunction with the 18th Amendment, waved in the Prohibition Era and charged the commissioner of internal revenue with enforcing it. As a result, the government went through several commissioners during the time period. David Hunt Blair lasted the longest, perhaps due to his intolerance of bootleggers. He once declared that all of them should be lined up against a wall and shot to death. In 1930, the Department of Justice assumed the honors of enforcement"â?three years before Prohibition was repealed.
Mobster Al Capone's criminal career didn't end grandly with a tragic bullet but, instead, with a guilty verdict for tax evasion on Oct. 17, 1931. The mobster was sentenced to 11 years and had to pay almost $300,000 for back taxes, fines, and court costs.
Two tax increases during the heart of the Great Depression"â?one in 1932 and one in 1936"â?set new highs in tax rate history. The Revenue Act of 1932 became the largest peacetime tax increase in the nation's history, pushing top tax rates up to 63 percent while simultaneously reducing exemptions. In 1935, with the passage of the Wealth Tax Act, the top tax rate reached about 75 percent.
The Social Security Act was developed under the New Deal as a broad safety net for disadvantaged and aged citizens. The act introduced major hallmarks of the American welfare and tax system such as unemployment compensation, death benefits, and retiree pay as well as assistance for children and the blind.
The Marihuana Tax Act smacked a hefty tax on those caught dealing marijuana, hemp, or cannabis commercially, marking the beginning of the end for legal pot smoking in the United States. It also inadvertently brought the term marihuana (or marijuana) into the formal lexicon, as prior to the act it was used only as slang.
In order to raise money for defense spending, Congress passed three tax laws between 1940 and1941 that swelled both personal and corporate tax rates and slashed exemption levels. By the time the war was over, people with taxable incomes of only $500"â?which today would be only about $13,000"â?faced a bottom tax rate of 23 percent. Those making more than $1 million every year paid up to a 94 percent tax rate. In the four years between 1941 and 1945, the Fed's intake from taxes increased more than 400 percent, from $8.7 billion to $45.2 billion.
President Harry Truman signed the Margarine Act in 1950, finally eliminating a tax on yellow-dyed margarine first adopted in the 19th century. The oleomargarine tax, as it was called back then, was a protectionist measure put in place by lawmakers in cahoots with dairy farmers who feared losing ground in the marketplace. It was billed, however, as a way to stop margarine manufacturers from hawking their cheaper product as butter.
Formally titled "People's Initiative To Limit Property Taxation" and more commonly referred to as Prop 13, the measure began as a ballot initiative to amend the Constitution of the state of California and ended up lowering the cap on property tax rates by almost 60 percent. It also set forth rules for future increases. Challenging Prop 13 is like political poison for lawmakers, much like running for student council on a "no prom" platform.
The Tax Reform Act, one of the pillars of Reaganomics, contained 300 provisions and took three years to implement. The act put a major dent in certain tax loopholes, particularly real estate tax shelters, which were primarily used by wealthy homeowners to avoid paying high income taxes. Supposedly, the value of real estate throughout the country plummeted as a result of the provision.
Following a basketball game in which the Chicago Bulls beat the Los Angeles Lakers, the state of California slapped the visiting team with a nonresident income tax. The next time the Los Angeles Lakers played Chicago on the Bulls' home turf, the favor was returned. Soon, the tax became known as the "jock tax." Now, 20 out of the 24 states that house professional sports teams impose the tax, making it so athletes sometimes have to pay taxes in multiple locations for one paycheck.
To help raise money to pay off $16.7 million in back taxes, country singer Willie Nelson released "The IRS Tapes: Who'll Buy My Memories?"? a 24-song, two-disc set with remarkably serious lyrics, given the satirical nature of the album: "A past that's sprinkled with the blues/ A few old dreams that I can't use/ Who'll buy my mem'ries/ Of things that used to be?"? Meanwhile, the IRS repossessed and auctioned the majority of Nelson's belongings, most of which was purchased by friends and returned to him.
No sooner had former Senate Majority Leader Tom Daschle been nominated to be President Obama's health and human services secretary than he became embroiled in controversy over unpaid taxes, including deductions for donations that didn't meet certain requirements, an unreported car service, and almost $85,000 in tax on income he made as a consultant. In January, Daschle dished out about $140,000 for back taxes and a month later withdrew his nomination.
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