The History of Income Tax

History of Accounting > Tax History > The History of Income Tax

The taxing of an individuals or a business’s income is a relatively new
concept that was created by governments worldwide as a way to fund
themselves. Prior to its implementation, most administrations used
property, excise, production, or wealth taxes as a way to produce revenue.

The collection of income tax from an individual is usually done on a cash
basis, which is determined by the amount of wages or other income that
they receive during a predetermined period. The person paying the tax
is allowed certain types of deductions that have been written into the
tax code. Examples of a few of these would be interest expenses on a
personal dwelling, charitable contributions, or a percentage of a loss from
certain types of transactions, such as a stock deal.

Taxes levied on a business for the most part are paid using an accrual
basis for determine income. There are many rules and regulations that a
company must follow when attempting to correctly identify revenue and
expenses. Income is typically considered gross revenue less allowable
expenses. Below you find various counties tax history briefly discussed.

China – The first emperor of China that tried to tax income was not that
successful, since he was overthrown only 13 years after starting the tax.
He was Emperor Wang Mang of the Xin Dynasty, and in the year 10
CE, he instituted a 10% tax on skilled labor and professional’s income.
Unfortunately for him, he only lasted as the emperor until the year 23 CE.

United Kingdom – In 1798 the British government started collecting
income taxes to pay for weapons and other expenses required to fight the
Napoleonic wars. It was an adjustable form of income tax, which meant the

more you made, the higher the percentage of your income was required
to be paid to the government. This tax did not last too long either, it was
repealed in 1816.

United States – The first income tax in the US was permitted by the
passing of the Revenue Act of 1861. It was created in order to help fund
the civil war, and the citizens where taxed at the rate of 3% of their income
that exceeded $800. In 1862 the tax was repealed, and a new income tax
was introduced to take its place.

The first income tax that US citizens were required to pay when the country
was not at war, was the Wilson-Gorman tariff, which was passed by
congress in 1894. Approximately 10% of the people in America at the time
did not have to pay any tax at all, since they were below the threshold.
The tax rate at the time was quite reasonable, it was only 2% of a person’s
income that exceed $4,000.

There were quite a few court battles over the tax, which forced congress to
pass the Sixteenth Amendment to the United States Constitution that made
income tax legal in the US. In 1943 the US government started withholding
a portion of an individual’s wages in order to pay their yearly income tax.

The amount of income taxes a person in the US pays has always, and
will more than likely always will be quite controversial. There are great
differences of opinions between the Republican and Democratic parties
on this issue, which will probably never be settled to the point that both of
them are fully satisfied.

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