The Taxation Code: A Look at How You Came to Pay Taxes

Large black book of the tax code next to other files, documents, a pen, glasses, and a keyboard.

Do any of you remember singing along to the famous, “If you drive a car, I’ll tax the street, if you try to sit, I’ll tax your seat.” Most young folks today might not remember the famous Beatles song that vilified the tax system with a clever tune. It’s a catchy song, no doubt about it. It’s not that simple, of course. There is a history and a reason for this constant exchange of cash money between citizens and the government. Every working American must pay taxes every year to ensure good standing with the Taxman, i.e the IRS. We know you’ve likely tired of hearing about tax-related things by now, but we would be remiss if we didn’t use these first months of the year to talk about all this stuff. It’s tax season, after all, as much as many of us might dread it. And yet, even though many of us have been filing taxes our whole working lives, it might be rare that we actually stop and think about where these dollars go, how they are allocated, and how the whole tax system came to be. It’s never a bad idea to take a stroll through history lane to revisit just how taxes came to be in this country.

It Begins With a Party, Tea, and Some Whiskey 

Ok, it begins before that, but it’s a good starting point. Tea was a big deal back in the day. The Boston Tea Party was kind of like the end of the line for many of the early colonists of America. The frustration with British taxation policies and other forms of tyranny began a few years ago with the Stamp Act of 1765 which imposed a tax on every piece of paper the American colonists used. Many colonists protested to the precedent it set by changing the game and using taxation for the primary purpose to raise money and not just to regulate commerce. So when the British Crown decided that they would impose high taxes on tea in order to pay for its military exploits elsewhere, the North American colonists would have none of it. 

Boston was already known as a rowdy bunch. It was a harbor for revolutionary activity and also the setting of the Boston Massacre. This incident a group of colonists frustrated with the unruly presence of British soldiers on their streets rebelling against a few of them. When reinforcements were called, they opened fire on the colonists, killing five of them. This only threw fuel into the fire of already cooking anti-British sentiment. So the night of the Boston Tea Party was when a few colonists disguised as Native Americans snuck into Boston Harbor and destroyed many crates of tea. 

Then came the Whiskey Rebellion, where a group of Pennsylvanian farmers angry about the high taxes on whiskey—a beloved American pastime—went after the tax collectors. 

So why is this important? 

The idea of taxation without representation was part of the fuel that led many colonists to say, ‘enough’ to King George and finally declare independence. With the Whiskey Rebellion, the idea of unfair taxes and indirect taxes led to modifications in the system. Today, the American voter has technically some say over his taxation when it comes to voting in local and federal elections. 

The Modern Tax System and the TaxMan

It’s interesting to note that the American colonists had a natural aversion to unfair taxes. Yet, it took some time for the modern system—as we know it today—to take shape in the young nation. It would take the Civil War and the economic destruction it caused to lead Congress to pass the Revenue Act of 1861. This act was the beginning that created what we think of today when we think of income tax. It took some time, however, to solidify the way we think about it. Because the Constitution forbade direct taxes that were not in congruence with each state’s population, the Supreme Court ruled the flat tax unconstitutional in 1894. The 16th Amendment was introduced and paved the way for an income tax. 

The Taxes of War 

Slowly, the number of people that paid taxes in the United States increased. This started at the turn of the century with the first global conflict, which added three Revenue Acts.  Initially, the law touched only a certain number of people that made above a certain amount of money. Separate taxes were then increased for estates and excess business profits. When the second World War and Roosevelt’s New Deal rolled around a lot of new taxes were introduced and increased. The New Deal had a big deficit. A lot of it was for a lot of newly funded government programs but also for the war effort. Programs like social security, for example, added strain to the taxpayer.

In the 60s and 70s, there was an increasing strain on the taxpayer because of massive inflation. More changes were made to the tax code. The ’80s saw some relief with President Reagan lowering the tax brackets by 25%. In the ’90s many Republicans fought to keep the taxes under control. Medicare and social security were not inherited and needed to be paid for. With another tax cut introduced in 2001, taxes were again being dialed back, though the debt economy continued to grow. For the modern taxpayer, there are many factors that affect their tax spending, refund, or payment. These can include interest paid on student loans, investments, donations, tax credits, income, form of income, etc. 

Call a Trusted Tax Expert For Accuracy and Dependability 

All of this is to say that the tides of taxes continue to ebb and flow. The debts of previous generations are often felt by the modern taxpayer.  The economy is complicated but one thing is for certain: every year, millions of Americans must pay their share or receive their refunds depending on their incomes, circumstances, tax breaks and more. While it can get confusing, an experienced tax expert can help you see the bigger picture and advise you as to what is convenient for you and how to properly file your taxes without future problems. Call United Bookkeeping and Payroll and do your taxes right.