When did taxes start? A long time ago. Taxes have been around most likely for as long as there have been civilizations.
The leaders of early cultures took goods, food, animals or labor from citizens to help pay for community improvements or the personal wealth of a local or regional ruler. Fast forward to the United States during its Civil War and the country (which overthrew its British rulers over the cause of high taxes) instituted its first income tax.
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Today, federal tax rates can change with an election that gives a different party control of the U.S. House and/Senate, while state and local taxes change as residents or their legislatures see fit.
Before Income Taxes
Governments often funded their activities and the country's operations (such as law enforcement, infrastructure and militaries) through tariffs and excise taxes. This meant businesses importing goods into the country had to pay fees (which were passed onto consumers in the form of higher prices) and citizens paid taxes on the goods they purchased (also known as a consumption tax).
While tariffs still remain today in the U.S., they aren't the primary funding source of the government and are often set to help U.S. companies remain more competitive.
Read More: Who Must File Income Taxes?
America’s First Income Taxes
During the American Civil War, Congress passed a 3 percent tax on incomes greater than $800 per year. The tax was later modified to a graduating tax rate, but was eliminated in 1872. In 1894, Congress passed a 2 percent tax on incomes larger than $4,000, but the tax was struck down by the U.S. Supreme Court.
Read More: Where's My Tax Refund: An Easy Guide
The 16th Amendment
In 1913, the U.S. government passed the 16th Amendment, which gave Congress the right to set and collect federal income tax. The U.S. government has collected income tax continually since. Congress sets different rates for individuals and business, but provides tax exemptions and deductions, some of which are called "loopholes" because they help some businesses reduce their taxes to nothing.
For example, in 2020, 55 profitable Fortune 500 corporations paid zero income tax, reports the Institute on Taxation Policy and Economic Policy. These companies did pay payroll and sales taxes, however.
Federal taxes can change with different administrations. For example, during the Trump administration, Congress passed the Tax Cut and Jobs Act, which reduced the corporate tax rate, eliminated the deduction for unreimbursed business expenses for employees and altered the tax code in other ways.
States and Taxes
Some states impose an income tax on residents and corporations headquartered in the state, along with fuel, cigarette, inheritance, sales and other taxes, explains the U.S. Department of the Treasury. Other states impose no income tax, but charge higher sales taxes and provide fewer social services. In states with no income tax, counties and municipalities often have higher property and sales taxes to make up for not getting funding from the state.
Local Tax Collecting
Counties and municipalities (i.e. towns, cities, villages) are able to set and collect taxes. These can include sales, tourism, real estate transfer, property, vehicle registrations and land taxes, among others. They can also sell bonds, which are not taxes, but which must be paid back by the issuing governing body with interest paid to purchasers.