On a nippy December day in 1773, American colonists in Boston decided to jump-start the proceedings to what would later become the American Revolution by protesting against the Tea Act of May 10th. Essentially, they were damning the implications of English tax laws on their own business.
Since then the American nation has had a love-hate (mostly the latter) relationship with taxation, treating it like a sort of very bitter medicine that’s supposed to help with your ailments, but never really seems to work. Except, of course, this medicine did work.
American taxation has been a rollercoaster ride with Americans either screaming on the ups or indeed on the downs. This isn’t the story of how they learned to enjoy the ride, but it is the plot of how they eventually got used it.
Just because taxes are old doesn’t mean they’ve always been widespread
The first ever tax system is considered to be the one employed by the Old Kingdom dynasty in what’s nowadays Egypt, roughly around the year 3000 BC. But this wasn’t money driven, it was a system put in place so that people would sometimes perform unpaid labor for the benefit of the political power that was ruling over them. However difficult this system might have made the act of quantifying your taxes, it seems that in the harsh realities of the African desert people chose to do their fair share in return for the right to live in human communities.
Some have come to the conclusion that taxes have been around almost as long as time itself. Except that’s not the case.
Which makes sense. Living with others implies that there also be a common pool of money (or whatever have you) so that the community also gets a chance to solidify, and not just so that people don’t get lonely. Even the Bible tells a story attune with this idea: Edward Marriott makes the case for religious taxation as a means of communal reinforcement in his analysis of the act of tithing in holy scripture.
So it comes as no surprise that some have come to the conclusion that taxes have been around almost as long as humanity itself. Like a sort of shadow trailing the evolution of our communities, taxation has always been ingrained in the way we’ve run our business. Except that’s not the case.
A couple of things tantamount to pre-modern times often get left out of the mainstream story of tax:
- For one, states haven’t been around for all that long. Ergo, neither have bureaucracy, police, or a tax apparatus for that matter – all necessary prerequisites so that people pay their dues to society.
- Furthermore, the absence of modern political structures also meant that people didn’t see the institution of taxation as one of their duties as citizens – because they weren’t really citizens bound by nationality. They almost never voted their rulers into power, and it was common culture that kept people together; things like language and religion – and not the laws of the land.
So a more accurate picture would depict taxation as an episodic and, at best, secondary means of building up wealth for the community. In fact, after the fall of the Roman Empire, European kingdoms, empires, and later republics almost always collected taxes as a means to wage war; and there’s very good reason why rulers didn’t ask for contributions from their people at all times.
Because simply put, people have always hated paying taxes. Be them fees, duties, tolls, tariffs or tribute, humans are programmed to not want to give money away without sufficient reason or fairness. We’re shortsighted creatures and rarely do we factor in unseen future benefits when we’re faced with immediate losses.
A heavy handed ruler would face constant dissent from his subjects, so appeal to taxation had to be contained within certain parameters usually set by the most urgent fear of losing one’s life. When faced with pillaging, invasion or an impending battle, it became a common practice to call upon taxes so that the community could afford an army – but taxing in times of peace and prosperity was for the most part taboo. At least until the modern state came along.
The Industrial Revolution changed the face of war, and it also called for more money
Prior to modern statehood, there wasn’t really any sure way to keep a population in check. Most societies were agrarian and thus dependent more upon the whims of nature than those of politicians. But all this changed with the advent of the steam engine and precision engineering.
The Industrial Revolution paved the way for already powerful empires to become even more noteworthy on a planetary scale, now that production could be kept high all year round. Industry boomed, factories started sprouting all around European towns and cities as more and more people became engaged in this new reality. Agriculture as a livelihood was itself soon eased as new technology came to replace centuries-old practices. And pretty soon people also started thinking of more efficient ways to kill each other.
The sword got replaced irrevocably by the gun, and tanks took over where horsemen once stood. The face of war was changing, and so did the need for funding. Further industrialization, in Europe as well as in North America, brought about a fledgling but numerous middle class that was bound by national identities rather than cultural ones. Laws became important, battlegrounds became the meeting place of rival nations instead of rival neighbors – and in short, wars got a lot more bloody.
The Industrial Revolution meant production could be kept high all year round. And pretty soon people also started thinking of more efficient ways to kill each other.
But by the late 1800s, people all around the world still found taxes as something tantamount to theft, if not levied by the imminent need to wage battle. And this feeling was all the more prevalent in the more industrialized parts of the new world.
When in the final years of the 19th century President Cleveland imposed an income tax on US citizens with a flat rate of 2% to help the growing federation fund itself, people on the East Coast became furious. Keep in mind that these were still very much considered as war taxes, and politicians had a very tough time selling them to their electorate in times of relative peace.
Add to this how not that many people were subject to taxation even during past instances when Americans had been engaged in armed conflict, and you start understanding their demur. Take the Civil War as an example: the North started experimenting during that time with different ways of generating state income, and came up with the first inklings of the progressive tax system the US employs today – but still, only about 1% of the total population was directly impacted by these measures.
Battlegrounds became the meeting place of rival nations instead of rival neighbors – and in short, wars got a lot more bloody.
The turn of the century made for some heavy lifting on behalf of American statesmen as the reality that running a modern nation requires a lot of money soon hit home. And it hit hard.
Despite the welcomed advancements in living standards and industry, these were still relatively turbulent times. Across the Atlantic, European Empires were basking in the final sunshine of their heyday, and Washington started taking measures to ensure the US had a good enough standing army – just in case something bad were to happen.
In 1909 Congress passed the first income tax on corporations, and hell broke loose. American businessmen couldn’t see any justification for having their revenue shaved, and they caused so much uproar that the law had to be framed as a sort of indirect excise tax, something people were more familiar with, but still hated.
But as things got ever more heated across the pond, American citizens and politicians alike woke up to the very real possibility of open war. In 1913 constitutional amendments finally made taxing incomes of average people a reality, putting in place the seven primary tax brackets that are still used in the US tax code today.
And then 1917 came about.
Taxation got trivialized by war and the fear of war (but it also got a British facelift)
When President Wilson put in motion the declaration of war against the Germans, taxes really came into their own and became a lifeline for the US army and the US state alike. Albeit with a few snags along the way.
During the First World War, American deficits grew by a few orders of magnitude into the billion dollar range (and keep in mind that inflation hadn’t yet set into the dollar, making the purchasing power of a 1917 dollar around twenty times more powerful than what we have in 2017). Income taxes peaked at the now infamous 77% point for people, and 80% for corporations. Prior to 1913, the government collected just 3% of GDP in the form of taxation. During the war, a snowball effect made for tax contribution to wobble between as low as 5% and as much as 15% of GDP.
By the end of the 30s, Americans were roaring for all the wrong reasons.
After the war taxes again subsided – and things seemed alright with the Roaring Twenties until the Great Recession hit. With the nation in depression, taxes went up and employment went down. In 1935 Roosevelt suggested taxing inheritances, and Congress increased estate taxes instead. One year later a tax on undistributed profits hit businesses and caused so much turmoil that it was eventually dropped in 1939. Americans were now roaring for all the wrong reasons.
Then World War II became a reality, and tax revenue went back to almost 15% – but strangely enough public opinion swayed. People started getting accustomed to taxation, out of the sad reality that the first half of the 20th century was war-ridden. Sacrifices had to be made if democracy was to win over in the European and Pacific fronts.
After the fall of Berlin and the capitulation of Japan, English economist John Maynard Keynes started gaining a lot of traction with his views on compensatory economics, preaching not just a new way of doing business and state running, but also a new morale.
Keynes was proposing that having debts wasn’t a sin but rather the other side of doing investments. Woven into his works, saving up was no longer to be seen as a virtue, and supply and demand were not to be trusted as forces that would keep people employed and the economy growing. Did it catch on in Europe? Somewhat. Did it catch on in the US?
American politics lapped this message up and kept taxes higher than would have been mandated in times of peace. People didn’t protest as much on account of post-war economic wonders. And much to the astonishment of some, it actually worked.
People started getting accustomed to taxation, out of the sad reality that the first half of the 20th century was war-ridden.
Private business boomed. Government became a partner of American enterprises. The state started bolstering policies that had direct and very palpable results in a fair few economic sectors. It became apparent how Congress really could make or break jobs by passing bills. And yes, the US learned how to run while on a deficit.
Still, high-earners in the US fought progressive taxation as if it were the plague. Public opinion shifted according to income levels – the idea of running on a national deficit became tantamount to crime for some, and going into depression was seen as a more wise course of action than letting the government spend money recklessly.
Things got even more polka dotted just as soon as the Soviet Union became a very real threat. The furthering of the Cold War made the US fight an ideological battle with communism on all fronts, making ‘ability’ the thing to strive for and not ‘need’*.
This gave rise to the major cognitive dissonance of American taxation: it became as much a friend as a foe – Congress recognized taxes were required to run a state and a powerful army, all the while some politicians were making taxation tantamount to a taste of the terror people were facing behind the Iron Curtain.
Taxation might not be the enemy anymore, but it’s still far from being a welcomed guest
The banalization of tax in the US as a means of government funding didn’t come about easily. Even to this day discussions around taxation take two distinct routes: one is ideological, and the other is moral.
It would be folly to say which side has more truth on its team, but what would merit a few words is to remind the reader that leftists like taxation and right-wingers don’t. The former trust in wealth redistribution, the latter say taxation is theft. Seeing how the US is predominantly a nation which has the whole of its political power structure on the right side of the spectrum, you’d think it’s safe to assume that it’s because of ideology that Americans automatically hate taxation.
Judging by information put forward by the World Values Survey database, Americans do indeed have a slight ideological bias which makes them not like taxes as a matter of political creed. From the poverty-stricken to the (almost) wealthiest of the land, it seems that everyone believes it’s not an essential characteristic of American democracy that the government should take from the rich and give to the poor; ergo a right-wing inclination.
Except for the exorbitantly rich, that is. Strangely enough, they score very high when it comes to their acceptance of wealth redistribution to the advantage of the impoverished – two and a half times more than the poorest of the poor in fact. I’ve failed to find a single good enough reason to pinpoint why this is so, but a few things come to mind:
- They have so much money that they believe it’s not too much effort for them to give up a part of it to help out the needy.
- They’re willing to say anything to stop public opinion from demonizing them for hoarding so much wealth.
Regardless of this outlier, the overall partiality of American society to shunning taxes is also evident when looking at occupational sectors, with only the unemployed holding a relatively dual position.
In all, 15% of Americans don’t like taxation in the name of helping the poor, 7% approve of it and the majority of 22% don’t really know what to say, making the political bias visible but hardly definitive.
Americans believe it’s not an essential characteristic of their democracy that the government should take from the rich and give to the poor.
But everyday discussions among ordinary people that revolve around taxation aren’t about how the economy works or how politics should be waged, they’re in fact incredibly charged from a moral perspective. Results from a 2012 study conducted by NIU researcher Jeffrey Kiddler highlight this, as it turns out that – you guessed it – talks about things like ‘takeovers’, ‘massive taxes’ and ‘bailouts’ all revolve around the more emotional sphere of the little man that gets beaten down by the system.
What’s fascinating about this is that the mere entering of one’s mind into the realm of taxation seems to open up a controversial can of worms: tax structures are perceived to give unjust benefits to the idle poor, and taxation is linked emotionally to lack of personal autonomy and dignity.
Honest Americans feel as though tax hikers should be crucified.
There’s reason to believe that this happens because of our innate wanting for reciprocity. After all, we’re just monkeys handling money. Research shipped on the Proceedings of the Royal Society in 2014 found that when speaking of money, people’s strategic thinking (as a reflection of self-interest) diminishes or even goes away if equity isn’t important – but that we show our teeth and claws if we feel like we’re being duped. What this means is that people tend to care a lot if they get rewarded for the effort they put into something and that they care even more if they don’t get rewarded fairly. In the context of taxation, this means honest people feel as though tax hikers should be crucified.
Research by Pew stands to support this fact. Just about 6% of American citizens believe it’s justifiable from a moral standpoint that some of them don’t report all income sources while filing their taxes. A further breakdown revealed that there’s an ideological fault line in this respect, with Republicans being palpably more against not declaring income (78% to the Democrats’ tally of 68%).
So I took another look at the WFS database to see if I could find anything to support this view. And the results were definitive: Americans never think it’s justifiable to cheat on your taxes – except of course for the previous outlier, the stinking rich.
All population cohorts, be them structured by income levels or by occupation sectors overwhelmingly believed that it’s a big no-no to cheat on your taxes, even if you have a chance. But fascinatingly enough, the wealthiest of society believe it’s okay.
This, in turn, could be caused by the simple reality that these people handle a lot of money – implying wealth management techniques that most others don’t even consider. Add to this the impending fears of getting massive amounts of your income cut in the name of taxation brackets and you start seeing why these individuals look on tax evasion in a more lenient light.
But there’s more to this. In a paper published in EconStor in 2001, a group of researchers set out to see what perception tax-knowledgeable people have around others fooling the tax system. Their results highlight something that might not be taken into consideration by most: that there are different types of tax escapism, and that not all of them are perceived in a bad way.
More to the point, the team measured representations of tax evasion, tax flight, and tax avoidance – and found that the first is perceived by people in a negative light, the second neutrally and the third in a positive way.
So one thing might be solid enough to stand the scrutiny of the author’s opinion: rich folk in the US don’t mind tax escapism, as long as it’s boiled down to the smarts of the person that’s committing the act. After all, tax avoidance is perfectly legal. It’s just a way of minimizing tax obligations.
So do Americans feel duped when they file their taxes?
Even if people think it’s wrong to cheat on the IRS, last year 59% stated that the tax code is so badly put in place that it needs a complete overhaul. Whether this is a matter of injustice or unfairness is a matter of open debate, but 64% made it clear that they were bothered a lot by the feeling that corporations aren’t paying sufficient taxes.
In truth, corporate tax collection has been shrinking since the beginning of the Cold War, from about 6% of GDP in 1952 to just 2% at the turn of the millennium, and about 1% after the 2008 recession.
Still, a slim majority of 53% of Americans say that they pay about the right amount of money in taxes, at least with respect to what they are making. And there’s reason to believe this is precisely because of the tax code itself. A University of Virginia study that compared the perceived well-being of people from 54 countries using 2007 Gallup data found that going progressive on taxing makes for more happiness overall. Which means Americans would be a lot worse off if they had a flat tax rate.
This is by no means the end of the ride
The truth is, in most cases, Americans don’t even know they’re paying taxes in the first place. Since sin-products have their excises built into their prices, people rarely complain about them if not charged by political opinion or other opinionating sources. So be it tobacco, alcohol or substances derived from the above, a percentage of what consumers pay goes straight to the coffers of the state – and people rarely complain outright.
Other things which are taxed include gasoline, investments, property and even telecommunication – to name only the tip of the proverbial iceberg. While most Americans don’t even consider their tax rates for the above, they can – and do – complain about whether other people pay their fair share of taxes.
And Americans pay a lot of them.
While the thought of taxes is almost always regarded as something atemporal, that doesn’t have any beginning or end, it wasn’t always that people had to pay their dues to the community. Of course, this isn’t the case nowadays. Americans have done the impossible and made taxation a part of their lives and their politics. Complaining aside, it seems to be working.
And I guess it’s a fitting thing to say that when Ben Franklin wrote in 1789 that “in this world nothing can be said to be certain, except death and taxes”, he was actually predicting the future, much to his habit of being a man ahead of his time.
* The quote goes: ‘from each according to his ability, to each according to his need’. It’s Karl Marx, outlining the point of communism: people should get as much money as they require given their needs, not as much as the market says they deserve.
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Cover photo sourced from Dayna Bateman.