The Story of Taxation
By Ruth McLatchie
Hint: You can find the answers to the pop quiz from the preview embedded in this article.
Taxation has been around almost as long as death, the other certainty. According to the Tax Foundation (taxfoundation.org), the earliest record of taxation we currently have comes from Egypt about three millennia before the Christian era. The Pharaohs of the time coopted a religious holiday to assess the ownership of livestock in the country and charge a tax on that property. Because they didn’t have coins at the time, grain, which had the advantage of portability and (relative) durability, was the currency of payment.
After the Egyptians, the Roman Empire contributed many lasting influences on civilization, including military strategy, law, Roman numerals, our calendar, journalism (Acta Diurna), bound books, sanitation, central heating, water transport, precision medical tools, concrete, roads, and postal service. Such a shining paragon was also understandably keen to sustain itself by various forms of taxation, including the 1% sales tax first implemented across the empire by Julius Caesar. His successor Caesar Augustus, in a move to attract and retain the best and brightest to the powerful Roman military, instituted a 5% inheritance tax to fund military retirements.
In the former Roman colony of Britannia, strongly influenced by Roman law and customs, two famous (possibly infamous) British women instigated tax revolts. First was Boudicca, queen of the East Anglia region, who punished corrupt Roman tax officials by leading an army of 230,000 Celtic warriors to kill Roman soldiers within 100 miles of her territory before seizing London, a revolt that was eventually crushed by the Emperor Nero. The second, with arguably the most unique (possibly scandalous) protest, was Lady Godiva, who, in the 11th century, rode naked through the streets of Coventry in order to pressure her husband, Leofric, Earl of Mercia, to reduce oppressive taxes on his tenants. Surely that marriage of convenience felt like a huge inconvenience to the benighted Earl.
As the intrepid British later spread their empire around the world in colonies, including the American Colonies, they also derived vast incomes from those colonies, as well as attempting to suppress independence. One of several such income-generating and suppressive ventures, the Stamp Act, was passed by the British Parliament in 1765, which drew colonial outrage by taxing printed material such as legal documents, newspapers and pamphlets. Little did the Brits know at the time that their anti-independence actions would result in the very thing they were trying to suppress, though in hindsight, revolt seems like the obvious result.
And now those colonies, celebrating nearly 250 years of independence, are in revolt against their own system of taxation. Lucky us. We live in interesting times.
Tax Complexity Helps The Wealthy
By Mark Harris
To paraphrase Ben Franklin, there are only two things certain in life: death and taxes. None of us truly knows the exact way we will leave this mortal plane, but you probably could make an educated guess. If you vape or smoke, drink, or are overweight, you may suspect that a heart attack will usher you out of this world, but you are just as likely to be struck by lightning as anyone. Income taxes are similar. If you started a new job and earned more this year than last, you will expect to pay a bit more in taxes this year. However, you might pay a bunch more if you switched tax brackets or if your property value went up, but you won’t know until you file your taxes and see what you owe.
Maybe you are a tax expert, either because you work in the growing and highly profitable tax preparation industry, or you otherwise study the tax code so well that you can determine your or anyone else’s tax filing with precision. If so, then you are aware of the complexity of the tax code firsthand and understand that, generally, the public is uninformed when it comes to taxes. You don’t have to be a tax expert, however, to see that the complexity of the tax system benefits the wealthy.
The recently passed “One Big Beautiful Bill Act” is on Congress’s webpage: www.congress.gov. The majority of the tax code relevant language is in titles I, VII, XI, and XII. The act seems to address many changes to the code, and depending on which tax expert or which media outlet you listen to, it’s a good or bad thing. However, it is far beyond the scope of this article and the knowledge of the author to discuss the nature of the changes in definite sweeping terms such as good or bad. It is, however, in the purview of this article to say that the language of the act is long and complex to the general reader. That’s just the new stuff; the full preexisting federal tax code is roughly 1 million words in length, and that’s not including state tax law.
This length and complexity are features, not bugs. The wealthiest earners and largest corporations benefit enormously from tax breaks, carve-outs, and subsidies that fill the tax code. Wealthy earners and large corporations have teams of people working to file their taxes, dispute claims with the government, and in many cases lobby the government on their behalf to create edits to the code that favor them. You are welcome to the same treatment under the code, and if you, or someone you pay, can find a tax break, write-off, or anything else in the code to lower what you owe, you get to pay less. If you rally the public and pressure your representatives, you may even see the code changed to benefit you and others like you. The catch is you have to try to pay less, and if you win, it’s peanuts compared to what the wealthy, who don’t even have to think about their tax filings themselves, get.
So, we should shorten the length of the tax code and eliminate the stuff that benefits the wealthy, right? Certainly, but as in all things, the devil is in the details. One argument is for a flat tax. This argument is basically for the simplest solution, and therein lies its issues. Under this system, everyone would pay the same percentage in taxes. So, if the flat tax rate was 10% and you made $10,000, you would pay $1,000; if you made $10 billion, you would pay $1 billion. This breaks down simply because the value of $1,000 is worth far more to the man who has only made $10,000 than $1 billion is to the man who made $10 billion. A progressive tax system has earnings brackets, and as you increase your earnings into new brackets, you pay a higher percentage on the earnings in those brackets. This corrects for the value of a dollar being worth more to those with less, within this context, and does not create a tax code that is particularly long or complex. However, it doesn’t account for everything, children in the household, for example. A married couple who have no children but earn the same as another couple that does have kids will value their money differently than the ones with more mouths to feed. This is where tax breaks come in and can be quite necessary for those with lower incomes.
Businesses are even trickier to tax in a simplistic way, as their differences in scale, revenue generation, operating needs, and employment generation are all so different. Small businesses need room to grow to compete with big businesses, but when does a business switch from being considered small to medium, or from medium to big? The tax code must have higher levels of complexity in business taxes than in personal income taxes by nature. However, we can’t let the system continue as it is, as we can all recognize that the big businesses are benefiting from the advanced complexity of the system at the expense of the small businesses.
So, there is a necessary amount of complexity and length needed in the tax code, but we still want to keep it simple enough that you can figure it out for yourself and/or your small business without having to pay someone else, right? Yes, but that leads to another problem. The tax preparation industry is a roughly $10 billion industry that employs thousands all over the country, and eliminating it would have its own massive negative knock-on effects. This may seem like a necessary outcome, and very well may be, but a solution will need to be created to address this as well.
The solution to the tax code complexity issue is probably more complex than any one change will fix. The best we can do for now is to vote for political leadership that sees through the games and schemes of the powerful, and are willing to work for the good of all Americans.
Tax Trends: Your Efforts, Our Future
By Ruth McLatchie
Many states are now trending towards greater reliance on local taxation for local needs, as opposed to reliance on federal and state taxation. However, in states like Ohio, property tax relief, one of the major sources of local funding, is being considered. One Ohio House budget proposal aims to deliver school district carryovers (the amount of money a school district has on hand at the end of the fiscal year, typically June) back to taxpayers beginning in 2026. This, coming from a state government that continues to blatantly ignore Ohio Supreme Court determination that funding school districts through property taxes is unconstitutional, is akin to rubbing salt into the wound. Meanwhile, beleaguered public educators, already facing significant cuts, argue this could further reduce their ability to adequately educate students. Another proposal aims to smooth out large jumps in valuation by calculating on a three-year, rather than a single-year basis. This would reduce the number of unpleasant surprises for property owners and allow them more room to budget for property taxes.
Common methods of state and local funding such as property taxes, sin taxes and sales taxes are considered regressive taxes because they have a higher adverse impact on low-income citizens than higher-income citizens. Even flat taxes have a higher adverse impact on low-income citizens unless a basal is created below which no taxes are paid, or even a basic income (negative income tax) is created.
In recent legislation, Ohio has moved to reduce the state income tax burden on Ohio residents by decreasing the top rate and transitioning to a flat tax in 2026. This is intended to simplify the Ohio tax code and make Ohio’s tax policy competitive with other states, reasonable goals in themselves. However, this reform, in combination with municipal tax reforms and commercial activity tax reforms intended to simplify taxes, is also likely to have the unfortunate consequence of favoring the wealthy and disproportionately affecting the working class and the poor in terms of reduced revenue, reduced revenue sharing, and therefore reduced services.
The federal tax system in the United States has been theoretically progressive in recent history, which means people who can afford more pay more as a percentage of income, but substantial changes to the tax code in favor of the wealthy has in some cases made that more theory than fact. And once these benefits have been received, it is politically dangerous to remove them.
How can we make the system fair for everyone and eliminate our dangerously high national debt at the same time? Here are some big ideas that have been proposed, not in any particular order:
- Close loopholes and subsidies.
- Universal Basic Income.
- Tax wealth like work.
- Raise the corporate tax rate gently.
- Special tax for billionaires that taxes the increase in value of assets even if they are not sold.
- Get big money out of politics.
Two things are sure. In order to reach the dual goals of fairness and fiscal responsibility, change must be comprehensive and the results must be continually monitored to avoid the creation of new loopholes.
What We’re Reading
Rebellion, Rascals and Revenue by Michael Keen and Joel Slemrod
This book attempts to trace the evolution and curious innovations of taxation in society, relating that among the earliest writings were tax receipts.
One incredibly accurate point nailed home countless times in the book: taxation is a historical cause for conflict in history. Americans recognize this point directly. Often, more romantic overtones like “freedom” and “self rule” tend to get passed down as headier rationale for violence than duties on whiskey or tea. Yet what created this perception of taxation as a form of government oppression rather than bills to fund government? Chalk it up to complex arguments about authority and legitimacy, especially when the merchant class is pitted against the end consumer.
Leaders throughout history have fretted about how to both spread the pain and make it less direct. Domestic leadership has created about as many non-tax taxes as formal taxes. Lotteries, speeding tickets, venal offices, and fines are all treated here. Likewise, the book tackles taxation on Judaism, taxes on the sale of slaves, and the infamous Corn Laws.
It seems that just as often that tools of raising government revenue are straightforward, they are also cudgels to enforce normative behavior. Tariff discussions in the book are perhaps most pertinent to the present day… is it a tax on the consumer or is it a tool to compel consumption of domestic products? Well, it’s both. It’s on this point that we come upon the most interesting tales of the book: the externalities that targeted taxation creates.
One infamous example is England’s window tax, first installed in 1697. The logic was simple; the count of windows on a house is a decent proxy for its grandeur and the traditional method of assessing wealth (counting hearths inside a house) was incredibly intrusive. The resolution for tax avoidance is even simpler; residents sealed their windows to limit their tax bill. This led to what Jean-Paul Baptiste, in translation, called an “enjoyment of less.” The externalities further down the pipeline were critical — British sickness rates increased as disease bred in cramped darkness. All told, less taxes were collected, while the British people entered a period of darkness and illness.
The point, regrettably, is that titrating the levels and methods of taxation can be an art form. When you set an entry fee to a public park, attendance drops and the public enjoyment of it decreases. When you camp your local police on a road to write speeding tickets, residents will find out and speed elsewhere, and you’ll have minimal ticket revenue, no increased safety, and less access to your police officers. Which government products are a buffet and which merit the a la carte treatment?
Ultimately, the artistic tax exercise is to make the tax pain unavoidable, rational, and progressive relative to the ability to pay.
Reviewed by Mike Gonzalez
This Month In History
- July 1, 1862 – Internal Revenue Act signed into law
President Lincoln signed the act creating the Office of the Commissioner of Internal Revenue, thereby establishing the first federal income tax to fund the Civil War. - July 4, 1864 – Revenue Act of 1864 becomes law
The act increased the income tax rate and expanded excise taxes, laying further groundwork for permanent taxation mechanisms. - July 9, 1917 – War Revenue Act introduced in Congress
Introduced in July and eventually passed in October, the bill proposed graduated income tax increases to fund WWI. - July 1, 1940 (UK) – Excess Profits Tax introduced in Britain
A wartime tax to prevent companies from profiting unduly during WWII. - July 1, 1965 – Medicare begins, funded by payroll tax
Medicare launched this month in 1965, funded by the Hospital Insurance payroll tax, a major tax policy development. - July 17, 1969 – Tax Reform Act of 1969 passed by Senate
This act introduced the Alternative Minimum Tax (AMT) to prevent high-income earners from avoiding taxes through deductions.
– Compiled by Elizabeth Frost and Staff
Coming Next Month: Term Limits
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