History of TaxesHistory of Taxes in the U.S.

The history of taxes in the U.S. may be shorter than in other countries, but it is full of information. In this article, we will go over a condensed history of taxes in the U.S. and how the past affects us today.

Early History of Taxes

Before the Revolutionary War, American colonists paid taxes to the British government. This was the case because there was not a government system set up in the United States. After the end of the Revolutionary War, the newly enacted Constitution gave Congress the power to impose taxes. During this time, most of the taxes were excise taxes-or taxes for specific goods, like alcohol. Each state was responsible for collecting the tax and forwarding it on to the federal government.

Income Tax

Income tax is the type of taxation that has the biggest effect on most of us. Where did it originate? The first form of income tax came about due to the Civil War. But income tax as we know it now did not come about until 1913. It was enacted by the federal government as a way to help fund World War I. During that time tax rates were much lower than what we see today. They were the same percentage for every one that fell into an income bracket. There was not tax filing status at the time. Below you can see the first income tax rates from 1913.

Income Marginal Tax Rate
$0-$20,000 1%
$20,001-$50,000 2%
$50,001-$75,000 3%
$75,001-$100,000 4%
$100,001-$250,000 5%
$250,001-$500,000 6%
$500,001+ 7%

Present-day, the calculation of income tax is much more complicated. It will depend on both your income and filing status. Below you will find how greatly the income tax rates have increased by 2020.


Tax Rate

Single Head of


Married Filing Jointly/Qualifying Widow Married Filing Separately
10% $0-$9,875 $0-$14,100 $0-$19,750 $0-$9,875
12% $9,876-$40,125 $14,101-$53,700 $19,751-$80,250 $9,876-$40,125
22% $40,126-$85,525 $53,701-$85,500 $80,251-$171,050 $40,126-$85,525
24% $85,526-$163,300 $85,501-$163,300 $171,051-$326,600 $85,526-$163,300
32% $163,301-$207,350 $163,301-$207,350 $326,601-$414,700 $163,301-$207,350
35% $207,351-$518,400 $207,351-$518,400 $414,701-$622,050 $207,351-$311,025
37% $518,401+ $518,401+ $625,501+ $311,026+

Other Taxes

There are other types of taxes, besides income taxes, that we are still subject to today. Let’s briefly go over what some of these are and when they came into existence.

  • Estate Tax: The first estate taxes were created in 1797 to fund the US Navy. These laws were repealed and reinstated at various times over the years after 1797. Estate tax as we know it tax did not come about until 1916.
  • Gift Tax: Gift taxes were created in 1924.
  • Sales Tax: Sales tax was first created in 1921 in West Virginia. Over the years other states implemented their own sales tax. With the last states following suit in 1940. Today there are only five states that do not collect sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
  • Social Security Tax: The law that gave the government the ability to collect Social Security Taxes came about in 1935. But the federal government did not begin to collect Social Security Taxes until the beginning of 1937.
  • Alternative Minimum Tax: This is one of the more recent tax developments. It did not come about until 1978.

History of Taxes and Their Effects Today

The history of taxes trickles down and still affects us today. Many of the taxes we pay now came into effect over 50 years ago. But it is important that we understand the history of taxes and how they work now so we can avoid over-taxation in any particular sector.

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