US 250th Birthday—and 250 Years of US Tax Laws

The wonderfully productive Tax Foundation, a non-profit group, often examines very interesting tax issues.  A recent release by the Tax Foundation related the tax history in the US to the current 250^th birthday of the US.  (https://taxfoundation.org/)

When the Colonies were formed and before the Declaration of Independence and the US Constitution, there was nevertheless a need for revenue to meet the needs of the common interests for the Colonies, followed by the eventual formation of the United States of America.

In the Colonial times in America, the focus was not on income tax.  In those days there was no income tax.  However, eventually a source of revenue developed in the form of excise taxes on specific items and other tariffs.  The excise taxes on goods was a key source of revenue for the government, prior to development of the income tax.  The excise tax on tobacco, coffee, and similar consumer goods sustained some of the revenue needed to provide governmental services.

Once the Colonies became the United States of America, excise taxes continued.  However, there was a need, as we might anticipate, for additional revenue to provide for the financing of troops, the army, the addition of a stronger navy (with ships), and much more support for domestic needs.

After the Civil War, there was more talk of the need for an income tax.  However, because of the limited language in the US Constitution, the income tax proved to be unconstitutional in its original constitutional form.  Notwithstanding this result, the government continued to need more revenue.  Hence, in 1913, Congress passed the 16^th Amendment to the Constitution, thus allowing for a national income tax.

This income tax was quite small, especially compared to the rates of today.  However, because of additional revenue needs and WW I and WW II, the tax rates were raised to over 90% in some cases, for taxpayers earning substantial amounts.  (For details on this history, see Levine, Mark Lee and Segev, Libbi Levine, Chapters 1 and 8 in Real Estate Transactions, Tax Planning, Thomson/Reuters/West (2026) and additional articles cited in this work.)  As we know, “Necessity is the mother of Invention.”  (This proverb is cited in one of Aesop’s Fables, “The Crow and the Pitcher,” as found in Wikipedia.)  There certainly was a necessity for more revenue.  Hence, Congress raised the tax rates!

This same approach of raising rates when the need was present took place during the Great Depression, among other times in US history.

Congress and the Executive Branch were fast learners.  Since the initial excise and tariff taxes, government representatives have seen fit to pass other taxes, e.g., estate tax, gift tax, sales taxes, payroll taxes, and other forms of levy that have supported raising revenue for governmental purposes.

More recently, under the One Big Beautiful Bill of 2025, Congress, again, adjusted the income tax rates to provide a ceiling on the basic maximum income tax of 37%.  Of course, this rate is the higher side of the scale.  The lowest rate for many income taxpayers is 0 percent for those earning less income.

Although the scale of rates, being progressive in nature, taxing more on those earning more, is now in place, it remains to be seen what will happen after the 250^th birthday of the USA.  If the necessity for more income arises, look for the rates to be raised, again.

By

Dr Mark Lee Levine, Professor, University of Denver