In the years leading up to the American Revolution, there were no income taxes nor a central government in place, but the people were still subject to the authority of the British government. The financial needs of individual colonies were met by taxing a wide range of items other than revenue, such as the simple fact that adult men were there. In several colonies, the male population was levied a "head" tax. Aside from occupation taxes, excise and real estate taxes all existed and functioned normally before the Revolutionary War.

The phrase "taxation without representation" was a major driving force behind the American Revolution. In 1765, the English Parliament was the one that first established the Stamp Act that affected colonies. Then, not much later, it started taxing tea without consulting the American colonists first. This did not sit well with the colonists, who responded by forming the Sons of Liberty and attempting to intercept three ships carrying tea on their route to Boston Harbor in 1773. After the blow, Britain struck back, and the rest, as they say, is history. The Boston Tea Party was a catalyst for the outbreak of the American Revolution.

The Federal Tax System of the United States throughout its Early Years

In the early years of the nation's existence, the federal government depended on its constituent states' contributions for funding. In 1788, the United States Constitution was written and enacted, and one of its provisions stated that Congress had the authority to "lay and collect taxes, duties, imposts, and excises." This gave the nation the ability to begin efficiently sustaining itself financially.

Excise taxes, sometimes known as sales taxes on certain items, were popular during this period, yet, it turned out that people felt just as passionately about their whiskey as they had previously felt about their tea during this period. In 1791, Alexander Hamilton made the terrible mistake of attempting to impose an excise tax on alcoholic beverages, and the attempt was unsuccessful. After that, the Whiskey Rebellion occurred, resulting in President George Washington being forced to dispatch federal troops to the southwestern region of Pennsylvania to restore order among an angry mob of unruly farmers who demanded that the federal government stop interfering with their liquor.

After this event, the federal government moved on with the imposition of "direct" taxes. It was not the individual's income subject to taxation but rather the value of the items they held, such as enslaved people and land. In 1802, President Thomas Jefferson ended the collection of direct taxes, and the United States reverted to collecting only excise taxes instead.

To pay for the War of 1812, Congress increased these taxes and imposed additional ones; nevertheless, by 1817, even these laws had been overturned. Congress had exaggerated these rates. Until the Civil War outbreak, the nation could avoid bankruptcy by relying on the proceeds from the sale of public land and customs taxes rather than on revenue from a functioning federal tax system.

First Income Tax

When the American Civil War broke out in 1861, Congress was compelled to go back to the drawing board in taxing to earn income since wars are expensive endeavors. The income tax was formally established, and all residents who earned more than $800 per year were required to pay it at three percent. However, as things worked out, there wasn't enough money to support the battle. A year later, Congress was forced to give excise taxes a fresh start by giving them new life.

These levies spared very little of the population. They were placed on various items, including feathers, explosives, and — once again — whisk. Additionally, the income tax established a year ago was modified for the first time. All residents who were fortunate enough to earn more than $10,000 per year were subjected to a tax rate of five percent rather than the standard one of three percent. The lower threshold was also lowered; to be liable for the tax, a person's income needed to be more than $600 rather than the previous $800.

Today's Federal Taxes in the United States

The Tax Cuts and Jobs Act, signed into law by President Donald Trump in 2018, reduced the maximum tax rate to 37%. During his reign, tax rates varied widely, going as high as 37% and as low as 10%. In addition to that, he increased the amount of the standard deduction. The personal exemption has been paused until 2025 at the earliest. After winning the presidency in 2020, Joe Biden did not change the tax brackets or the standard deduction amount.