A Short History of Taxation

Beards, boots, beehives, candles, nuts, hats, horses, chimneys, water – Tsar Peter taxed them all. But he is still styled ‘The Great’ in modern histories of Russia, perhaps because of the mighty works his taxes produced. This is the eternal fate of taxation: to be the abused or abusive means towards noble or ignoble ends, never quite able to escape its association with extortion and war.

In the beginning

The word ‘tax’ first appeared in the English language only in the 14th century. It derives from the Latin taxare which means ‘to assess’. Before that, English used the related word ‘task’, derived from Old French. For a while, ‘task’ and ‘tax’ were both in common use, the first requiring labour, the second money. ‘Tax’ then developed its meaning to imply something wearisome or challenging. So words like ‘duty’ were used to suggest a more appealing purpose. Political spin has just as long a history as taxation, and neither has been detained unduly by the meaning of words.

The written record

China has one of the longest of all written records, and we know that taxes were levied here some 3,000 years ago as the Empire was being established. Powers (usually military) that were able to impose taxes created the first bureaucracies to collect and administer them. Under the Egyptian Pharaohs ‘scribes’ were charged with raising funds in any way practicable, including a tax on household cooking oil. Regular audits were conducted to ensure that oil was not recycled – perhaps the first historical record of ‘avoidance’. The ‘Book of Genesis’ in The Bible suggests that a fifth of all crops should be given to the Pharaoh. The city states of Ancient Greece imposed eishpora to pay for wars, which were numerous; but once a war was over any surplus had to be refunded. Athens imposed a monthly poll tax on foreigners. Imperial Rome used tribute extracted from colonized peoples to multiply the bounty of empire. Julius Caesar imposed a one-per-cent sales tax; Augustus instituted an inheritance tax to provide retirement funds for the military. However, human bondage remained the most lucrative form of tribute for both Greece and Rome.

The price of faith

With the decline of Rome in Europe, ‘spiritual’ and ‘temporal’ powers were not always easy to distinguish. Religious institutions rivalled – and sometimes surpassed – political ones in their material power. To secure this, they imposed forms of taxation. For Christians it was a ‘tithe’, or a tenth of what the faithful produced, usually paid to the Church in kind. Tithe barns for the receipt and storage of such payments were lesser in size only to churches in villages and towns. The expansion of Islam was accompanied by the ‘Islamic Tax’, the khums, or ‘one twentieth’ – more modest by half than the tithe. There are direct references to it in the Qu’ran, which requires its use for specified purposes, such as the relief of the poor. In India, Islamic rulers imposed a tax called jizya in the 11th century. In Latin America the Aztec, Olmec, Maya and Inca cultures all seem to have raised forms of taxation, usually in association with ritual observance. Both Hindus and Buddhists sustained their temples and monasteries with contributions of time, skill and resources from the faithful.


Land was the basic commodity of feudal Europe and service (military or labour) its currency. Aspiring monarchs had little access to revenues in cash, though ‘scutage’ was sometimes accepted in lieu of military service. Then the Vikings, sailing from Scandinavia, started demanding protection money. In 845 they extorted six tons of silver in return for not sacking Paris; in 994 a similar amount from London. Though the Viking threat subsided, ‘Dangeld’ (restyled ‘carucage’ in England) was still collected by rulers. After the invasion of England in 1066 by the Normans (themselves descended from Vikings), William the Conqueror commissioned the Doomsday Book, a land survey to assess his new kingdom’s tax potential.

Imperial measures

More modern systems of taxation followed the expansion of imperial Europe, together with towns and cities, where tribute in kind was less useful – cash was the currency here. The monarchies of Spain and Portugal, however, still transposed feudal structures, and an obsession with gold – which was portable – to their occupation of Latin America. Others followed the example of the city states of Italy, particularly Venice, which had grown rich on trade with the East; taxes on trade were relatively easy to raise. France, the Netherlands and Britain in particular began to establish commercial outposts, and then military control, across Africa and Asia. Traditions of tribute through human bondage revived, however, with the triangular slave trade between Africa, Europe and the Americas. In Britain, a disagreement on the rights of taxation between Parliament and King Charles I in 1629 led to civil war.

Nation states

Resentment of tax fuelled the French Revolution between 1789 and 1799. Thereafter, Napoleon centralized the tax system and employed private collectors who could keep a proportion of their takings. Revolt against taxation – levied from imperial Britain – also fuelled the formation of the United States, though an independent Congress soon enacted the Federal Property Tax in 1798. By now, no aspiring nation, in Europe or elsewhere, could dispense with the machinery of a state or the taxes to pay for it. At the same time, the principle of ‘no taxation without representation’ was becoming more firmly established – though representation was still largely limited to the wealthy.

Promises, promises

As the power of monarchies declined and of industrial capitalism increased, a new settlement was required. This was pioneered in Britain. Income tax was first imposed on personal wealth in Britain in 1798, to pay for the wars with Napoleon. It was billed as a ‘temporary’ measure, renewable annually by Parliament – and has remained so ever since (it still expires on 5 April every year). A year after the Battle of Waterloo in 1815 it was repealed. In the general election of 1841 Sir Robert Peel opposed income tax, but once elected he reimposed it, reducing customs duties at the same time. Tax ‘commissioners’ (who came from the landed gentry) were transformed into the Board of Inland Revenue in 1849 to produce an efficient bureaucracy. In the general election of 1871, both Gladstone and Disraeli opposed income tax. Disraeli won, but the tax stayed. In 1908, Lloyd George as Chancellor introduced non-contributory old-age pensions, and – in the ‘People’s Budget’ of 1909 – plans for a super-tax on the rich. The rejection of this by the House of Lords led to the 1911 Parliament Act which removed the Lords’ power of veto. As taxation increased, so the right to vote and the principle of democratic consent were extended, culminating in universal adult suffrage.

Taxes to beat the Axis

At the start of World War One in 1914, the standard rate of income tax in Britian was 6 per cent; by the end of the war in 1918 it was 30 per cent. An Excess Profits Tax was levied on companies benefiting from war production. The total tax ‘take’ was 17 times higher than it had been in 1905. This continued after the war, when government was expected to provide homes and public services in ‘a land fit for heroes’. Government borrowing soared. In the US, the ‘New Deal’ in response to mass unemployment during the Great Depression of the 1930s relied heavily on the Federal Government’s ability to borrow against future tax revenues. It was only after Pearl Harbor, and the US entry into World War Two, that the Revenue Act of 1942 subjected millions of new taxpayers to income tax and gave rise to a whole new taxpaying culture. The Federal Government launched an all-out campaign to market the changes, including Disney animated shorts featuring Donald Duck touting the importance of ‘taxes to beat the Axis!’ Asked in February 1944 whether they considered the amount of income tax they paid to be ‘fair’, 90 per cent answered ‘yes’.

Cold war

Great expectations also followed World War Two. Worldwide liberation movements made ‘nation building’ (and the state machinery to go with it) an urgent priority for newly independent states in Africa and Asia. However, the Cold War between the ‘West’ and the Soviet Union ensured that vast military machines continued to operate at public expense, and ‘defence’ loomed large in the finances of the new states right from the outset. Meanwhile, demand for public services gave rise to such things as the National Health Service in Britain and new forms of taxation to pay for them. Scandinavia led the way as the proportion of national wealth devoted to public expenditure and services rose towards a half. The use of taxation to redistribute wealth and even out the inequalities of capitalism in the West became an ideological weapon in the Cold War.

Global consensus

As the Cold War came to an end, triumphant free-market orthodoxy demanded ‘small’ government, privatization and cuts in taxes on the wealth of private individuals and corporations. Corporate globalization was, in any event, making it more difficult for nation states to exercise control (or collect taxes), rather than compete with each other to offer the most favourable rates. In Russia, the tax rap became a nationalist tool against oligarchs and foreign businesses. Everywhere, the ‘neoliberal’ process has continued, but its outcome is increasingly uncertain. Public expenditure as a proportion of national wealth has not fallen in rich countries. Private or corporate wealth still relies on governments to provide (or, more often, finance) a vast range of services – including ‘bail-outs’ when free-market orthodoxy turns out to be flawed, as in the recent ‘credit crunch’. Military expenditures have still not been reduced significantly. In poor countries, revenues for desperately needed public services remain minimal. A ‘global consensus’ agrees, as the saying goes, that ‘only the little people pay tax’.