taxation

n.

1. 1. The act or practice of imposing taxes.
   2. The fact of being taxed.
2. An assessed amount of tax.
3. Revenue gained from taxes.

Taxation is the imposition of a mandatory levy on the citizens and/or the businesses of a country by their government. In almost every country, the government derives a majority of its revenues for financing public services from taxation. Most individuals will feel the impact of quite a number of taxes during their lifetimes. In addition, taxes have become a powerful instrument for policy makers around the world to use in attaining economic and social goals. As a result, the system of taxation in the United States and elsewhere has an impact on almost every business and investment decision that is made.

Nature and History of U.S. Taxation

In 1936, the U.S. Supreme Court defined a tax as "an exaction for the support of the Government." In this regard, there is no direct relationship between the exaction of revenue by the government and any benefit to be received by the taxpayer. As a result, a taxpayer—such as a corporate shareholder—cannot trace his or her tax payment to any particular governmental asset or program. Taxes may be distinguished in a similar fashion from licenses and from fees, which are payments made to the government for some special privilege granted or service rendered (such as a marriage license or a camping fee). They can also be distinguished from regulations and from penalties, which are charges imposed by government to eliminate or control a specific activity.

For taxes to pass constitutional muster, they must be levied on the basis of predetermined criteria. Not only must taxes be determined objectively, but also taxpayers must be able to calculate their tax liability ahead of time. Since most taxes are levied on a recurring or predictable basis, individuals can also engage in tax planning or in tax avoidance. In other words, they are free to conduct their lives in a way that minimizes the amount that must be transferred to the government in taxes.

Despite the adage that nothing is certain in the world but death and taxes, taxation has not always been the chief source of revenue for governments. While the primary goal of taxation is to provide the resources necessary to fund governmental expenditures, any taxing authority that has the power to control the money supply—such as the U.S. federal government—can satisfy its revenue needs merely by creating money. Complete reliance on this governmental power, however, would stimulate excess demand in the economy, which—in turn—would cause price inflation. Taxes, on the other hand, raise revenue with the opposite effect: They drain money from the private sector, causing a reduction in private consumption or investment expenditures.

Reflecting one of the rallying cries of the American Revolution—"No taxation without representation"—the system of taxation in the United States closely parallels the tax regime of England. At the time of its adoption in 1789, the U.S. Constitution gave Congress the power to levy and collect taxes. Promptly exercising this authority, Congress enacted was the Tariff Act of 1789, imposing a system of duties—called excise taxes—on imports. As a result, tariffs became the federal government's principal source of revenue.

As the scope of governmental activities and programs increased, additional sources of revenue were necessary to supplement the tariff system. However, the Constitution required that any direct tax imposed by Congress had to be apportioned among the states on the basis of their relative populations. Because the sizes of the states' populations differed, any tax on income would result in a different tax rate for the citizens of each state. Despite the apportionment requirement, Congress enacted the first federal income tax in 1861 to finance the vastly increased expenditures brought on by the Civil War.

While the original federal income tax was allowed to expire after the Civil War, it did lead to the successful effort to amend the Constitution. The Sixteenth Amendment to the Constitution became effective on February 25, 1913, providing that: "The Congress shall have the power to lay and collect taxes on incomes from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." Without hesitation, Congress enacted the Revenue Act of 1913, on October 3, 1913 and made it retroactive to March 1, 1913.

As historical conditions changed and the federal government's need for additional revenues increased, Congress exercised its income taxing authority by the passage of many new revenue acts. Since each new piece of legislation simultaneously reenacted previous revenue acts and added new amendments to the law, it became necessary to research over one hundred separate statutory sources to determine what tax law was currently in effect. Eventually, in 1939, Congress resolved the confusion by systematically arranging all of the tax laws into the Internal Revenue Code of 1939, a permanent codification of the law that does not require reenactment.

Major Types of U.S. Taxes

Since its establishment in 1913, the income tax has played the dominant role in providing the funds with which the federal government operates. An income tax is an extraction of some of the taxpayer's economic gain, usually on a periodic basis. The federal government, and almost every state government, imposes a tax on the income of individuals, corporations, estates, and trusts. A final tax reckoning—involving the reporting of income and payment of taxes due—is made at the end of each year. However, in order to ensure tax collections, Congress has created a pay-as-you-go requirement, through a combination of payroll with holdings and estimated tax prepayments during the year.

Income is generally defined as any permanent increment to wealth. It does not include loans or any other temporary increments. As a general rule, Congress considers any incremental wealth to be taxable income, unless specific statutory authority excludes it. These increments to wealth can take many forms, such as cash, property other than cash, and services that are ren dered to the taxpayer. While state governments set their own tax rules and rates, a majority of the states use the same definition of gross income as the federal government.

Unlike federal and state income taxes, wealth-transfer taxes are not significant revenue producers. Historically, the primary function of wealth-transfer taxes has been to hinder the accumulation of wealth by family units. Since 1976, the federal estate tax and the federal gift tax have been combined into one tax, known as the unified transfer tax. This unified system eliminates the distinction previously made between taxable lifetime transfers and transfers at death. Under this system, the value of a decedent's taxable estate is treated as his or her final gift.

Like federal income taxes, the tax rates on unified transfers are progressive. This means that an increasing percentage rate is applied to increasing increments of the tax base. Unlike the annual assessment of federal income taxes, the federal transfer tax is computed cumulatively on gifts made during a lifetime as well as on transfers at death. In addition, many states impose an inheritance tax on the right to receive property at death. Unlike an estate tax, which is imposed according to the value of property transferred at death, an inheritance tax is imposed on the recipient of property from an estate, although many wills provide that the estate should pay any inheritance taxes imposed on recipients of property.

In addition to income taxes and wealth transfer taxes, the federal government and most states impose some form of employment tax. The most common form of state employment tax is levied on wages, with the proceeds used to finance that state's unemployment compensation benefits program. In addition to its own unemployment tax, the federal government also imposes a Social Security tax on employers, employees, and self-employed individuals. The federal government uses proceeds from the Federal Insurance Contribution Act (FICA) tax to finance the payment of Social Security benefits as well as Medicare health insurance. If an employee will be eligible for Social Security and Medicare, the FICA tax is paid by both the employee and by his or her employer. Although subject to a different tax rate, self-employed individuals are required to pay FICA taxes on their net earnings from self-employment.

With only a few exceptions, state and local units of government in the United States also use the income tax and wealth transfer taxes as a source of revenue. In addition, these taxing jurisdictions have customarily relied on two other tax sources that generally escape taxation by the federal government:

1. The annual assessment of property tax has traditionally been the backbone of the local revenue system. It is a tax on the value of property—usually only real property, such as land and buildings— owned within a jurisdiction by nonexempt individuals or organizations.
2. In addition, most states and many local units of government impose sales taxes. This is a tax on the gross receipts from the retail sale of tangible personal property—such as automobiles and clothing— and certain services. Each taxing authority determines its own tax rate as well as the services and articles to be taxed. The seller collects the tax at the time of the sale, and then periodically remits the revenue to the appropriate taxing authority.

Tax Planning

In the United States and other democracies, a majority of citizens—or their duly elected representatives—vote to impose taxes on themselves in order to finance public services on which they place value but which are not adequately funded by market processes. However, determining which individuals or households or businesses actually reduce their private consumption or wealth as a consequence of a tax is not always a straightforward matter. After all, although taxes affect numerous aspects of our lives, their impact is not uncontrollable.

Tax planning is simply the process of arranging one's actions in light of their potential tax consequences. After all, a character in Gone with the Wind improves on the earlier adage by ob serving, "Death and taxes and childbirth! There's never any convenient time for any of them!" Despite the inconvenience that taxes impose, the average individual will feel the impact of quite a number of taxes during his or her lifetime. As a result, almost any attempt to accumulate or pre serve wealth requires diligent tax planning.

The process of minimizing the tax liability— of an individual or of a transaction—is usually referred to as tax avoidance. Not to be confused with tax evasion, tax avoidance is the perfectly legal effort by taxpayers, and by paid tax advisers on behalf of their clients, to take those steps necessary to reduce one's taxes. As a result, any one interested in minimizing their tax liabilities in the United States should take their cue from a 1947 opinion by Justice Learned Hand: "Over and over again courts have said that there is nothing sinister in so arranging one's affairs so as to keep taxes as low as possible. Everybody does so, rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is pure cant."

Bibliography

Brownlee, W. Elliot. (1996). Federal Taxation in America: A Short History. Washington, DC: Woodrow Wilson Center Press.

Graetz, Michael J. (1997). The Decline (and Fall?) of the Income Tax. New York: Norton.

Jones, Sally M. (1998). Principles of Taxation for Business and Investment Planning. Boston: Irwin/McGraw-Hill.

Richmond, Gail Levin. (1997). Federal Tax Research: Guide to Materials and Techniques. New York: Foundation Press.

[Article by: JEFFREY L. JACOBS]

Both the Canaanite kings and the Egyptian authorities collected taxes from early times, as is well attested by the El Amarna Letters, and by some allusions in the Bible (e.g. I sam 8:11-17). There was no taxation during the period of the conquest of Canaan by the Israelite tribes, nor during the days of the Judges; but with the establishment of the monarchy taxation became indispensable. At first, during the reign of Saul, it appears to have been limited to bringing gifts to the court (I Sam 10:27; II Chr 17:5). That some taxes were paid may be inferred also from the mention of "exemption" in the description of the reward for Goliath the Philistine's slayer (I Sam 17:25).

It seems that regular taxation was introduced by David in the later years of his reign. This necessitated taking a census of the population, a process not favored by the Israelites (II Sam 24:1ff). Censuses were also taken from time to time by other kings. In order to collect the tribute David appointed a special minister (II Sam 20:24). A more detailed list of officials dealing with tax collection is found in I Chronicles (27:25-31), where a minister "over the king's treasures" is mentioned. He was probably responsible for the taxes paid by the people for the upkeep of the court, the collection of booty taken in war and the tribute paid by conquered peoples. Ten other officials were appointed to supervise the revenues from the agricultural economy. This system of taxation was inherited by Solomon, and taxes were paid mainly in kind. To make the system more efficient Solomon subdivided the country into 12 provinces, each of which had to sustain the king's court for one month (I Kgs 4:7). Surplus produce was exchanged for foreign goods (I Kgs 10:15). In Solomon's time the gifts brought by vassal or visiting rulers were an important element in the kingdom's economy (II Sam 8:10-12; I Kgs 10:25; II Chr 17:11). Another form of taxation was forced labor, imposed on the conquered peoples as well as on the Israelites (I Kgs 9:20-21). Solomon recruited 30,000 of his subjects for the king's work. While one-third of the laborers were working in the Lebanon the remaining two-thirds worked at home, each shift lasting for one month.

In addition to these, 80,000 men hewed stone in the mountains, 70,000 hauled the stone and 3,300 supervised their work (I Kgs 5:13-17). The excessive burden of taxation and forced labor was one of the reasons for the division of the kingdom.

During the time of the return from Babylon the inhabitants of the country supplied the governor's table with the "governor's provisions". In addition to this the people paid 40 silver shekels each day (Neh 5:14-15). In Ezra (4:13) three additional taxes are mentioned: tribute, a tax paid by the king's subjects in the various provinces; custom, a tax on consumption; and toll, a road tax or tax on land.

There is also evidence in archeological finds of the payment of taxes in the biblical period. The numerous jar handles stamped with lamelek ("for the king") stamps, as well as the large number of ostraca found at Samaria, indicate that payment in kind was well established. It seems that this was the method used by villagers, while city-dwellers paid in silver. In addition to the taxes levied by the kings, half a shekel was paid by each Israelite into the Temple treasury.

In order to collect this tax, levied on all Jews of 20 years of age and over, tax collectors were sent throughout Israel (Matt 17:24). Such an enrollment for taxation is found in Acts 5:37, where it is recorded that disturbances ensued. Matthew was one of the tax officials (Matt 9:9) and Jesus is said to have kept company with such officials (Matt 9:9-10; Mark 2:15-17; Luke 5:29-32). When asked by the Pharisees whether or not it was lawful to pay taxes to Caesar, Jesus replied "Render therefore unto Caesar the things that are Caesar's and unto God the things that are God's" i.e., the laws of the state are to be obeyed (Matt 22:17-21; Mark 12:13-17; Luke 20:22-25). Paul, too, said that taxes should be paid to the state (Rom 13:6-7). See PUBLICAN.

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Early modern Europe was home to a bewildering array of taxes. The church collected tithes, lords exacted feudal dues, towns imposed customs duties, and rulers levied state taxes. Although there were multiple channels by which fiscal resources were extracted and redistributed throughout society, this essay will focus on state taxation, which expanded most dramatically in this period. To meet growing costs of war and debt, rulers across Europe raised taxation to unprecedented levels, forming what historians call "tax states." The tax state was not wholly powered by a modern centralized bureaucracy, but it had a profound effect on early modern politics and society. On the one hand, it reinforced social inequality, as rulers created fiscal alliances with elites and levied taxes on the common people. On the other hand, the tax state shaped early modern politics, as revenue-hungry sovereigns clashed with representative institutions and provoked popular tax rebellions. Even as popular tax revolts subsided in the eighteenth century, ideas linking taxation, citizenship, and political representation fueled revolution in the British colonies and in France.

The Rise of the Tax State

Taxation was essential to the development of the modern state. In the Middle Ages, kings mainly "lived of their own," that is, supported themselves with revenues from the royal domain, which included income from crown lands and various feudal and regalian dues. Over the early modern period, however, European monarchies expanded beyond the medieval domain to levy taxes. Tax revenues mounted steadily across Europe in the sixteenth century, even taking high population growth and inflation into account, and soared to new heights in the seventeenth and eighteenth centuries. Not all European countries followed this trend; Brandenburg-Prussia relied heavily on domain revenue as late as the eighteenth century. But the overall pattern is clear: the early modern tax state eclipsed the medieval domain state and considerably expanded the financial resources of rulers.

The tax state was a child of war. In this period of "military revolution," as armies grew spectacularly in size and required increasingly intensive training and elaborate supply networks, the costs of war skyrocketed. French military expenses increased five to eight times during the seventeenth century; Spanish war expenditure peaked in the 1650s; the English budget increased, in real terms, at least sixteen-fold between the late sixteenth and early eighteenth centuries; expenditure in Denmark and the United Provinces also accelerated dramatically. Consequently, rulers across Europe scrambled to find revenue by increasing "ordinary" taxes and creating new "extraordinary" ones that, with time, would be deemed ordinary as well. Monarchs became keenly aware of the fact that projecting power abroad depended on financial strength at home.

For ambitious sovereigns, however, there seemed never to be enough tax revenue available to finance military campaigns. Thus, in the city-states of Italy and the Netherlands, and then in unified monarchies, rulers began to borrow and accumulate debt. This recourse to credit, in turn, contributed to the growth of taxation, because short-term war debt was often consolidated into long-term debt serviced with tax revenue. If, in the sixteenth century, taxes were used principally to pay for burgeoning state administrations as well as war, in the seventeenth and eighteenth centuries, the vast majority of tax revenue was spent on military campaigns and the increasingly large debts they generated. As a result, belligerent states in the seventeenth and eighteenth centuries confronted a spiral of war, debt, and taxation that, as we shall see, profoundly shaped the political life of the age.

Although the fiscal weight of the state grew rapidly in the early modern period, it should not be inferred that states developed modern centralized bureaucracies of the kind associated with "absolutism." Today, historians stress the limits of the absolute state and emphasize how powerful monarchs like Louis XIV (ruled 1643–1715) had to negotiate with elites and regional and local institutions.

In practice, even "absolute" sovereigns could not tax at will. Although there was little theoretical recognition of the citizen's right to consent to taxation before the eighteenth century, rulers regularly sought the consent and cooperation of corporate institutions to reduce resistance to the tax levy. In addition to dealing with law courts, church organizations, and municipal governments, monarchs consulted with a host of representative bodies that flourished in the early modern period. The Spanish monarchy negotiated with the Castilian Cortes; the Holy Roman emperor dealt with the Imperial Diet (just as territorial princes in the German lands worked with provincial diets); French kings summoned the Estates-General and provincial Estates; and the English crown consulted Parliament. Representative bodies haggled over the weight and form of taxes but usually found it in their interest to compromise with monarchs, who rewarded their acquiescence with fiscal and administrative privileges. Representative institutions were also willing to compromise at times, because the elite social groups they represented (clergy, nobility, urban notables) were heavily invested in state debt and did not want to interfere with taxes that funded their interest payments. In this respect, there was an inherent tension between the financial interests of ordinary taxpayers, who wished to minimize the tax burden, and those of wealthier state creditors, who feared that poor tax yields might jeopardize returns on their investments.

Negotiations between rulers and corporate bodies did not, however, always run smoothly. In seventeenth-century England, fiscal strife combined with religious conflict to produce a constitutional crisis and civil war. When the early Stuart kings sought to levy new subsidies, forced loans, and ship money, Parliament reacted by asserting its right to consent to taxation. In 1640, after Charles I refused to work with Parliament, the crisis turned into a bloody civil war in which the king was executed. Ironically, the English Civil War and the Glorious Revolution of 1688, both of which secured for Parliament a central role in the English constitution, ultimately made it easier for the English state to raise taxes. Eighteenth-century England and the Netherlands experienced the highest rates of taxation in Europe, owing in large part to the sense of legitimacy that representative institutions in both countries bestowed on tax levies.

Elsewhere in Europe, the relationship between monarchs and corporate bodies evolved differently. In the Fronde of 1648, the Parlement of Paris challenged the fiscal policies of the crown, but it was not nearly as successful as the English Parliament. The French monarchy not only quelled the Fronde, but stopped calling the Estates-General after 1614–1615 and replaced many provincial Estates with more easily controlled royal officers. But even in "absolutist" France the monarchy did not completely prevail, for the surviving provincial Estates (in Languedoc and Brittany, for instance) continued to drive hard bargains with kings and to administer taxes in their regions down to 1789. Yet another scenario unfolded in Castile, the heart of the Spanish empire, where the once instrumental Cortes faded from power in the seventeenth century as the Spanish monarchy grew weaker.

Just as we should be careful not to infer that the rise of the European tax state automatically reflected the development of absolutist institutions, we should not assume that rising tax levels were the result of increasingly efficient and centralized administrations. On the contrary, early modern tax systems were extremely fragmented. Many rulers relied on tax farming, a practice whereby taxes were franchised to semiprivate financiers who paid fixed sums of money in return for the right to collect taxes. These tax farmers were allowed to pocket the difference between the amounts of revenue they collected and the lump sums they had advanced. Not all taxes were farmed. Rulers also entrusted the task of levying certain taxes to official state administrators, but even in this case administrators could not collect taxes without the active participation of villages and local heads of household. Consider the example of the taille, the main direct tax in France from the fifteenth century to the French Revolution. Every year, the global sum of the taille was divided among the kingdom's parishes. Each parish was assigned a lump sum of money and was held responsible for collecting and forwarding that sum to tax receivers. Royal financial officials supervised the levy, pressuring recalcitrant villages and adjudicating disputes, but the crucial tasks of drawing up tax rolls and collecting revenue were left to parish assessors and collectors appointed by local village assemblies. Without the participation of thousands of village assemblies across France, even the mighty French crown would not have been able to levy the taille.

Forms and Social Incidence of Taxation

The burden of the tax state was not shouldered equally by all social groups. Although it is difficult to determine with precision who paid taxes in early modern Europe, it is safe to say that the two main types of taxes, direct and indirect, were generally regressive. In both cases, common people—the peasants and artisans who made up the majority of the population—paid higher proportions of their income than did wealthy elites.

Indirect taxes, which many monarchs and town magistrates preferred because they were less intrusive than direct taxes, predominated in urban and commercial areas of Europe such as England, Italy, and the Netherlands. Taking the form of tolls, excise taxes on consumer goods, and taxes on salt, tobacco, and other goods sold by state monopolies, indirect taxes fell on consumers in a highly regressive fashion. Levied on such staples as grain, meat, beer, wine, and salt, indirect taxes imposed a proportionally heavy burden on urban workers who had to purchase basic commodities with relatively little disposable income. In the towns of Castile, where excise taxes on wine and oil could double the price of such goods, wage earners suffered a reduction of purchasing power on the order of 30–50 percent. In Paris, whose residents enjoyed privileges with respect to direct taxes, indirect taxation was rather heavy. It has been calculated that in 1789, the average Parisian head of household needed fifty-six days to work off his taxes. During periods of economic growth, indirect taxes were easier to bear, but in bad times, when wages stagnated or unemployment rose, they could become quite oppressive.

Levied on landed income and property, we might expect direct taxes to have been less regressive. But this was not usually the case, because the wealthy and powerful often held the privilege of exemption. Consider once again the example of the principal direct tax in France, the taille. The most remarkable feature of the taille was the number of people who did not have to pay it. In much of France, clergymen, nobles, bourgeois, venal officeholders, royal administrators, and residents of certain provinces and towns enjoyed at least partial exemption from the taille. This meant that the weight of the tax fell overwhelmingly on the peasantry. It has been estimated that in the late seventeenth century the taille and other direct taxes absorbed on average one-fifth of the peasantry's gross production. Wealthier peasants appear to have carried most of this burden, but the poorest peasants had a difficult time scraping together enough cash to pay even the tiniest assessments. In a hierarchical society riddled with privilege, the taille was so closely associated with low status that Cardinal Richelieu (1585–1642) believed it unwise to relieve the common people of this burden because "they would lose the mark of their subjection and consequently the awareness of their station." Similar sentiment existed in Sweden, the German lands, and Castile, where the payment of direct taxes was also a sign of common birth.

If regressive taxation reflected the steep social hierarchy of the early modern period, so too did the ways in which the state spent the tax revenue it collected. As historians have recently emphasized, monarchs not only drew the lion's share of tax revenue from peasants and artisans but, with state spending, redistributed that revenue up the social hierarchy to nobles, officeholders, and other elites. In seventeenth-century Languedoc, as much as a third of the province's tax revenue passed directly to regional notables in the form of pensions, salaries, and interest payments. Extracting and redistributing tax revenue on a massive scale, early modern states doubly reinforced the social inequalities of the age.

Popular Tax Revolts

Given the weight and incidence of taxation, it may come as no surprise that levies encountered a good deal of popular resistance in the early modern period. The medieval notion that a king was supposed "to live of his own" did not quickly fade, leading many to believe as late as the seventeenth century that regular taxation was a dangerous innovation. In such a climate, any attempt to create a new tax or increase an old one, even when the justification of military defense was invoked, could be met with great skepticism. Ever dubious and resourceful, taxpayers found ways to evade or at least minimize their fiscal obligations. Heads of households escaped full liability for direct taxes by hiding or falsely reporting their wealth or, in the case of powerful individuals, by exerting influence over local tax assessors. As for indirect taxes, smugglers formed vast underground networks that circumvented customs and excise taxes to supply consumers with untaxed commodities at lower prices.

Resistance could also take the more direct form of open revolt. In addition to, and sometimes linked to, the challenges to taxation mounted by representative institutions, popular tax revolts broke out sporadically across Europe throughout the early modern era. From the late sixteenth to the mid-seventeenth century, when intense warfare was coupled with economic and demographic crisis, a particularly destabilizing series of tax rebellions erupted in the German lands, Spain, Portugal, Naples, England, and France. It is important to note that these revolts were not irrational explosions of violence carried out by the hopelessly poor. Rather, as recent research emphasizes, revolts were deliberate political acts in which a variety of social groups participated.

The revolts that shook France in the first half of the seventeenth century are particularly well studied, and they suggest how and why uprisings occurred. It should be stated at the outset that rebellions in this period were not aimed solely at taxes; crowds also gathered to protest military conscription, the billeting of troops, high food prices, seigneurial dues, and religious heresy. But from 1630 to 1660 tax revolts were by far the most prominent form of protest in France. In this period of economic, military, and fiscal turmoil, taxpayers assembled on numerous occasions to submit petitions for tax relief to authorities. When such acts of protest proved unsuccessful, crowds gathered to keep tax officials at bay—by force if necessary. Moved by a sense of communal justice, taxpayers enacted mock trials and burned tax officials in effigy, broke into or burned down tax collectors' houses, and verbally or physically harassed collectors to run them out of town. Although the most violent incidents of collective action involved beating or stoning officials, such activity was not revolutionary in the modern sense of the term. Appealing to God, king, and custom rather than revolutionary principle, crowds believed that their attempts to block new taxes (or sudden tax increases) were part of a larger plan to restore the traditional order. "Long live the king without the salt tax," French protesters cried, looking backward to a time when the crown supposedly did not impose harmful fiscal innovations. Just because revolts were backward-looking, however, does not mean that they failed to achieve practical results. Revolts did achieve temporary successes, when tax collectors were chased out of town or when controversial tax initiatives were withdrawn. But revolts were just as likely to provoke brutal repression by the royal army.

One of the most extraordinary features of tax revolts was the participation of different social groups. It is not surprising that destitute peasants, artisans, and day laborers joined the fray, since taxation threatened to take what little cash they possessed. But in seventeenth-century France, wealthier peasants and artisans, local elites, and even nobles were similarly moved to participate in revolts or at least abet them from behind the scenes. Wealthier peasants paid the bulk of direct taxes and so had a strong interest in stopping tax increases. Noble landlords saw rebellion as a means to retain regional liberties and expand their power, but they, too, had a financial interest in tax revolts, for they competed with the crown for the economic surplus produced by the peasantry. Although nobles paid comparatively little in taxes, they understood that higher taxes on the peasantry would lead to lower rents and feudal dues. Thus, when Louis XIII (ruled 1610–1633) dramatically increased taxes in the 1620s and 1630s, many nobles supported popular sedition. Not all joined in, for some elites feared that revolt would cut off royal revenue and endanger the financial perquisites they received from the crown, but for many the prospect of losing revenue from their land outweighed other considerations.

Reform and Revolution in the Eighteenth Century

Although traditional tax revolts died down in the eighteenth century, taxation became a key issue in the American and French Revolutions. In both cases, revolution stemmed from the tremendous fiscal burden that weighed on Britain and France as the two countries engaged one another in a series of protracted, global, and costly wars that have been likened to a second Hundred Years' War. For both countries, the financial response to the burden of war would have far-reaching political consequences.

From the Glorious Revolution of 1688 to the defeat of revolutionary France in 1815, Britain ascended to great power status on the wings of a "financial revolution" in which Parliament guaranteed the security of a permanent and rapidly expanding national debt. Although historians once believed that the spectacular growth of English public credit compensated for the country's supposedly weak tax system, today they attribute much of the success of English credit to the efficiency and reliability of taxes. At bottom, England's tax system was effective because elites consented to taxation through their representatives in Parliament. In the 1690s, for example, Parliament agreed to the levy of a land tax on the propertied classes that would spare no landowner, be he gentleman or cleric. The land tax was significant not only because it touched elites and provided an important source of revenue, especially to 1714, but also because it secured the political power of Parliament—and the landed gentry that the institution represented—in a new constitutional order. The English monarchy learned that it had much to gain financially by consulting Parliament; Parliament learned to tolerate the fiscal and administrative expansion of the English state in return for the right to scrutinize public finances. At the end of the eighteenth century, Parliament replaced the land tax with a modern income tax, a remarkable innovation that required all heads of household with annual incomes above fifty pounds to declare their wealth for assessment.

We should be careful, however, not to exaggerate the fiscal generosity of English elites. The land tax, which Parliament never allowed to be administered by a royal bureaucracy, was applied unevenly and fell dramatically over the century in proportion to total tax revenue. Likewise, the income tax was quickly repealed once France was defeated. The two taxes demonstrate that while English elites were willing to contribute direct taxes to a state in which they enjoyed representation, they did not intend to pay too much for this political privilege. Indeed, despite notable innovations in direct taxation, crown and Parliament ensured that indirect taxation, in particular the regressive excise tax, would become the true backbone of the eighteenth-century English fiscal system. Climbing to dizzying heights over the century, the excise tax raised the vast majority of the revenue that funded the loans of the Seven Years' War (1756–1763) and the American War of Independence (1775–1783). Backed by parliamentary statute and staffed by an astonishingly modern bureaucracy, the excise administration made English consumers pay for the nation's international power.

If Britain excelled in the fiscal rivalry that characterized eighteenth-century international relations, it did so despite the rebellion of its North American colonies. In light of the critical role Parliament played in lending legitimacy to English taxes, it is not all that surprising that North American colonials balked when the crown attempted to impose new taxes in the wake of the costly Seven Years' War. In the absence of colonial representation in Parliament, and with the elimination of the French threat in North America, colonials perceived the new taxes and duties of the late 1760s and early 1770s as the work of a despotic government. "No taxation without representation," they exclaimed, insisting that all British taxpayers had a right to national political representation. With the spread of such constitutional ideas, what began as a tax revolt quickly turned into republican revolution.

Taxation was also an important cause of the French Revolution. Because French kings periodically repudiated debts (and were therefore known as risky borrowers), the French royal debt was more expensive to service than English national debt, putting additional stress on the French tax system. As in England, France increasingly relied on indirect taxes over the eighteenth century, but French indirect taxes never reached the proportions of total tax revenue that English indirect taxes did. Direct taxes remained essential in France, and it was here that the French crown initiated its most ambitious reforms. The crown not only conducted land surveys in certain provinces to improve the repartition of the taille; it also created new universal taxes (the capitation, dixième, and vingtième) aimed at individuals, including nobles, who had formerly enjoyed the privilege of tax exemption. (The creation of universal taxes in France was part of a general trend among eighteenth-century European governments to end noble tax privileges; similar reforms were instituted in Artois, Flanders, Luxembourg, Savoy, Holland, and Prussia). Although French universal taxes bolstered direct tax revenues, they were woefully inadequate to the task of funding military expenditure and debt. Even when combined with rising indirect tax revenue, they did not substantially raise the incidence of real, per capita taxation.

Looked at another way, however, the new universal taxes proved all too successful. Because they did indeed strike nobles and other privileged groups, they alienated elites who, unlike their counterparts across the channel but much like Britons in North America, did not enjoy representation in a national legislature. As a result, French courts of law became increasingly sensitive to the issue of taxation and publicized the need for an institutional bulwark against the monarchy. Seeking to fend off increases in universal taxes from the Seven Years' War on, courts disseminated subversive concepts of national sovereignty, political representation, and the rights of citizenship. In 1789, revolutionaries drew on this and other fiscal-political rhetoric to launch both a constitutional revolution, in which a National Assembly would seize the power to tax from the monarchy, and a social revolution, in which the Third Estate would claim political rights based on its tax contributions to the state. Once in power, revolutionaries abolished indirect taxes, expunged vestiges of privilege from direct taxation, and formally linked taxation and citizenship by extending political rights to taxpayers. By the late eighteenth century, taxation had become invested with revolutionary significance.

Bibliography

Beik, William. Absolutism and Society in Seventeenth-Century France: State Power and Provincial Aristocracy in Languedoc. Cambridge, U.K., and New York, 1985.

Bercé, Yves Marie. History of Peasant Revolts: The Social Origins of Rebellion in Early Modern France. Translated by Amanda Whitmore. Cambridge, U.K., 1990.

Bonney, Richard, ed. Economic Systems and State Finance. Oxford and New York, 1995.

——. The Rise of the Fiscal State in Europe, c. 1200–1815. New York, 1999. A useful collection of essays on early modern public finance in several European countries.

Bossenga, Gail. "Taxes." In A Critical Dictionary of the French Revolution. Edited by François Furet and Mona Ozouf. Translated by Arthur Goldhammer. Cambridge, U.K., 1989.

Brewer, John. The Sinews of Power: War, Money and the English State, 1688–1783. London and Boston, 1990. A compelling study of the fiscal changes behind England's rise to power in the eighteenth century.

Collins, James B. Fiscal Limits of Absolutism: Direct Taxation in Early Seventeenth-Century France. Berkeley, 1988.

Herlihy, David, and Christiane Klapisch-Zuber. Tuscans and Their Families: A Study of the Florentine Catasto of 1427. New Haven, 1985.

Hoffman, Philip T., and Kathryn Norberg. Fiscal Crises, Liberty, and Representative Government, 1450–1789. Stanford, 1994. Analyzes the relationship between fiscal and political development in England, the Netherlands, Spain, and France.

Kwass, Michael. Privilege and the Politics of Taxation in Eighteenth-Century France: Liberté, Égalité, Fiscalité. Cambridge, U.K., and New York, 2000.

Mathias, Peter, and Patrick O'Brien. "Taxation in Britain and France, 1715–1810." Journal of European Economic History 5 (1976): 601–650.

Tilly, Charles. The Contentious French. Cambridge, Mass., 1986. Contains descriptions and analysis of French tax revolts in the sixteenth and seventeenth centuries.

Tracy, James D. "Taxation and State Debt." In Handbook of European History, 1400–1600: Late Middle Ages, Renaissance, and Reformation. 2 vols. Edited by Thomas A. Brady Jr., Heiko A. Oberman, and James D. Tracy. Leiden and New York, 1994.

—MICHAEL KWASS

This entry contains information applicable to United States law only.

The process whereby charges are imposed on individuals or property by the legislative branch of the federal government and by many state governments to raise funds for public purposes.

The theory that underlies taxation is that charges are imposed to support the government in exchange for the general advantages and protection afforded by the government to the taxpayer and his or her property. The existence of government is a necessity that cannot continue without financial means to pay its expenses; therefore, the government has the right to compel all citizens and property within its limits to share its costs. The state and federal governments both have the power to impose taxes upon their citizens.

Kinds of Taxes

The two basic kinds of taxes are excise taxes and property taxes.

Excise Tax

An excise tax is directly imposed by the law-making body of a government on merchandise, products, or certain types of transactions, including carrying on a profession or business, obtaining a license, or transferring property. It is a fixed and absolute charge that does not depend upon the taxpayer's financial status or the value that the taxed property has to the taxpayer.

An estate tax is a tax that is placed on, and paid by, the estate of a decedent prior to the distribution of the property among the heirs in exchange for the privilege of transferring the property. Individuals who inherit property may be required to pay an inheritance tax on the value of the particular property received. Gift taxes are incurred by an individual who gives another a valuable gift.

Another type of excise tax is a sales tax, which is placed on certain goods and services. Precisely what goods and services are taxed is determined by the individual state legislatures. In some instances, a sales tax placed upon expensive items that are considered luxuries is known as a luxury tax.

A corporate tax is an excise tax imposed upon the privilege of conducting business in the corporate capacity, which provides certain advantages to individuals, such as limited liability. It is measured by the income of the corporation involved.

Other common examples of excise taxes are those imposed upon the processing of meat, tobacco, cheese, and sugar.

Property Tax

A property tax takes the taxpayer's wealth into account, as represented by the taxpayer's income or the property he or she owns. Income tax, for example, is a property tax that is assessed and levied upon the taxpayer's income; property taxes are imposed mainly on real property.

Direct and Indirect Taxes

Taxes are also classified as direct and indirect. A direct tax is one that is assessed upon the property, business, or income of the individual who is to pay the tax. Conversely indirect taxes are taxes that are levied upon commodities before they reach the consumer who ultimately pay the taxes as part of the market price of the commodity. A common example of an indirect tax is a value-added tax, which is paid on the value added to the product at each stage of production, distribution, and sales.

Federal Tax

The Constitution and laws passed by Congress have given the U.S. government authorization to collect various taxes. For example, duties are taxes imposed upon imports and can be either ad valorem (a percentage of the value of the property) or specific (a fixed amount). An impost is another name for an import tax. Congress may not, however, tax exports.

The Sixteenth Amendment to the Constitution gives Congress the power to impose a federal income tax. Congress has also enacted laws that allow the federal government to tax estates remaining after people die and gifts made while people are alive.

State Tax

States possess the inherent power to levy both property and excise taxes. The Tenth Amendment to the Constitution, which reserves to the states powers that have neither been granted to the United States nor proscribed to the states by the Constitution, implicitly acknowledges this fundamental right. A state may raise funds by taxation in aid of its own welfare, provided the tax does not constitute unjust discrimination among those who are to share the tax burden. Property taxes, for example, may properly be imposed on landowners within the jurisdiction. In addition, the state may levy income, gift, estate, and inheritance taxes upon its residents.

Equality

Equality is a fundamental principle of taxation. The taxing power of the legislature must always be exercised in such a way that the burdens imposed by taxation are laid as equally as possible on all classes. The progressive tax, which imposes a higher rate of taxation upon individuals with large incomes than on those with small incomes, is an attempt to achieve this objective.

Equality in taxation is achieved when no higher rate in proportion to value is imposed on one individual or his or her property than on other people or property in similar circumstances. Equality does not mandate that the benefits that arise from taxation should be enjoyed by all the people in equal degree or that each individual should share in each particular benefit. For example, the fact that a husband and wife have no children or choose to send their children to private school does not signify that they are permitted to stop paying their share of school tax.

Uniformity

The principle of uniformity of taxation bears a close relation to the concept of equality because similar items are taxed equally only if the mode of assessment is the same or uniform.

A tax that is levied upon property must be in proportion or according to its value, ordinarily determined as its fair cash or fair market value. This requirement protects equality and uniformity of taxation by preventing arbitrary or inconsistent methods of determining how much tax is due. This requirement applies only to property taxes, not to excise taxes.

See: Customs Duties; Estate and Gift Taxes; Internal Revenue Service; Taxpayer Bill of Rights; Tax Rate.

A government's practice of collecting money from citizens and businesses within its domain to support its operations.

Dansk (Danish)
n. - beskatning, skat

Nederlands (Dutch)
belastingsysteem of -geld, belasting

Français (French)
n. - taxation, imposition, impôts, contributions

Deutsch (German)
n. - Besteuerung, Steuern

Ελληνική (Greek)
n. - (οικον.) φορολογία, φορολόγηση

Italiano (Italian)
imposta

Português (Portuguese)
n. - taxação (f), tributação (f)

Русский (Russian)
налогообложение, взимание налога, размер налога, доход от налогообложения, (юр.) установление размера судебных издержек, таксация

Español (Spanish)
n. - impuesto, imposición

Svenska (Swedish)
n. - beskattning, taxering

中文（简体）(Chinese (Simplified))
课税, 租税, 征税, 税款

中文（繁體）(Chinese (Traditional))
n. - 課稅, 租稅, 徵稅, 稅款

한국어 (Korean)
n. - 과세, 세수, 소송 비용 사정

日本語 (Japanese)
n. - 課税, 徴税, 税収, 査定額

العربيه (Arabic)
‏(الاسم) فرض ألضرائب‏

עברית (Hebrew)
n. - ‮מיסוי, גביית מיסים‬

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taxation report