Daddy, Where Do Taxes Come From?
I'll tell you when you get a little older.
But I want to know.
Well, I'll tell you where taxes come from in other countries, OK? They come from the idea that if we all pool our resources we can better acquire things like schools, hospitals, parks, trains, you know, things that belong to everybody.
But what about our country?
Well, in our country we pay for private schools if we want good schools, and we all buy something called health insurance to take care of us if we get sick, and a teeny bit of our taxes goes to parks and trains, but we don't have very many of those, and we pay for some of them with local taxes. We pay local taxes, state taxes, and national taxes, and lots of other fees. We pay as much in taxes as people in those other countries, but our taxes are different. They come from a different place, and we'll talk about it when you're a little bit bigger.
Why? Why can't I know now?
Well, I can tell you a little part of the story. One reason we pay taxes is to create lots of billionaires. Those are super rich people. Other countries have schools and vacations and doctors, but we have billionaires.
What do we want them for?
Well, we don't really want them, but once we have them it's hard to get rid of them, since some of them decide who pays taxes and who doesn't.
So, taxes come from billionaires? Where did the first billionaire come from?
No, no. Taxes and billionaires both come from something else, and we'll talk about it a little later. Let's go outside and play right now.
But I want to know first.
It's not something that it's nice to talk about, not even in the bathroom. I know: let's go for a walk downtown and maybe we'll get an ICE CREAM CONE, huh?
After you tell me.
Oh boy. All right, taxes come from war. Now let's get out the soccer ball.
You mean killing people?
Yes, killing people.
How does killing people make taxes?
All right. You really want to know, huh? OK, well, when they first made this country, they decided that taxes might be needed in order to pay for guns, cannons, war ships, and soldiers. Alexander Hamilton -- you know about him, right? -- he didn't have very good luck with guns, but he argued for federal (that's national) taxes in case of wars. The government mostly paid for itself and the little that it did with tariffs. That means it got a little money from everyone who shipped things into the country. But it also taxed certain things, like whiskey -- you know that stuff that Uncle Jim was drinking so much of when -- yeah, well, the government charged money from people selling whiskey, and there was a rebellion. That means the farmers selling the whiskey refused to pay. So George Washington decided to go and kill some of those farmers -- or threaten to with lots of soldiers, and that cost money, so the government created taxes to pay for threatening to kill the people who protested paying taxes. Later it stopped taxing whiskey because people still wouldn't pay.
Then, in 1789, the government wanted to build lots of big ships in case it wanted to kill people in other countries, and so it began taxing property. So, if you owned something big, like a house, you could have to pay taxes for that. Now we could have lots of ships and sailors who could go kill people far away.
Why did we want to do that?
Well, you and I weren't alive back then, and probably most people didn't want it. But some rich people wanted to ship stuff all over the world, and sometimes people in other parts of the world caused problems. So, a bunch of sailors sailed their ship into a place called Tripoli and blew themselves up. Someone told them to do that and they did it, which is why we shouldn't always just do what someone tells us without thinking about it.
Like when you tell me not to eat mashed potatoes with my fingers?
Do you want me to tell you this or not? OK, then listen. Now, in 1798 the French caused trouble and we had to be taxed more. Then in 1812 the British and the Canadians and all kinds of people were out to get us just because we invaded their country, and so we had to have a lot more taxes. We had to pay taxes for owning land, for selling things in stores, for making alcohol, for holding auctions, for buying sugar or carriages, whatever they could think of. In 1815 they brought back the whiskey tax too, and all kinds of other taxes. They thought about creating an income tax -- that is a tax on the money you get paid for your job -- but they didn't do it.
Then came the Civil War, and BOOM we got the income tax. The North got it in 1862 and we backward Southerners didn't get it until 1863. Rich people didn't fight in the war, so they had to help pay for it, and for our first big government social program -- which was the taking care of the veterans after the war. The income taxes were progressive. That means rich people paid at a higher rate than other people. They also had to pay taxes on inheritance, on leaving money to their kids when they died. Nonetheless, the Civil War created super rich people who made money from the weapons.
After the Civil War, in 1872, the income tax and the inheritance tax ended. Taxes shrank and also went back to burdening ordinary people more than the rich people.
That is, until World War I came along, with a very big advertising campaign, restrictions on what you could do and say, and prison for anyone opposed to the war. Now we got an income tax, and estate tax, and more excise taxes -- that's taxes you pay for buying things -- and taxes on corporations and excess profits. Big new taxes were created in 1914, 1916, 1917, and 1918. And our government moved away from taxing foreign goods shipped into the country. I guess killing foreign people was considered bad enough. We wouldn't want to tax them on top of killing them. But weapons makers and the corporations and the wealthy got taxed. In 1917, the government got 74% of its money by taxing the wealthy and another 13% by taxing luxuries (that is, stuff that mostly the wealthy buy).
After World War I, the government got rid of the excess profits tax and lowered the top income tax rate from 77% to 25%. But then came World War II, which -- as far as war-taxes and the draft -- got going long before Pearl Harbor. The income tax, for the first time, was applied not only to the wealthy but to 90% of workers. The top rate went up to 94%, and by the end of the war the income tax was raising 40% of the government's money. The top corporate tax rate went up to 95% and raised almost a third of the government's money. A Disney cartoon said "It takes taxes to beat the Axis!" An Irving Berlin song said: "You see those bombers in the sky? Rockefeller helped to build them. So did I!"
By 1943, Congress began cutting taxes on corporations and shifting the burden to ordinary people. When the war ended, taxes were cut, but not back to where they had started. And they were cut by Congress overriding a presidential veto. However, the president started a new war in Korea, and Congress started raising taxes again. And they've never gone away. They've just shifted more and more from rich people to the rest of us.
We've built a permanent military, as if we're always at war. And we've managed to usually be at war in one little country or another. Now, 57% of government spending (in President Obama's proposal for 2013) goes to wars and preparations for wars -- that is, if we don't count special programs that pay for themselves with special taxes of their own, like Social Security. Our country has 5% of the people in the world and over 50% of the war spending.
And we hate taxes.
We hate taxes because they were created for war, all they buy us is wars and billionaires, and we don't get in return anything like what people get in other countries. We pay our taxes, and then we have to pay for everything we do, like visiting parks, going to school, seeing the doctor. Taxes came from wars in other countries too, but they changed that. In Costa Rica they have no military except in a museum, and their taxes pay for museums instead of wars. Maybe we should think about changing our taxes too. What do you think?
I'll work on that. After you get me the ice cream.