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A short history of tax

by Contalisa Davodo

Tax is a feature of all current developed societies. It is a concept with a long history, though the older versions are quite different. Looking at tax, understanding the
ideas and the history behind it might just help when we post of that tax check next time.

Most older societies had some kind of tax - people paid their rulers in exchange for protection. This is one of the basics of taxation - you pay tax in return for protection and services. In pre-industrial societies Kings (for example) would collect taxes in the form of labor or troops, rather than money.

In the 18th century, the man known as the Father of Economics, the Scottish economist Adam Smith, laid down the fundamentals of tax. However, nowadays, in modern societies, tax tends to be paid in money.

When Smith was thinking through the concept of taxation he felt it needed to follow 4 rules. The first was that the tax should be fair; the second was that the tax payer should be able to understand it, therefore it should be clear; the third rule was that payment should be convenient and that it should be easy to collect and the forth and last rule was that the money generated to the government should be more than was incurred in collection.

Although since then more rules have been added to these initial rules, the 4 that Adam conceived still hold strong. The first rule about fairness is interesting. Although Smith felt that no one should be made poor by paying the tax and therefore taxes should not be so high that the person was unable to pay them - the question is how should this function?

There are three basic options for taxes: everyone could pay exactly the same; everyone could pay the same percentage of their income; those with bigger incomes pay a bigger percentage of their income. The last option is a progressive tax and has been chosen by all modern states. The richer are still left with more money after tax, and this is generally felt to be fairer.

Not all agree that progressive tax is fairest, of course. All governments nowadays believe that if taxes for the richer members of society are set too high that it will act as a disincentive for enterprise and hard work.

Tax is potentially payable on many things for example, people, property and companies. In addition, there are lots of potential tax types - excise duty, personal income tax, sales tax, customs duty and many more.

Personal income tax - money gather based on earnings - was first used in the UK in 1799, but took a long while to catch on - in the US it was only formally adopted in 1913.

Some taxes have led to wars. For example, the stamp duty that was gathered by the British was one factor behind the American War of Independence. The vast majority of people resented paying the tax as they did not feel they were receiving either the services or the protection thatunderlies the payment of taxes. The battle cry for independence was no more tax without representation.

About the Author:
Contalisa Davodo - http://www.fsctax.com

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