Hey friends,
Ever wonder why we pay income taxes instead of just slapping tariffs on imported goods like we did back in the day? I mean, wouldn’t it be nice if we could just tax foreign stuff and call it a day? Spoiler: we used to do that, but turns out, it wasn’t quite enough to keep the lights on. So, here’s the short version of how Uncle Sam went from tariff collector to tax collector.
Back in the Early Days (1789 – 1860s): Tariffs Paid the Bills
When the U.S. first got started, we didn’t have an income tax. Instead, the government made money by charging tariffs on imported goods—basically, a tax on stuff coming into the country. The Tariff Act of 1789 kicked things off, and for decades, tariffs were the main way the government funded itself. No tax forms, no deductions—just straight-up charging importers.
Civil War Brings the First Income Tax (1861 – 1865)
Then came the Civil War, and wars aren’t cheap. To help cover costs, the government introduced the first federal income tax in 1861. But once the war ended, they repealed it in 1872 and went back to relying on tariffs. You know, until the next crisis came along.
Late 1800s: Tariffs Get Messy
By the late 19th century, high tariffs—especially under the McKinley Tariff (1890) and Dingley Tariff (1897)—started to cause problems. Prices went up, and a lot of people (especially farmers and businesses) weren’t happy. After the Panic of 1893, people started calling for change. Turns out, taxing imports alone wasn’t a perfect system.
1913: The 16th Amendment – The Game Changer
This was the turning point. The 16th Amendment was ratified in 1913, giving the government the power to collect income taxes directly. That same year, the Revenue Act of 1913 slashed tariffs and introduced a federal income tax, shifting how the government made money. This was when things really started looking like the tax system we have today.
1930s: The Great Depression & Smoot-Hawley Tariff
Fast forward to 1930, when the U.S. decided to raise tariffs to crazy high levels under the Smoot-Hawley Tariff to protect American jobs. It totally backfired. Other countries retaliated, global trade tanked, and it made the Great Depression even worse. By 1935, the government leaned even harder into income and corporate taxes instead.
World War II (1940s): The Final Shift
War is expensive (again), and World War II forced the U.S. to massively expand income taxes. The Revenue Act of 1942 made income tax a mass tax system, meaning it wasn’t just for the wealthy anymore—everyone had to chip in. At this point, tariffs were basically a side gig for the government.
Where We Ended Up
By mid-20th century, income taxes had fully replaced tariffs as the government’s main funding source. Today, tariffs are mostly used as trade policy tools—think trade wars with China—not to keep the government running. And before you ask—no, we probably couldn’t just go back to tariffs and ditch income tax unless we wanted to pay insane prices for everything we import (which is, well…a lot).
Crazy to think that we used to fund the entire country with import taxes, right? Hope you found this little history dive interesting!
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