If someone from the 17th century came back to life, he or she would be surprised, most of all, by the means of transport and communication tools we use now.

Probably, the most familiar things would be hospitals and schools.

Income tax is a rather recent “invention,” created—in most cases—as an emergency tax to deal with extraordinary expenses.

Personally, I think that there is something that would very surprise a person from those times even more: the fact that Governments take away individuals’ earnings compulsively.

In fact, contrary to what many people think, income tax is a rather recent “invention,” created—in most cases—as an emergency tax to deal with extraordinary expenses, which later survived as a way to finance the growing fiscal deficits of Governments increasingly mismanaged, corrupt, and in debt.

We will review two significant examples.

United Kingdom

After centuries imposing specific, eccentric taxes (e.g. chimney tax, window tax, malt tax, among others), Income Tax was first introduced by William Pitt in the United Kingdom in 1798, and it started to be charged in 1799. The aim was not to finance original expenses of the State but the Napoleonic Wars.

At the time, no other country levied a tax over the earnings produced by its citizens. The United States, for example, would only start charging it, intermittently, some 60 years later, and definitively in 1913.

The non-taxable minimum in the United Kingdom of the late 1700s would be equivalent to £6,000, and the maximum rate was ten percent. Only local income was susceptible to taxing, which was quite logical.

At the time, the malt tax covered approximately ten percent of the Government’s budget.

This time, the non-taxable minimum was over twice the previous one and the rate was around three percent.

This first version of the Income Tax was in force only for three years, as it was annulled (logically) upon the signing of the Treaty of Amiens.

Henry Addington, who had succeeded Pitt in 1801 and had eliminated the tax when the peace with France was signed, reestablished it in 1803 when new difficulties appeared with that country. It was kept in force until the Battle of Waterloo. When the tax was annulled again, every document that referred to it was burnt, due to the sense of shame associated with having established and charged this tax.

From 1817 to 1842 there was no Income Tax in the United Kingdom or any other country.

Although he criticized the tax during the 1841 campaign, Prime Minister Robert Peel reestablished it in 1841, not to finance a war but to cover the Government’s deficit.

This time, the non-taxable minimum was over twice the previous one and the rate was around three percent.

The First World War was the perfect excuse to increase the rates. So, they were increased to 17.5 percent in 1915, 25 percent in 1916 and 30 percent in 1918.

For context, the only other country with an income tax at the time was the United States, which, as said above, had reestablished it in 1913, with a rate of 1 percent for incomes above $20,000.

Only with Margaret Thatcher and the growth and increased sophistication of the offshore jurisdictions did the rates start to decrease substantially.

The system was modernized as years went by, but the rising trend did not slow down, with a notorious record of 99.25 percent (yes, that is correct) during the Second World War.

Contrary to what one might believe, in the following two decades there was a minor reduction, but the tax remained over 95 percent.

During the 1970s and 1980s there were further decreases, but not very significant.

Only upon the election of Margaret Thatcher and the growth and increased sophistication of the offshore jurisdictions did the rates start to decrease substantially.

In 1988, for example, after three consecutive reductions, the basic rate was 25 percent.

Nowadays, that rate (the basic rate) is even lower: 20 percent and the maximum rate is 40 percent.

Let’s have a look at what happened on the other side of the Atlantic Ocean.

United States

Although the United States became independent from the United Kingdom in 1776, after a conflict arising precisely from a taxing issue, it was not until 1861 that the country imposed the first income tax. And, just like in the United Kingdom, this was not done to finance the ordinary expenses of the State but the Civil War.

In other words, for over a century and 15 presidential terms, the State was financed without needing to take away from taxpayers a part of their income. Moreover, when it was finally done, those funds were not used to finance original expenses, but a civil war.