War And Taxes

Commentary, Taxation, Frontier Centre

It is ironic that the country which now compels Americans to spend billions of tax dollars first invented tax. The first recorded tax began six thousand years ago on a fertile plain between the Tigris and Euphrates rivers (now part of modern Iraq). Inscriptions on clay stones excavated at Lagash revealed not only the existence of a tax but why: to pay for a ferocious war.

Death and taxes — more specifically, war and taxes — are often linked. The first English income tax came about in 1798 under Prime Minister William Pitt. It was as popular as Brian Mulroney’s 1980s-era introduction of the GST. In 1799, a naval officer described Pitt’s new tax in this manner: “It is a vile, Jacobin, jumped-up Jack-in-Office piece of impertinence — is a true Briton to have no privacy? Are the fruits of his labour and toil to be picked over, farthing by farthing, by the pimply minions of bureaucracy?”

The English income tax was disliked. It also provided a third of the additional revenue for the war with France and is cited as a key factor in England’s victory. (Napoleon refused to enact a similar levy.) Pitt’s impost was repealed in 1802. It was an exception to the rule that wars come and go but war-induced taxes stay. A modified version from his successor was cancelled at the end of hostilities in 1815. It cropped up again in 1842.

In Canada, our first tax was an export levy on beaver and moose pelts in pre-Confederation New France, in 1650. Tax historian J. Harvey Perry discovered that the colony of Nova Scotia imposed the first version of modern income tax, a temporary poll tax, in 1775. It existed for one year and was graduated according to income. Post-Confederation, the first province to tax income was British Columbia in 1876.

The first federal income tax was enacted to finance Canada’s participation in the First World War. But Conservative Finance Minister Sir Thomas White resisted imposing it for several years.

Instead, in his 1914 and 1915 budgets, he first increased tariffs on coffee, sugar, spirits, tobacco and other products.

When the war lasted longer than anyone thought possible, Dominion government policy changed and the federal income tax was introduced in 1917.

The basic exemption was set at $1,500, or $22,223 in today’s dollars. The Finance Minister didn’t promise that federal income tax would be removed; White did advise that “a year or two after the war is over,” the government of the day should review it.

Canadian taxes are surrounded by myths and conspiracy theories. One is that federal income tax is illegal, unconstitutional or only allowed to the provinces. It’s all nonsense and proponents misinterpret the Constitution, the laws and court judgments. But plenty of charlatans have made money over the years claiming federal income tax is unconstitutional.

Other misperceptions exist. Think Canada always had higher taxes than the United States? Not so. Tax historian Irwin Gillespie notes that for at least the first half-century after Confederation, Dominion governments deliberately kept Canadian taxes lower than those in the United States. Two reasons stand out: they thought high taxes fundamentally unfair and they wanted to attract immigrants and business to Canada.

Also unknown to most modern-day tax-filers: The U.S. taxed many incomes and items long before Canadian governments; our governments only later copied the American examples and in some cases U.S. tax legislation. The American federal income tax began 56 years before ours. It started in 1861 during the U.S. Civil War; it was later stopped and re-started again in 1914.

Similarly, U.S. states taxed corporate income, estate wealth and gasoline, and also introduced general sales tax prior to Canadian provincial governments taking such measures. But when our politicians travelled down that U.S.-blazed road, apparently Alberta led the way: before any other province, it was Alberta that first taxed gasoline (in 1922) and also imposed a general provincial sales tax (in 1936).

Back to the world’s first tax: it remained even after the battles that birthed it had stopped. Apparently the locals in Sumer were unhappy about the extension. They would understand Canadians who thought, incorrectly, our income tax would end with the First World War. That war ended 90 years, five months, and 16 days ago.

On that topic, you have three days to file your latest federal income tax form.