A History of American Taxation: A Tea Party, a Whiskey Rebellion & More


Today millions of Americans will fill out their tax forms, write checks and mail or e-file the whole mess of paperwork off to the IRS. Some Americans receive tax refunds (those lucky folks usually file in January or February…their refunds have long been spent). Some have to pay a little. Some have to pay a lot. Regardless, most like to whine and complain about paying at all.

I admit—this year, I’m one of the whiners. As one of the check writers, I’m not feeling warm and fuzzy toward the Internal Revenue Service today. But I’m hardly the first American to feel put out for having to pay taxes. After all, our country was founded after a revolution that was fought over taxes.


The rum trade.

The whole mess that culminated with the Boston Tea Party actually started about a decade earlier, when the British caught on to a little free market enterprise that they hadn’t sanctioned. In those days, if you were a colonist you got your molasses from one of two places: the British West Indies, or the French Indies. Once you had molasses… you made rum. Which the colonists liked quite a bit, thank you very much. The British taxed the molasses coming from the British West Indies—the French didn’t tax their molasses, so guess which was cheaper? The colonists smuggled in the cheaper French stuff. Then they exported their rum back to the French Indies and everyone was very happy with the whole arrangement. Except for the British, of course.

In 1764, the British beefed up their navy and customs houses and cracked down on the illegal import of French molasses. Then they introduced the Sugar Act, which decreased the tax on molasses from six pence per gallon to three pence (I have no idea how much a “pence” was… but if you go from paying no pence to the French to paying three pence to the Brits, you can see how the “decrease” wasn’t super popular). In addition, the Sugar Act added taxes to lots of other imported items: sugar, wine, coffee and cloth. And it set limitations on the export of lumber and iron.

This caused immediate problems for the colonists, who were accustomed to buying molasses tax-free and exporting rum, lumber, iron and some other farm goods such as flour and cheese to the French Indies. Once they had to pay taxes on molasses, the rum industry screeched to a halt and the colonists had much less cash to buy the stuff they wanted. No rum. No sugar. No happy colonists.

It’s one thing to mess with people’s rum. And it’s bad to mess with their coffee. But if you were a colonist back in the 1700s, your real addiction was tea. So when the British Parliament announced the Tea Act of 1773, real trouble was afoot.

Boston Tea Party Copy of lithograph by Sarony & Major, 1846
Boston Tea Party
Copy of lithograph by Sarony & Major, 1846

The British had given the East India Company a monopoly on tea imports decades earlier and levied a 25% tax on all imported tea, which made the stuff kind of pricey. The Dutch weren’t taxing their tea, so the British people and the colonists quickly found that they could just smuggle in Dutch tea and pay much, much less. Same great taste… no taxes. The British were losing a bundle of money in tax revenue as a result. So they decided to reverse the tax on the East India company and make the colonists pay it instead,which, as you can imagine, did not go over well. Rampant smuggling of illegally imported tea continued, until the East India company was almost bankrupt.

In an attempt to save the company, the British parliament created the Tea Act, which gave East India company a monopoly on tea exports and allowed the company to import directly to the colonies, which lowered tea prices and undercut the illegal Dutch imports. Unfortunately, the taxes charged to the colonists remained the same.

By this time, the colonists had had all they could take of England and her taxes. When three ships full of tea docked in Boston, protesters refused to allow the tea to be unloaded. That night, men snuck aboard the ships and threw 342 chests of tea into the harbor, ruining all of it and making a clear statement to the British that they were tired of taxation without representation.

The Revolutionary War followed, and we all know how that worked out.


Not long after the Revolutionary War, a new tax debacle made news. As part of President George Washington’s administration, Alexander Hamilton, the Secretary of the Treasury, decided it was a good idea to exert some power for the new government. He was burdened with tons of debt from the war and was looking for some ready cash, so he created a “whiskey tax.”

Farmers had a long standing tradition of keeping small stills on their property so that they could distill excess grain into whiskey. The whiskey could then be sold or bartered as a form of currency. Hamilton’s new tax was quite unpopular, especially in Western Pennsylvania, where many farmers were war veterans.

To add insult to injury the whiskey being made on Western Pennsylvania farms was taxed at a much higher rate than whiskey being made in larger east coast distilleries. The tax law allowed for two ways to pay: a flat rate or by the gallon. The large operations were able to save money by paying the flat rate, which amounted to around 6 cents per gallon; the smaller farm stills didn’t produce enough whiskey to make the flat tax feasible, so they paid by the gallon, which worked out to more like 9 cents per gallon. It’s like going to Costco to get a better deal on olive oil—you might save a couple bucks per ounce, but only if you have $25 to buy a huge bottle of olive oil. Otherwise, you’re paying extra for every ounce. You gotta have money to make money, or have money to avoid paying lots of taxes, at least.

 "Famous whiskey insurrection in Pennsylvania"
“Famous whiskey insurrection in Pennsylvania”

The veteran farmers rebelled, pointing out that they were being taxed without representation, since they lacked local government. They evaded paying the tax, much to the dismay of Hamilton, who was not anxious to look the fool in his shiny new governmental job. Things quickly got ugly, with rebels burning barns, threatening any farmer who tried to pay the tax and threatening every tax collector in the state.

In his infinite wisdom, Hamilton made General John Neville the Pennsylvania state tax collector. Neville was rich. And he owned a large whiskey distilling operation on the east coast (one of those 1% kinda guys who was paying that lower 6 cent per gallon tax). And he liked to push his weight around like a snobby little rich guy. The poor war veteran farmers hated him.

At the climax of the rebellion, over 600 armed men attacked Neville’s home, demanding that he turn himself over to them. Gunfire was exchanged and some people were shot and killed. The rebel leader, Major James McFarland, waved a white flag in surrender, but was shot when he stepped out into the open. In response, the rebels burnt the house to the ground.

President Washington had a problem on his hands. His brand new countrymen were fighting over whiskey and taxes and shooting at each other. He finally decided to send 13,000 militia to quell the violence and disperse the good old farm boys, but they had already disbanded by the time the soldiers showed up.

The whiskey tax was later overturned, but it set the precedence for two things: a) that the U.S. government wouldn’t stand for any crazy gun-toting rebels; it would quickly dispatch militia to deal with rebellion and b) that it could levy taxes whenever and however it wanted.


The Revolutionary War had relieved Americans of taxation without representation. The Civil War brought them taxation of a different kind. Income tax was first introduced as a way to fund the war. The tax amounted to 3% of all income over $800. And that’s when lawmakers started thinking that income tax might be a fabulous way to fund all kinds of things.

The first peacetime income tax came about in 1894. The tax rate was 2%, but only on incomes above $4,000, which affected just 10% of the population.

16th Amendment
16th Amendment

In 1913, the Sixteenth Amendment to the Constitution was ratified, which gave the Congress power to collect income taxes and opened up a new career to thousands of well-educated Americans: tax attorney. Tax laws are so varied and complex that even legal scholars admit to being confused at times. Loopholes abound, enabling those with the means to hire expensive tax attorneys to avoid paying the going tax rate. Some use the loopholes; others don’t.

Between 1913 and 2013, the tax rates have been adjusted every few years and vary wildly. During the Great Depression, those in the lowest tax bracket paid just 4% of their income in taxes; those in the highest bracket ($1 million per year, adjusted for today’s inflation) paid 63%. During World War II, those in the lowest tax bracket paid as much as 23% of their income in taxes; those in the highest bracket paid 91%. Last year, Americans in the lowest bracket paid 10% of their income in taxes; those in the highest bracket paid 35%.

From rum to tea to whiskey to income, Americans have been paying taxes for hundreds of years. For the most part, we get what we pay for: roads, bridges, schools, police and fire departments, national parks and countless other valuable assets. Sometimes we don’t get as much as we’d like for our hard-earned tax dollars. Regardless, we have representation for our taxation… if we don’t like the amount of taxes we (and others) are paying, we can insist that our government representatives represent us. Because every person, in every tax bracket has a vote.



Nelson James

Nelson James is the chief operating officer of Signs.com and is responsible for the day-to-day operations of the company. Prior to joining the Signs.com team, Nelson was the president and co-founder of SEO.com. For over 6 years he helped to grow the company from 2 to over 85 employees. Nelson managed many large accounts during his tenure at SEO.com, including Dell.com. In early 2011, Nelson was recruited to Lendio Inc., where he was VP of marketing and was responsible for the creation and management of a marketing team as well as the strategy, tactics and programs to create interest and demand for Lendio’s products and services. Prior to his work experience, Nelson graduated Cum Laude from Brigham Young University in marketing and advertising from the communications department. Nelson lives in Lehi, Utah with his wife and three children. He currently holds leadership positions in scouting and volunteers in his church and community.