People hate taxes as much as governments love them. The tax-man has troubled people throughout history, starting over 3,000 years ago.

TUTORIAL: Economics Basics

Paying for Pyramids
One of the earliest records of taxes comes from the ancient Egyptians, found on the Egyptian slates that have weathered time well. However, some form of public taxation probably started with the first human tribes. In Egypt, it was simply a matter of someone having to pay for all those pyramids. The tax was collected in two forms: the pharaoh would take a fifth of the agricultural proceeds from the farmers within his kingdom and, in addition to this 20% tax, many Egyptians were required to enter the public service during lulls in the growing season.

The Power of Coin
The advent of money allowed people to pay taxes with something other than their produce or labor. Many ancient empires had a tax system of scutage, a monetary amount paid by the wealthy in lieu of military service. Alexander the Great established taxation in Macedonia by demanding regular tributes from defeated enemies. By the time of the Romans, temples had long been in the practice of requiring donations from members - a practice that would grow into the tithing system, in which Christians were requested to give one-tenth of their incomes to the church. These levies, however, were not quite taxes as we think of them today. Modern taxes really began to take shape when the European monarchies consolidated power and developed nation-states. (To read more about the history of money, see Cold Hard Cash Wars and From Barter To Banknotes.)

A Beast is Born
From the 1400s to the 1800s, monarchies had been trying to cement their hereditary powers even as the people were seeking freedom. Somewhere along the way, both parties got distracted and the beast known as the government snook in. Failing to give the people freedom or the king ultimate power, the government still persisted because of two merits: it was extremely good at expanding itself, and it was even better at attacking other governments. Monarchs were no slouches in the war-mongering department, being quick to send their subjects to die to defend their slighted honor, but governments attacked each other incessantly. The frequency and scope of war increased drastically during this time.

Like the pyramids before them, someone had to pay for the rulers' whims and excesses. Because the fate of the nation was at stake, the government made sure it received all the taxes due unto it. This meant employing an infrastructure of lawyers, tax collectors and others whose wages required more taxes to support themselves. These self-perpetuating agencies helped to centralize the government and solidify national borders. The governments pushed aside the monarchies and started looking across the oceans for new lands to start invading or trading with.

The formation of nations opened the door to international trade and mercantilism, but the governments quickly found locks to keep their new neighbors out. Tariffs flew fast and thick through the various parliaments of nations trying to tweak the balance of trade in their favor. If another nation tariffed your goods while you were passing your own tariffs on theirs, then it was cause for more war and more taxes. Many governments would borrow heavily from banks or issue bonds, and then seek to make good on their debts through the tariffs or tribute from conquered foes. When this failed, they turned to income tax.

In 1799, the British Parliament enacted its first income tax to raise funds to fight off Napoleon. Napoleon caused tax increases with every victory. Even when Napoleon was defeated and exiled, the impact of his campaigns could be traced by the adoption of extra taxes by many European nations. Once the revenue started flowing in, the profiting governments were in no rush to get rid of these taxes.

The Bottom Line
Whether to fund an Egyptian pharoah's tomb, a medieval monarch's conflict or European nations entangled in a complex system of treaties and wars, taxes have burdened people for well over a millennia. Taxes have motivated people to find alternate ways of recouping their deducted wages. It could even be said that investing was created partially as a reaction to taxes.

Since most world economies would fall quickly without some form of taxation, it doesn't look like governments will stop collecting anytime soon. Fortunately, much of this revenue is now spent for public benefit.

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