Britain introduces income tax

In December 1798 the British prime minister William Pitt the Younger pushed through a new tax on income, which took effect in January 1799. It was graduated: incomes under 60 pounds paid nothing, then rates rose to a flat 10 percent, two shillings in the pound, on incomes over 200 pounds. The money was needed to fund Britain's war against revolutionary France, as customs and excise duties were not raising enough, and loans were becoming costly. Pitt hoped for about 10 million pounds a year and received about 6 million.¹

Britain already had the financial machinery of a modern state, including a central bank, the Bank of England (1694), and a national debt, but it relied largely on taxes on goods. Pitt's tax was a wartime measure, and it was hated as an intrusion into private finances. It was repealed in 1802 after the Peace of Amiens, revived in 1803 by Henry Addington with the key innovation of taxing at the source, and repealed again in 1816 after Waterloo, when, by tradition, Parliament voted to destroy the records. Robert Peel reintroduced it in 1842, and it never went away.¹

Other countries followed. The United States used an income tax during the Civil War, but the Supreme Court struck down an 1894 attempt, and the 16th Amendment (ratified in 1913) allowed a federal income tax. In the twentieth century two world wars pushed the rates and the number of taxpayers up, and the income tax became the biggest revenue source of most wealthy states. It paid for the expansion of education, health systems and pensions in the twentieth century. Debates about its rates, progressivity and avoidance continue.²³