On January 9, 1799, William Pitt the Younger, Britain’s youngest ever Prime Minister, introduced the new concept of "income tax." In particular, Pitt introduced income tax as a "temporary measure" at the end of 1798, which went into legal effect on this day January 9, 1799 in the United Kingdom ("UK").

At that time, Britain was waging war against the French forces under Napoleon Bonaparte. France threatened to invade Britain, and had already briefly invaded Ireland and Wales. Britain was running out of money and also had run up a very large national debt. Pitt saw the idea of an income tax as a quick and secure way to raise money for the British Army and Navy and state budget. Pitt was already known as a tax reformer because he had reduced duties on various goods to make smuggling them less attractive. So, the idea of an income tax to assist the British Army and Navy did not seem too outrageous.

Pitt, quit the innovator, levied, i.e. imposed, income taxes based on 5 "schedules," (i.e. income sources) including: (i) land, (ii) employment, (iii) commercial use of land, (iv) public securities, and (v) professional, trading, and overseas earnings. So, what were the rates on the first income tax? Well, the answer will likely come as a shock to many of us today.

The 1799 rates were a little less than 1% on annual income over £60, with a higher rate of 10% for annual income in excess of £200. This is sure a very long way from where we are today with income tax rates in the United States ranging between 15% up to nearly 40%. Pitt expected the income tax to raise around £10 million in its first year, but it actually only raised about £6 million. Still, the money was well needed for Britain’s war effort against France.

In 1802, Pitt resigned as Prime Minister and Henry Addington replaced him. Addington repealed Pitt’s income tax after a short peace treaty with Napolean. However, within another year fighting renewed between Britain and France which led to Addington creating an income tax act in 1803 that set the groundwork for the way many countries use income tax today.

The United States followed the example set by Britain. In the United States, the first income tax was issued under the Revenue Act of 1861 to help the government fund the Civil War. Over time, the idea of an income tax also gained widespread support in Congress. Then, in 1909, Congress passed the 16th Amendment to the U.S. Constitution to officially legalize income tax for the federal government. In particular, Amendment 16 states:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

It took around 4 years, from 1909 until 1913, for the states to officially ratify the 16th Amendment and U.S. citizens have paid income tax ever since. Maybe we can thank Napoleon, at least indirectly, for why we have income tax today.