"In this world nothing can be said to be certain except death and taxes," said Benjamin Franklin in 1789. He was hardly the first person to complain about taxes. Ever since they came into existence governments have been devising ingenious ways of raising money. When Joseph and Mary traveled to Bethlehem, the Bible tells us, they were doing so to have their property registered for tax purposes; the Domesday Book Survey of England was ordered by William the Conqueror in 1086 largely in order to find out who he could tax; and as early as ad 10 Chinese citizens were having to pay an income tax.

Even today, taxes remain one of the most contentious issues in politics. President George H.W. Bush is still remembered today for his 1988 election pledge: "Read my lips: no new taxes." Sadly for him, the state of the public finances went against him, and so did the voters four years and several tax rises later.

Since the dawn of history, people have resented having their hard-earned money taken from them -- often with good reason. Tax collectors used to be far more brutal than they are now. In early days, peasants and laborers could expect to have to sell their wife or daughter into slavery if they couldn't afford to pay their taxes. Complaints about having to pay tax without having the right to influence policymaking in return (through, for example, the right to vote) triggered the signing of Magna Carta in 1215, the French Revolution and, of course, the Boston Tea Party and the American Revolutionary War.

However, in almost all of those instances, the taxes being levied were minuscule in comparison to those faced by citizens of most countries today. They were often no more than 10 per cent, and were occasional levies to pay for wars, which did not occur every year. Today, even Switzerland, which doesn't go to war, charges the average worker some 30 per cent of their salary in taxes.

The art of taxation What changed? Mainly the advent of the welfare state and social-security systems in the latter half of the 20th century. With states around the world suddenly committing themselves to pay for health, education, the welfare of the unemployed and elderly, and public safety, they had to spend a significant amount more than before, and so had to raise extra cash. Taxes were the answer.

And not merely income taxes (which deduct an amount based on someone's salary). Governments can now choose from a smorgasbord of taxation, with menu options including: sales taxes (also known as ad valorem taxes, levied on items at the point of purchase and including flat-rate excise on items like fuel); capital gains taxes (on profits from the sale of an investment that has increased in value); business or corporation taxes (on companies' profits); inheritance taxes (on the estate of someone who dies); property taxes (on home transactions); import and export tariffs (also known as customs duty); environmental taxes (on emissions); and wealth taxes (based on the value of one's assets).

In most countries both central state and local governments have the power to levy taxes. The local government tends to rely more on property taxes; central government on income taxes.

So, since the mid-20th century, tax systems have had the dual role of funding the institutions that protect citizens (the military, the police and emergency services, the courts and politicians) and redistributing wealth from those who can afford to spare it to those in need. And, typically, as a country grows richer the amount of tax it extracts from its citizens increases.

Smith's Rules of Taxation

In The Wealth of Nations Adam Smith devised four rules for taxation:

1. People should contribute in proportion to their income. This means that those who earn more should pay more in taxes. Most countries operate a progressive tax system in which higher-income taxpayers actually pay a greater proportion of their income in taxes than poorer ones. They face higher tax rates as well as a higher tax bill. Taxes can also be proportional (including flat taxes, where everyone pays the same rate) or regressive (where rich people pay a smaller proportion of their earnings or wealth). Typically, in today's progressive income tax systems people receive a tax-free allowance. Then they pay a certain percentage on another part of their salary up to a certain level, then an even higher proportion on the next tranche, and so on.
2. Tax should be certain, not arbitrary, with the time and manner of payment clear to all.
3. Tax should come at a convenient time. For instance, taxes on rents should be payable when rents are due.
4. Taxes should cost no more than necessary - both to the citizen and the state. In other words, they should interfere as little as possible in the choices people make in their everyday lives. It is all too easy to discourage people from working more hours by increasing the marginal rate of tax (i.e. the rate someone would pay if they worked an hour more than they do currently). However, this is an area of major debate, since some argue that the tax system should be used as a tool to encourage citizens to do certain 'good' things and discourage them from others. For example, most governments levy high taxes on cigarettes and alcohol for reasons of public health.

The limits of taxation The higher taxes are, the greater the incentive people have to avoid them. This is the experience many governments around the world faced in the 1970s and 1980s. Some workers faced marginal tax rates -- in other words the tax rate they paid on every extra dollar or pound of income they earned - of 70 per cent or higher. Rather than working the extra hours, they tended to work less, or avoided paying the tax by putting their extra income into their pensions or by moving their cash to tax havens overseas. In an age where money can be transferred anywhere in the world at the press of a button, preventing the latter has become highly difficult, with the result that most governments have little choice but to keep their taxes as competitive as possible.

Nonetheless, over time taxes have tended to build up and accrete one upon the other, making the system more complex and intransigent with every year that passes. Tellingly, when William Pitt the Younger introduced Britain's first income tax in 1798, he insisted it was only a temporary measure to pay for the Napoleonic Wars. Perhaps he even meant it at the time!