Federal Income Tax: Paying the President’s debt

Harpers Bizarre
Harpers Bizarre

VIENNA, Va., April 15, 2014 — Were your hopes of a federal income-tax refund dashed this year? Who’s to blame? Congress? Out-of-control spending? The president?

Well yes, but not necessarily the current president. He surely is not helping, but if you have to blame someone, blame President Lincoln and the Civil War.

That’s right. Before the Civil War and its attendant large debts, the American people had no federal income tax. Instead, taxes were levied by the individual states (one of the benefits of a state’s right) and that was it.

Then came four years of war, heavy loss of lives, hundreds of thousands of injuries, and the resulting expensive devastation.

In 1861 when the war began, President Lincoln could foresee problems in raising money to finance the war effort; at that time the only federal income was through customs duties.  It was then that Congress got into the act by passing the Civil War Revenue Act of August 5, 1861, which became the nation’s first income tax.

That didn’t continue long as originally designed, and on July 1, 1862, Lincoln signed the Revenue Act, creating the position of Commissioner of Revenue and including a whole variety of new taxes to be imposed on the people, thus taking the important step of finding a way to obtain ongoing funds to run the country.  

Obviously someone had to administer this new program, so Lincoln created the Bureau of Internal Revenue, appointing a man named George A. Boutwell of Massachusetts to be the first Commissioner, assisted by three clerks.

Some six months later, it should surprise no one that the number of employees had increased to 4,000, with the majority of them working in the field across the country, enforcing the new laws by prosecution of those who failed to pay and seizure of their assets as well, if necessary. Today the total number of employees has increased exponentially to approximately 180,000.

Boutwell was a wise choice by Lincoln. He had been an attendee at the Peace Conference of 1861, held in Washington, D.C., in which those present tried to find an amicable solution to the impending civil war.  This obviously had little success and Boutwell changed parties to the Republican Party, where he served on the military commission in the War Department, putting him easily in line as Lincoln’s first Commissioner of Revenue.

At that time, it was stipulated that the income tax would last for only ten years and that rates would  fluctuate between 3 percent and 7.5 percent, which would finance the country’s post-war expenses.

In January of 1863, the U.S. had estimated the cost of the Civil War at $2.5 million a day. At the end of the War, the total estimated cost of entire war was $6,190,000,000; by 1906 still more funds had been expended for the Union veterans’ illnesses, hospitalization and other expenses, totaling another $3.3 billion.

The losses of the Confederacy were estimated at $2,099,808,707 for their four years of conflict in a losing battle. Yet all expenses for Southern soldiers were borne by the individual states. The North felt no obligation to help out their former enemy, even if he lived across the street.

President Ulysses S. Grant
President Ulysses S. Grant

Congress and President Ulysses S. Grant allowed the income tax to lapse in 1872 after its ten-year period, though the position of Commissioner of Revenue has continued ever since. The country faced a tremendous outgrowth after the war in the form of greater industrialization and the rebuilding of roads and railroads as there was a need to reconnect the once divided country physically as well as improving its infrastructure.

In 1884, the costs had reached an unsustainable level, and Congress reinstituted the income tax. Again it did not achieve permanency. A lawsuit was brought, entitled Pollock vs. Farmers’ Loan & Trust Company, and the Supreme Court ruled in 1895 that the tax was unconstitutional.

Interestingly, the initial support for the tax came from the Southern and Western states, while the citizenry lining up to oppose it were from Northern states such as Massachusetts, Pennsylvania, New York, and New Jersey. Those states numbered the wealthiest citizens in their populations and those who could best afford the tax were also most vocal against it.

From that point until today, the income tax as we know it has fluctuated up and down, but we have never again been rid of it, and so April 15 of each year remains a quasi “day of infamy” to most of the taxpaying public.

Along with other “firsts” that began during the Civil War, such as hospital ships, the first machine gun,  postal delivery, and the first submarine, we can add the income tax that continues to this day, courtesy of a war-weary Congress and President Lincoln.

Follow the column on Face Book or LinkedIn at Martha Boltz, and by email it’s [email protected]

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Martha Boltz was a frequent contributor to the long-running Civil War features in The Washington Times America At War section in both print and online editions. A regular contributor to the original Civil War Page and its successor page dating back to 1994, she is a civil war buff, historian, and writer. "Someone said that if we don't learn about the past, we are condemned to repeat it," she said, "and there are lessons of all sorts inherent in this bloody four-year period of our country's history." She is a member of several heritage and lineage groups, as well as the Montgomery County Civil War Round Table. Her standing invitation is, "come on down - check the blog - send me your comments and let's have fun with its history and maybe learn something at the same time."