Income Tax to Fund the War of the Rebellion & Post-War Developments
In the first year of the War of the Rebellion, it became clear that the current and accepted methods of taxation were insufficient to fund the war effort. Republicans were strongly supportive of higher tariffs, but they were not doing the trick. So Representative Justin S. Morrill (R-Vt.) proposed the nation’s first income tax. Although as law professor Sheldon D. Pollack (2013) notes, “Unsurprisingly, conservative Republicans in the Northeast adamantly opposed the impost. Despite this opposition, a majority of Republicans eventually acquiesced to this “odious” tax based on the need to fund the Union war effort” (1). This was also considered to be by them the best option they had. A leading alternative that was considered unacceptable to them was a land tax. As future Speaker and Vice President Schuyler Colfax (R-Ind.) stated, it was the “most odious tax of all we can levy” (Pollack, 7). At the time of the rebellion, the income tax was already in existence in England and this was used as a model for what the US adopted. To not have adopted an additional method of revenue collection would have guaranteed the end of the United States. The 1861 law, however, lacked an effective enforcement mechanism and this was corrected with a stronger measure the next year and the taxation progressive despite the objections of sponsor Justin Morrill (R-Vt.). In 1864, taxes were increased as the revenue provided in the 1862 law was insufficient to cover war expenses. Taxes on numerous commodities were also imposed in these revenue acts. However, the income tax was widely regarded as to fund war and the conservative wing of the GOP in New England was keen on its repeal after the war’s end.
In 1870, Representative James A. Garfield (R-Ohio) proposed making tax information private, and this rule against publicity was signed into law as part of the Revenue Act of 1870, which extended the income tax through 1871. He would also denounce in his writings progressive income tax rates, holding them to be “unconstitutional and communistic” (Shepard, 144). This would become increasingly objectionable to progressives and there would be efforts during the 1920s and 1930s to publicize wealthy taxpayer information. Garfield’s proposal was indicative of both where the GOP was and where it was heading.
However, there was ideological crossover on the issue. Constitutional history professor Paul D. Moreno (2013) notes, “The income tax issue was no simply masses-versus-the-classes dispute. Before the 1890s, socialists had condemned it, while laissez-faire doyen William Graham Sumner defended it. Classical liberals preferred the income tax to the redistributive tariff, and some tariff advocates (particularly John Sherman) regarded the income tax as a way to preserve the tariff – as a kind of sop or palliative to prevent a radical change in public finance. Congressman Uriel S. Hall of Missouri called it “a measure to kill anarchy and keep down socialists”” (42). This was an early version of the argument FDR’s supporters would use for the New Deal, that it was a killer of rather than a road to socialism.
The Sherman Switch
Perhaps the best person to use as an example of the changing politics surrounding the income tax was Senator John Sherman of Ohio. He was a key figure in economic debates of the late 19th century as a senator and as Rutherford B. Hayes’ Treasury Secretary and valued stability. His policy preferences, even as they shifted, reflected this. In 1870, Sherman called for a retention of a small yet flat income tax at least for the time being to politically protect the tariff system that the GOP stood for. He was concerned, as noted earlier by Moreno, that a radical push to overhaul this system could arise in the absence of the income tax, stating “The income tax expires with the collection of the tax of 1871…A few years of further experience will convince the body of our people that a system of national taxes which rests the whole burden of taxation on consumption, and not one cent on property or income, is intrinsically unjust. While the expenses of the national Government are largely caused by the protection of property, it is but right to require property to contribute to their payment” (Pollack, 21-22). However, Sherman didn’t win this battle, with the income tax’s sunset per the Revenue Act of 1870 occurring at the end of 1871. Income taxes were to be left entirely up to the states. This law also repealed the inheritance tax, a reflection of the GOP’s fervently capitalist perspective.
Despite his 1870 argument, Sherman would by 1894 come to see things differently. He responded to the Democratic income tax measure contained in the Wilson-Gorman Tariff thusly, “In a republic like ours, where all men are equal, this attempt to array the rich against the poor or the poor against the rich is socialism, communism, devilism” (Shepard, 144).
The Democrats Oppose, Then Push for Income Taxes
Democrats opposed the income tax in the 1860s and 1870s as they wanted even more equitable means of taxation, including a “equal taxation of every species of property, according to its real value” (The American Presidency Project). However, after the end of Reconstruction, Democrats were calling for a reinstatement of the income tax. One proposal to report an income tax bill failed under suspension of the rules 165-89 (D 111-21; R 52-68; ID 2-0) of February 4, 1878. Among the nays were future presidents James A. Garfield and William McKinley. The following year an income tax failed again under suspension of the rules, this time it was on a vote of 111-94 (D 92-10; R 6-84; G 9-0; ID 4-0) on May 12th.
Although Professor Moreno noted that socialists denounced the income tax before the 1890s, the Socialist Labor Party in fact called for a graduated income tax in 1887. The Populist Party followed suit in 1892, and the Democrats, pushed by Representatives William Jennings Bryan (D-Neb.) and Benton McMillin (D-Tenn.), got into law a 2% income tax for individuals with income above $4000 a year and a 2% tax on income and profits for all for-profit entities in the United States, the “socialism, communism, devilism” that Sherman spoke of. Indeed, the law fundamentally applied only to the rich, and the very rich at that. Senate Republicans unsuccessfully attempted to kill the provision on June 28, 1894, which was defeated 23-40 (R 20-6; D 3-31; P 0-3). The “yea” votes included Sherman himself and the elderly Justin Morrill (R-Vt.) who had authored the first income tax legislation. However, this tax was struck down as unconstitutional in Pollock v. Farmers’ Loan & Trust Co. (1895) as the majority regarded it as an unconstitutional unapportioned “direct tax” rather than a constitutional tax equally apportioned among the states. This decision was 5-4 and deeply unpopular at the time. Conservatives would pull out all the stops to try to prevent a reinstatement of the income tax. However, by this time most Democrats had come around to an income tax and moderate Republicans were increasingly embracing it, one of them being Theodore Roosevelt. I have already covered Senator Nelson Aldrich’s (R-R.I.) backfiring scheme to prevent an income tax by making it a constitutional amendment, and after that failure the Underwood Tariff of 1913 established firmly the nation’s first permanent income tax. The overall legislation met the approval of most Democrats and the opposition of most Republicans, for reasons surrounding both reduced tariffs and the establishment of the income tax.
1868 Democratic Party Platform. The American Presidency Project.
IRS History Timeline. (2019, March). IRS.
Moreno, P.D. (2013). The American state from the Civil War to the New Deal: the twilight of constitutionalism and the triumph of progressivism. Cambridge, UK: Cambridge University Press.
Pollack, S.D. (2013, October 25). The First National Income Tax, 1861-1872. University of Delaware.
Shepard, C.M. (2010). The Civil War income tax and the Republican party, 1861-1872. New York, NY: Algora Publishing.
The Origins of Republican Tax Policy. SUNY Press.
To Amend H.R. 4864 By Eliminating All Sections Relating to the Income Tax. Govtrack.
To Suspend the Rules and Adopt a Resolution Providing That the Ways and Means Committee be Instructed to Report a Bill Imposing a Graduated Tax Upon the Excess of Income Above a Reasonable Minimum Fixed Law. (1878, February 4). Govtrack.
To Suspend Rules and Pass H.R. 1997, A Bill Restoring an Income Tax. (1879, May 12). Govtrack.