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Constitution Daily

Blame Abraham Lincoln for the Nation’s First National Income Tax

Most people aren’t big fans of a national income tax, but it was on this day back in 1861 that the first one was levied by the new President, Abraham Lincoln. It only lasted 10 years, and many people thought it would never return.

But after years of arguing and a few court battles, the federal income tax we all know returned for good in 1913, with the ratification of the 16th Amendment.

Lincoln’s national income tax was a direct reaction to the military needs of the Civil War, and he could only tax the northern states. He was also able to impose the tax without passing a constitutional amendment.

After asking his cabinet if the income tax was constitutional, Lincoln met with Congress in a special joint session on July 4, 1861, to hammer out the details of the tax law.

Lincoln’s cabinet and fellow Republicans had determined that since it did not tax property directly, the income tax was an indirect tax, and it was not subject to Article I of the Constitution, which said that direct taxes must be apportioned according to the population of each state.

Lincoln signed The Revenue Act of 1861 on August 5, 1861, and it taxed imports, provided for a direct land tax, and imposed a tax of 3 percent on individual incomes over $800 (which, in current dollars, is about $18,000). The bill fell far short of its goals. There wasn’t an effective way to collect the taxes, and the 3 percent income tax only applied, ironically, to 3 percent of the population in the north.

The laws were overhauled in the more-extensive Revenue Act of 1862, which created the agency that later became known as the Internal Revenue Service and levied the first progressive income tax on Americans. The new act also had hefty taxes on alcohol and tobacco products. More income taxes brackets and higher tax rates were added in 1864, with the tax law expiring during the Reconstruction period after the Civil War.

The Revenue Act of 1864 did survive a Supreme Court challenge when in Springer v. United States a unanimous Court said that the Civil War income tax was constitutional. But when Congress passed a national income tax in 1894, it was ruled unconstitutional the following year by the Supreme Court in Pollock v. Farmers’ Loan & Trust Company.

A divided court in Pollock said it was a direct tax not apportioned according to the population of each state, in violation of Article I, Section 9, of the Constitution. After the Pollock decision, it took Congress and at least 36 states to make the income tax legal via the 16th Amendment. By 1913, when the amendment was ratified, the average income had risen to $800, which was the taxable rate back in 1861.

And for the record, the Confederacy also had a version of an income tax, which wasn’t as effective as the Union tax system. Its lawmakers approved an income tax measure in 1863 as a graduated income tax. It exempted wages up to $1,000, levied a 1 percent tax on the first $1,500 over the exemption, and 2 percent on all additional income. But the Confederacy didn’t have an established system to collect taxes.

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