U.S. Tax System History in the 19th Century

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Taxes that were used to raise money for the Wars were later repealed and would later be replaced by the income tax.

Americans often resisted taxation during the 19th century except during wartime. Once the wars were over, they insisted that Congress repeal the Acts that gave the Federal Government the right to levy taxes.

War of 1812 Taxation

When Thomas Jefferson became President in 1802, all direct taxes were abolished and during the following ten years no internal revenue taxes other than excises were in force. Until the War of 1812, this remained the only tax. But when money was needed for the War of 1812, Congress imposed additional excise taxes, raised some custom duties, and raised money by issuing Treasury notes. These were repealed by Congress in 1817 which prevented the Federal Government from collected the taxes for the next 44 years. The only way revenue could be raised were from high custom duties and through the sale of public lands.

Civil War Taxation

The Revenue Act of 1861 was passed by Congress to fund the Civil War. Excise taxes were restored and a tax on personal incomes was imposed. Income was taxed at 3 percent on all incomes higher than $800. Collections did not start until the following year. As the Civil War continued, it became obvious to Congress that the Union’s debt was growing at the rate of $2 million daily and additional revenue was needed. Congress passed a law on July 1, 1892 placing new excise taxes on items such as:

  • playing cards
  • gunpower
  • feathers
  • telegrams
  • iron
  • leather
  • pianos
  • yachts
  • billiard tables
  • drugs
  • patent medicines
  • whiskey
  • legal documents
  • license fees collected for almost all professions and trades.

Important features of the 1862 law were:

  • A two-tiered rate structure.
  • Taxable incomes up to $10,000 were taxed at 3 percent.
  • Income over $10,000 were taxes at 5 percent.
  • A standard deduction of $600 and a variety of deductions were permitted. These included rental houses, repairs, losses and other taxes paid.
  • Taxes were withheld by employers to make sure of payment.

After the end of the Civil War the need for Federal revenue declined and most taxes imposed during its duration were repealed. The main source of revenue were those coming from taxation of liquor and tobacco. In 1872, the income tax was abolished.

Spanish American War Taxation

When the flat rate income tax was imposed in 1895, it was immediately challanged. According to the Constitution, Congress could only impose direct taxes only if they were levied in proportion to each State’s population. In 1895 the U.S. Supreme Court ruled the flat tax unconstitutional because it was a direct tax and not apportioned to the population of each state. The Federal Government then began to rely heavily on high tariffs.

In 1899, the War Revenue Act was passed to raise money for the Spanish-American War through the sale of bonds, taxes on recreational facilities used by workers, and doubled the taxes on beer, tobacco, and chewing gum. The Act expired in 1902, leaving the Federal Government to look elsewhere to provide money to operate.

From Colonial times, through the American Revolution, the War of 1812, the Civil War and Spanish American War, all or most of the taxes imposed during wartime were later repealed or overturned by the U.S. Supreme Court. The debate about how to raise money for the needs of the Federal Government would continue into the 20th century.