Abe Lincoln-Father of the IRS? (Article 90)

No one likes to pay taxes, but most of us realize that the country needs revenue to operate. So, we gripe and moan, but we pay up, if not from patriotic duty, then from fear. What many do not know is that Abraham Lincoln played a role in our present-day income tax.

There have been taxes, in what is now the United States, since early colonial times. At first, the tax load was carried by industries and businesses, not by individuals, except as a pass-through in increased prices. There were tariffs (taxes on imports and exports), excise taxes (on goods transferred within a country), and fees such as stamps for official documents.  But the imposition of taxes, and efforts to collect them, have often brought conflict. In fact, the primary issue which led to the American Revolution was whether Britain had the right to impose taxes on the colonies when they were not represented in parliament.

The English Stamp Act of 1765 required all legal documents, including wills, contracts, and permits executed in the American colonies to carry a tax stamp, purportedly to cover the cost of maintaining administrative services and the military presence which protected the colonies. Americans rose up in strong protest, arguing in terms of “No Taxation without Representation” and forced Britain to repeal the stamp tax. However, British leaders still needed to raise some revenue from the colonies, not only to pay for the services and protections, but also to demonstrate control.

So, in 1767, Parliament passed laws which placed a tax on many products, including paper, paint, glass and tea imported from Great Britain or any British protectorate to the colonies.  These were not a direct tax that people paid, but a tariff (just a tax by a different name) collected from the ship's captain when the cargo was unloaded. The famous Boston Tea Party was a tax protest by colonists who raided docked ships and dumped barrels of tea into the harbor. Britain’s over-reaction helped escalate the conflict and was a factor which led to the Declaration of Independence and eventually, the Revolutionary War.

In 1790, the new American government incorporated two main sources of revenue, tariffs and excise taxes, to fund the bureaucracy, infrastructure, repay federal debts, and for the defense of the United States.  Since tariffs were relatively easy to collect at the major ports, this type of tax, on both imports and exports, remained the leading source of revenue for the United States for over 100 years. However, while excise taxes could be more difficult to collect, they were still an important revenue stream

On the other hand, it seems any form of tax, no matter what the government calls it, has always been barely tolerated, if not outright resented, and sometimes rejected, by the citizens of the country.

In fact, in the newly formed United States of America, tariffs contributed to growing divisions between Northern and Southern states. In 1824 (and again in 1828 and 1832) the federal government increased tariffs to protect American industries (primarily in the Northern states) from cheaper imports such as iron products, woven wool and cotton fabrics, and certain manufactured goods from Great Britain. Southern states objected to the increased tariffs because most of those states had negotiated reduced tariffs with Great Britain for their exports of cotton, tobacco, rice and other agricultural products grown in the South and for lower tariffs on imported finished goods. As a result of several compromises, federal import tariffs were reduced and, from 1835 until the late 1850’s, conflicts over tariffs abated between Northern and Southern states. (Of course, during that same period, conflicts over state sovereignty, the expansion of slavery, and fugitive slave laws became increasingly belligerent.)

In addition to tariffs, federal excise taxes also became a significant contributor to the U.S. treasury. In the first hundred years of the United States, excise taxes were routinely placed on a variety of products including tobacco and alcoholic beverages (the so-called sin taxes). The first organized opposition to a tax in the new country was to a seven-cent tax per gallon on the producers of whiskey. (There was a similar tax on brandy and rum, the other two less consumed beverages commonly available at that time.) The funds to be raised were to help pay down the debts incurred during the Revolutionary War; however, this tax led to the famous Whiskey Rebellion by farmers and distillers. The issue was deemed so serious that President George Washington, donned his military uniform again and led a force of militia into Pennsylvania to quash the violence.

And, for the next seventy years (1790-1860), a combination of tariffs, excise taxes, and government fees financed the operation of the United States.

But then came the Civil War!

Until then, although the Constitution gave congress the power to impose “Taxes, Duties, Imposts, and Excises,” there was a prohibition against “direct taxes” to a person. The idea of an income tax was debated in congress off and on during the time before the Civil War, but many considered it an improper, and probably an unconstitutional, tax.

However, Abraham Lincoln was a practical politician. He and his Secretary of the Treasury, Salmon Chase, were well aware of the arguments against the imposition of an income tax; but they needed money wherever they could get it. Since they knew that tariffs, excise taxes and fees would not be sufficient to cover the costs of the war, they took their request to congress for a “modest” personal income tax to be imposed, as an emergency measure, only during wartime, with repeal when the conflict ended. Congress passed, and Lincoln signed, the Revenue act of 1861 which imposed a tax of 3% on all incomes over $800 (probably about $50,000 in today’s dollars). Then, as Presidents and congresses always do, in 1862 the tax bill was revised to increase revenues by lowering the base amount to $600 and, for the first time, included a graduated tax of up to 5% for incomes over $10,000. However, since there was little government oversight of the collection of the new tax, many people chose to not pay, and it never became a significant part of the federal revenue. Also, as promised, but a bit late, Congress kept its promise and that first income tax was finally repealed in 1872, seven years after the war ended.

It should be noted that the Confederate government also passed income tax legislation, but was even more inept than the Union at collection.

 The United States did not impose a personal income tax for the next forty-one years, but the debates over the Constitutionality of such a direct tax continued. Then, in 1913, the Sixteenth Amendment to the United States Constitution, which permitted a personal income tax, was ratified by sufficient states to become law.

We have had income taxes (legally) ever since. And, in a way, we can blame Abe Lincoln for the privilege we have on April 15th (this year July 15th) of paying a portion of our personal income (an ever-increasing portion) to the Federal government. Of course, over time, most states, which also never saw a tax they did not like, established their own income tax.

Perhaps it is unfair to call old Abe the Father of the IRS, but the next time you write that check to the U.S. Treasury (IRS division), or notice the deductions from your income, you may think of him. He was a very wise man, but he certainly did not foresee how his little (temporary) tax would evolve, nor the vast bureaucracy which would be built to enforce and collect it.