April 10, 2013: Taxes in America: Lincoln and Taxes

[As you finalize your taxes—not you, I know you’re done already, I mean everybody else—this week’s series will focus on some American moments and issues related to this controversial national theme. Leading up to a special weekend post that will frame that theme very differently!]

On the income tax’s largely unknown origin point—and why it matters.

In August 1861, with the Civil War a few months old and the question of funding this huge federal undertaking gaining increasing urgency, Abraham Lincoln advocated for and Congress passed the Revenue Act. The law included various provisions, such as tariffs on numerous imports and an extensive real estate tax, but was most noteworthy for its creation of the first federal income tax, levied at 3% on all annual incomes over $800. The following year’s Revenue Act expanded and complicated that initial tax, exempting the first $600, keeping the 3% rate up to $10,000, and then taxing incomes over $10,000 at 5% instead (among other stipulations and details). Acts in the subsequent two years added further levels and rules, but when the war ended in 1865 so too did Congress sunset these new revenue-gaining mechanisms.

These earliest, temporary federal income taxes certainly foreshadowed on multiple levels the progressive income tax that would be more permanently created a half-century later, and about which I’ll have more to say in tomorrow’s post. But they also, I would argue, illustrate two other enduring aspects of our national identity and politics, both of which remain salient in our 21^st century moment. For one thing, while the Revenue Acts were created out of the Civil War’s most basic necessity, they also connect to one of the war’s more complex and divisive realities: that despite the ostensibly all-encompassing nature of military service in the era (particularly after 1863), the wealthiest citizens were often not those doing the actual fighting. As such, the income tax could be described as a way to force those wealthiest Americans to contribute to the war effort in other ways—to ask them, that is, to share some of the sacrifices that were otherwise all too frequently asked disproportionately of those Americans in less comfortable circumstances.

And then there’s the question of what we make of the specific use to which these earliest income tax revenues were put. On the one hand, you could analyze the militaristic purpose behind this tax as a precursor to just how much of our current revenue is spent on “defense” and all that it includes; of course the Civil War effort would seem far more worthy of support than much of our current defense spending, but the connection is there nonetheless. On the other hand, clearly the Civil War was the nation’s highest and most pressing priority in 1861, and through that lens war spending thus represented the federal government’s clearest way to support those Americans who needed it most; which might, in its own complex way, provide an argument for redirecting much of our contemporary “defense” spending toward areas such as education, infrastructure, and the social safety net. It’s in those areas, I would argue, that we can and must move toward a more perfect union, find the better angels of our nature, in the 21^st century.

Next taxing topic tomorrow,

Ben

PS. What do you think?