The
First Income Tax
The first Federal income tax was levied to help
pay for the Union war effort. In the summer of 1861,
Salmon P. Chase reported to the Congress that he would
need $320 million over the next fiscal year to finance
the war. He thought he could put his hands on $300
million by borrowing part of it and raising the rest
through existing taxes and sale of public lands. He
left it up to Congress to come up with a way to raise
the remaining $20 million.
After weighing their options, the House Ways and
Means Committee drew up a bill to tax personal and
corporate incomes. This bill, the first income tax
measure in the United States, called for a 3% tax
on incomes over $800. Although the bill quickly passed
in both the House and the Senate, it was never put
into operation. Still, it paved the way for the next
bill of its kind.
In 1862, Abraham Lincoln signed a bill that imposed
a 3% tax on incomes between $600 and $10,000 and a
5% tax on higher incomes. The bill was amended in
1864 to levy a tax of 5% on incomes between $600 and
$5,000, a 7.5% tax on incomes in the $5,000-$10,000
range and a 10% tax on everything higher. This bill
was repealed in 1872 and declared to be unconstitutional.
The Confederacy also collected income taxes. It
authorized its first national income tax measure in
1863. The Confederate bill that finally passed after
great debate was a graduated income tax. It exempted
wages up to $1,000, levied a 1% tax on the first $1,500
over the exemption, and 2% on all additional income.
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