Did You Know That The First Personal Income Tax
Was Put In Place During The Civil War?
Although the IRS and national income tax would not become law until the next century, the Union implemented an income tax to levy funds to pay for the war itself.
The Civil War income tax was a “progressive” tax in the sense that the rich were taxed at a higher rate than the poor. However, it was much simpler than the tax structures we have today. Those who made less than $600 per year did not have to pay any tax, while those who made between $600 and $10,000 per year paid three percent of their income. Those making more than $10,000 per year paid five percent.
At these rates, the first income tax levied approximately $55 million in revenue to fund the war effort. There was little argument with the first income tax, as paying it was seen as a patriotic duty. The country was proud when millionaire merchant A.T. Stewart paid $400,000 on an income of $4 million, doubling his five percent required tax payment as a patriotic gesture.
Just like today, there were tax forms that had to be filled out in order to document income and pay taxes properly. Similar to our modern 1040 tax form, taxpayers were required to submit property and income calculations on a Form 24, entitled “Detailed Statement of Income, Gains, and Profits.” The Civil War tax Form 24 also included spaces for listing deductions. “Proper deductions” from income derived from business or trade included rent, insurance, freight and expressage, wages of employees, and other expenses. Rental income from lands and buildings was reported separately.
While some people today argue that the progressive income tax is unfair, in the 1860s it was seen as sensible. Then, as now, many people were exempt from paying income tax because of extreme poverty, while others paid the majority of the taxes due to higher income levels.
Most people think income tax is a relatively new phenomenon, but history shows that it has been a part of American lives for many years. Think about that as you file your taxes this season!