The “Spirit of 76” resonated melodiously in the American mind for the first four score and five years of our existence. At the core of that “spirit” was the ancient belief that one’s property, fairly attained, was his own and that any attempt to take it away must invariably be attended with his unblugeoned consent.
The belief was so ingrained in the American ethos that ordinary folks, young and old, rich and poor, were willing to risk life and limb to defend it. In response to a violation of that sacred belief, they rushed to arms in a war that would shake the world to its very foundation.
All that began to change on this day in 1861 when Congress passed the first income tax in American history, the Revenue Act of 1861. It was a flat tax of 3% levied on incomes of $800.00 a year or more (roughly $18,000 in today’s dollars). There was at least one compelling reason for the legislation: that the country was embroiled in a Civil War and President Abraham Lincoln needed a means to fund it.
The U.S. Treasury was bare even before the war, still reeling from the Panic of 1857. This was further compounded by the fact that the government had been borrowing money at between 10 to 12% interest, thinking the war would not last long. After the taking of Fort Sumter in Charleston and the Confederate victory at Manassas, Virginia, the Lincoln administration realized that the war could very well last for years.
The Revenue Act of 1861 didn’t last long however, as it proved to be grossly ineffective. It seems the American people were still attached to the sentiments of their forebears and weren’t instinctively inclined to hand over their hard-earned money. The Act neglected to provide for an enforcement agency to actually collect the taxes after they had been levied.
Not a single penny was collected, before Congress, keen to their error, hurriedly passed the Revenue Act of 1862 . This Act created an enforcement arm, the forerunner of what was to become the IRS. Before the war’s end, in 1864, yet another Revenue Act was passed.
This one was ever bolder as it included a stamp tax which was to take effect exactly 100 years after the original Stamp Act; the infamous act which had been passed by the British Parliament; and the very one that incited the American populace to open rebellion. Bold indeed.
The 1864 Act did have a bright spot. It had within it a “sunset provision” which provided for its automatic expiration in 1873. Though some tried, it was not renewed on two accounts: 1. The public assented to its passage only because they understood it to be a temporary expedient answering the national emergency of Civil War.
The Second reason is far more telling; the increased revenue brought about by the various Revenue Acts had awakened elected officials’ minds to the infinite schemes which could be wrought with the public’s money.
In just a few years they had become intoxicated with deficit spending and wedded to the counterfeit logic that plying their constituents with gratuitous offerings was somehow good for the country.
Two decades would pass before another attempt was made to create a national income tax. In 1894, the Revenue Act or Wilson-Gorman Tariff Act was passed and it contained a provision instituting the first peace-time income tax in American history.
The “Spirit of 76” still lingered in the air however, and a challenge to the law promptly made it to the Supreme Court in 1895 (Pollocks v. Farmers’ Loan & Trust Co.), which ruled that a national income tax was unconstitutional as the founders had made no provision for such a direct un-apportioned tax (taxes had to be apportioned according to the various states respective populations as a whole and not as individuals). In an elegantly poetic ruling, the government had been denied a license to tax.
The lid to the box was left ajar however, as the progressive movement began to gain steam and visit the subject anew. By 1913, there existed enough political will to impose a tax on earnings. Congress passed and the states ratified the 16th Amendment to the Constitution, making individual income taxation the law of the land.
There still existed a barrier to high taxes however as the requirement that one write one large check to the government on April 15th each year made it painfully obvious just how much money one was bequeathing to the glad-handing politicians in Washington.
This as one might imagine had a sobering effect on the mind (and wallet) making tax increases difficult for the public to countenance.
All that change however with World War II when a cash-starved government, fighting a barbarous war on an unimaginable scale, began requiring tax-withholding on a paycheck-to-paycheck basis. This had the intended effect of shoring up the nation’s collective cash flow but unlike the aftermath of the Civil War, a war time expedient became a permanent fixture, thereby ameliorating the would-be shock value of writing a large check every April 15th. Taking a little tax at a time made it seem more palatable.
Any fair-minded and sober person understands the necessity to support the needs of the nation at large. There are certainly things that only the national government can do; insuring our national defense being the most obvious. But today’s citizen (a word that seems anathema to some these days) could learn a a lot from those who came before us. They instinctively knew that change happens more often by degrees than in large swathes; that things have a tendency to grow wildly when left unchecked.
They believed that it is therefore a matter of simple prudence to resist the urge to mollify the moment if in doing so there exists even the possibility of an impingement of freedom. They knew definitively that their monies were better spent closer to their own communities rather than in some distant locale.
Most of all they knew well human nature and thus the latent propensity of politicians to spend more than they have or have a right to (sound familiar?); and that once a fish hook is in, it is very difficult (and painful) to take it out.
On this day in 1861, what began as a war-time expedient, morphed into a slow but inexorable march to fiscal purgatory. Like citizens of old, we, the living, have an moral obligation to ourselves and our progeny to insure that the money we send to our government serves the purpose for which it is intended. As we are called upon every few years to chose the leaders who will serve as guardians of our great and noble experiment, may the “spirit” always move us.