PROLOGUE

paid $ 400,000 in taxes on an income of $ 4 mil- lion.¹

Taxes were levied on residents of all states and territories not in rebellion . In the South , some states operated under reconstruction govern- ments while the war went on . Virginia , for ex- ample , the site of the Confederate capital , was largely controlled by federal forces , and north- ern and western Virginians were subject to the income tax from the beginning . States that seceded were included in the tax base as soon as Union troops established control . Georgians paid income taxes in 1865 even though their state was not officially readmitted to the Union until 1870 .

The Civil War taxes were not immediately re- pealed at the end of the war but continued in force until 1872 , when the Grant administration sponsored the repeal of most of the " emer- gency " taxes . The tax on whiskey remained in force . Between 1868 and 1881 the U.S. Supreme Court responded to challenges regarding the va- lidity of the Civil War taxes on dividends , real estate , inheritances , and income tax by uphold- ing the constitutionality of those taxes.2 Fifteen years later the Populists attempted to revive the income tax and Congress passed a law providing for a new 2 percent tax on incomes over $ 4,000 . But the Supreme Court surprised the nation ,

ties , stamp taxes , and fees that the government collected from individuals and businesses . David A. Wells , appointed chairman of the U.S. Rev- enue Commission in 1865 , described the tax structure as being based on a principle " akin to that recommended to the traditionary Irishman on his visit to Donnybrook Fair , ' whenever you see a head , hit it . ' " Congress was guided , Wells wrote , by a similar principle , “ whenever you find an article , a product , a trade , a profession , or a source of income , tax it ! " 3 Wells believed that the universal system was based on nothing in past experience and would likely never be repeated . In fact , the 1862 tax law served as the basis for the present internal revenue system , both in articles taxed and in organization for collecting taxes .

Congress passed the Internal Revenue Act on July 1 , 1862 , " to provide Internal Revenue to support the Government and to pay Interest on the Public Debt , " but the taxes , including the income tax , were not actually levied until Sep- tember 1 , 1862. Like tax legislation today , the 1862 law was extremely complicated . Monthly specific ( or fixed ) and ad valorem ( a percentage of the market value ) duties were placed on ar- ticles and products ranging from ale to zinc . Monthly taxes were levied on gross receipts of transportation companies ; interest paid on bonds ;

Assessors should ask the following Questions :

Had your wife any income last year ?

Did any minor child of yours receive any salary last year ?

Have you included in this return the income of your wife , and salary received by minor children ?

Have you any stocks , and what are they ?

Have you bought or sold stocks or other property ?

Have you any United States securities ?

Have you kept any book account ?

Is your income estimated , or taken from your book ?

Have not the expenses , & c . , claimed as deductions , already been taken out of the amount reported as profits ? Did

you estimate any portion of your profits in making your return for 1863 or 18647

Was any portion treated as worthless , and , if since paid , have you included it in this return ?

Directed by the new Office of the Commissioner of Internal Revenue , assessors collected information from individuals , partnerships , and corporations relating to income and the quantities of taxable goods produced and sold .

reversing its earlier decision and declaring the law unconstitutional in 1895. This ruling , de- claring that an income tax is a direct tax and therefore unconstitutional , led to the ratification of the sixteenth amendment in 1913 .

The Civil War income tax was only a small part of a very complicated system of federal du-

surplus funds accumulated by financial institu- tions and insurance companies ; gross receipts from auction sales ; and sales of slaughtered cat- tle , hogs , and sheep . Annual licenses were re- quired for bankers , auctioneers , wholesale and retail dealers , pawnbrokers , distillers , brewers , brokers , tobacconists , jugglers ( " Every person

252 WINTER 1986