Reflecting on the Tax Legacy of the Civil War, 150 Years Later

July 21, 2011

Exactly 150 years ago today, some 35,000 Americans clashed at Manassas, alternately known as Bull Run, in the first major battle of the Civil War. After the smoke cleared, it became abundantly clear to both sides that the war would not simply end in a matter of days. The war had to be financed.

Two weeks later, Republicans in Washington passed the Revenue Act of 1861, which enacted the first income tax in U.S. history. For income over $800 ($19,100 in today’s dollars) the flat tax rate was 3%, and for income earned abroad the rate was 5%. The bill also included a slew of excise taxes and import duties to finance government borrowing.

The income tax was intended to be a temporary war measure, and was thus ended after the war. Attempts in the following decades to reinstate an income tax were thwarted by a 1895 Supreme Court decision that the tax was unconstitutional. Only after the 16th Amendment was ratified in 1913 and the issue of Constitutional Apportionment side-stepped did the personal income tax become a permanent fixture of our American tax system.

At least one tax directly rooted in the Civil War survives to this day. As reported yesterday by the Associated Press, a property tax provision in Alabama generates some $400,000 annually for the state’s Confederate Memorial Park. First intended to fund its veteran home operations, the tax was cut down over time but continues to finance the operations of the park. Its funding is generated by 1% of 1 mill of assessed value in the state—roughly $0.06 for a property worth $100,000. Though many in the state are unfamiliar with the provision, it has never been seriously threatened.

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