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Thursday, April 12, 2012 04:27 pm

Lincoln, the tax-and-spend president


President Abraham Lincoln and Judge David Davis

Tax Day is just days away. Nationally, April 15 is significant because that’s the traditional day when tax returns are due. This year we get a two-day extension, to April 17. Perhaps more locally, April 15 is significant because it’s Abraham Lincoln’s death date. But the two events are related, thanks to federal legislation Lincoln first signed in 1861.

On Aug. 5 of that year, Lincoln approved America’s first income tax.

It was a few months after the Civil War began and the north needed money to fund what it thought would be a brief conflict. Before then, the federal government was funded mostly through tariffs – fees on imported goods. But the tariffs, which had dropped due to a wartime decrease in imports, weren’t sufficient to fund a war, according to www.taxhistory.org. To make matters worse, the federal government was broke and already in debt.

Congress debated several kinds of taxes, but settled on the combination of a direct tax on property and an income tax, believing that was the fairest to all taxpayers.

Its Revenue Act of 1861 charged a three percent tax on annual income greater than $800, which meant only the wealthiest Americans had to pay it. Taxes were due June 30, 1862, but before that date, Congress introduced legislation to revise the tax, according to Harry E. Pratt’s The Personal Finances of Abraham Lincoln.

Through the Revenue Act of 1862, Congress taxed more citizens. It added more types of taxes and increased the number of people who had to pay income tax. Now, anyone making $600 or more a year would be taxed three percent of their income, and those making $10,000 or more would be charged five percent.

It also assessed taxes on a wide variety of products “from ale to zinc,” according to the National Archives (www.archives.gov - “Income Tax Records of the Civil War Years”). Workers from bankers to jugglers (but not ministers) had to pay for an annual license, stamp duties were enacted on articles from documents to makeup and businesses had to pay taxes on sales.

The 1862 legislation created a new federal agency, the Bureau of Internal Revenue, to collect and oversee the new taxes. This became our modern Internal Revenue Service. Contemporary critics said the Bureau was an overreach of the federal government’s power and it developed a reputation for ineptitude and scandals, according to www.taxhistory.org.

As the Civil War continued, taking longer than officials predicted, its costs rose and the Union needed more money to fund it. So Congress passed another revenue act in 1864, which imposed income taxes on more Americans. It taxed those making $600 or more a year at five percent and those making more than $5,000 at ten percent.

Business deductions included “rent, insurance, freight and expressage, and wages of employees,” according to the Archives.

Confederate states were not taxed until the North had retaken them. The 1864 Revenue Act also authorized financial penalties for underpaying or paying your income taxes late.

But even that legislation didn’t bring in enough money to fund the North‘s war efforts. On the Fourth of July in 1864, the last year of the war, Congress passed a joint resolution requiring citizens to pay an additional five percent tax on their 1863 income, according to Pratt.

There’s an interesting side note regarding Lincoln and the new income taxes he approved. As a federal employee, before the Treasury Department issued his presidential paychecks totaling $25,000 per year, it withheld money for the income tax. But, in 1869 – four years after Lincoln was assassinated, the U.S. attorney general ruled that making the president and U.S. Supreme Court Justices pay the federal income tax was unconstitutional because the constitution mandated that their salaries not be reduced while they were in office.

After Lincoln died, David Davis, a judge from Bloomington and good friend of Lincoln’s, became executor of his estate. Ironically, Lincoln had appointed Davis to the U.S. Supreme Court in 1862, which means the income tax had also been taken out of Davis’ paychecks, a practice which had been found unconstitutional. Like all U.S. Supreme Court justices, his taxes were refunded.

In 1872, three years after the U.S. attorney general ruled that the president and justices could not pay income taxes, Davis asked the U.S. Treasury Department to refund Lincoln’s income taxes, which it did. According to Pratt, Davis put the $3,555.94 in a Washington, D.C. bank under the care of Robert Lincoln, Abraham’s only surviving son.

Contact Tara McAndrew at tmcand22@aol.com.

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