Tax Analysts®Tax Analysts®

Article Archive

December 21, 2001
An Army of Officials: The Civil War Bureau of Internal Revenue
Joseph J. Thorndike

=============== SUMMARY ===============

Joe Thorndike ( is director of the Tax History Project at Tax Analysts.

This article provides a brief history and analysis of the Civil War income tax, including the Bureau of Internal Revenue (the forebear of today's IRS). While the income tax played an important role in the Union revenue system, it also sparked deep and sometimes passionate opposition. The BIR took the brunt of this unhappiness, with critics attacking its "army of officials" for their heavy-handed enforcement techniques. Ultimately, these complaints helped scuttle the income tax, as opponents successfully argued that it was unfair in theory and inquisitorial in operation. Congress allowed the tax to lapse in 1872, demonstrating the political difficulties facing a large-scale federal tax agency, especially one charged with collecting an income tax.

The author wishes to thank the American Tax Policy Institute for their generous support of this project. Portions of this study are based on an article published in the Spring 2001 issue of the Administrative Law Review.

=============== FULL TEXT ===============

An Army of Officials: The Civil War Bureau
of Internal Revenue

By Joe Thorndike

Table of Contents

British Precedents

The U.S. Income Tax of 1861

The Revenue Act of 1862

The Revenue Act of 1864

Building a Bureau

Problems at the Bureau

The Wells Commission and Revenue Reform

The Battle Over Income Tax Repeal

The Locus of Opposition

The Disappearance of the Income Tax


[1] The income tax and the Internal Revenue Service grew up together, both born of the Civil War. Casting about for ways to finance Union armies, lawmakers enacted a vast expansion of the federal revenue system, including a modest income tax. Economically, the income tax was small, its revenue just a fraction of the money raised through excise taxes and tariff duties. Politically, however, it loomed large, adding an important progressive element to an otherwise regressive federal tax system.

[2] To collect the income tax and other internal levies, Congress created the Bureau of Internal Revenue. While some observers suggested that state agencies could be used to collect federal taxes, most policymakers agreed that a new federal agency was necessary. Still, a small but committed band of critics sought to derail plans for the new bureau, arguing that its "army of officials" would prove oppressive. Invoking the specter of "centralization" and excessive federal power, these critics sought rhetorical advantage against the backdrop of the Civil War and its conflict over sovereignty. Military metaphors were common among BIR opponents, who repeatedly warned that this bureaucratic "army" would "invade" every corner of the nation. These concerns were quickly swept aside amid the rush for revenue, but they would come to haunt the BIR in future years.

[3] The BIR began operation in the summer of 1862, and within a few short months, it had expanded throughout the nation. Marked by a large and decentralized field staff, the agency employed a nationwide system of assessors and collectors. These officials and their myriad deputies soon made the BIR an all-too-familiar arm of the federal government, its personnel known to citizens throughout the country. And if familiarity didn't breed contempt, then chronic personnel problems and high-profile scandals did. Within a few short years, the BIR developed a reputation for inefficiency and corruption.

[4] After the war ended, an easing fiscal climate opened the door to reform. Blue-ribbon reports suggested changes to the tax agency, and Congress enacted several modest reforms. Political leaders, however, focused on the substance of federal taxation, not its administration. In particular, a powerful coalition of well- heeled taxpayers and their representatives mounted a campaign to repeal the income tax. While supporters made the case for its inherent fairness, critics charged that the income tax was unnecessary, unfair, and inquisitorial. All three arguments were powerful, but the last proved especially potent; congressional debate over the income tax was peppered with bitter attacks on its administration. Critics denounced the BIR for its uneven collection efforts, insisting that while honest citizens paid the tax, unscrupulous tax cheats evaded it freely. In almost the same breadth, however, these same critics attacked the BIR for using strong arm tactics to collect the income tax, arguing that the agency wielded too much power.

[5] Critics had a point: The income tax was inquisitorial, and the BIR did possess broad and often intrusive powers. By its very nature, income taxation required a large and robust federal agency, one empowered to explore the private financial lives of American citizens. Critics bridled at this authority, insisting that such a vast and powerful bureaucracy had no place in American society.

[6] By 1872, these arguments had helped scuttle the income tax, the levy having succumbed to an assault rooted in the rhetoric of limited government. Significantly, the BIR -- so often the scapegoat in debates over the tax -- emerged from the war almost intact; freed of its principal albatross, the agency descended into relative obscurity. The Civil War experiment with income taxation, however, demonstrated the difficulty inherent in building an effective and politically viable federal tax agency.

British Precedents

[7] When Civil War legislators turned their attention to the income tax, they had scant experience with it. The tax did have some precedent in American government; before the Revolution, numerous New England, Middle, and Southern colonies had employed faculty taxes, often regarded as forerunners of the modern income tax. Absent modern reporting techniques, faculty taxes were levied on the assumed income and profits of individuals, particularly those in professional and commercial fields. 1 In the first half of the nineteenth century, moreover, numerous states had enacted more modern income levies. 2 While widespread, however, colonial faculty taxation and state income taxes never approached the scope and sophistication of the Civil War income tax, limiting their usefulness for Union lawmakers seeking guidance.

[8] Instead, legislators looked to Great Britain, where an income tax had first been enacted in 1799. 3 Congressional leaders of the Civil War era were familiar with the British tax, including its revenue, administration, and widespread unpopularity. 4 Many of the British law's virtues would be reproduced in the U.S. version, especially its revenue productivity. So too, however, would complaints about the British tax soon find an echo across the Atlantic. Opponents of the British levy offered several arguments that clearly presaged later opposition to the U.S. tax, including charges that the tax was economically damaging, fundamentally unfair, and -- most significantly -- inquisitorial in operation.

[9] At the turn of the nineteenth century, Britain was dependent on a revenue structure strikingly similar to the one Union lawmakers supervised some 60 years later. Revenues were rooted in customs and excise levies, many of which had been in operation for centuries. During the latter decades of the eighteenth century, British lawmakers had been forced to enact new duties, in part to help defray the cost of North American wars. 5 As the nation embarked on its long war with France, more than half of all revenue came from a regressive collection of taxes on food products. Despite a series of steep rate increases, revenue still fell short of wartime needs. Out of necessity, Parliament eventually turned to an income tax. Chancellor of the Exchequer and First Lord of the Treasury William Pitt championed the new levy, justifying it as a war measure enacted to meet temporary exigencies. 6

[10] The tax was not well received. Pitt fended off a long series of attacks, beginning with complaints that the tax would be economically damaging. Critics charged that it "would strike with peculiar force at industry and the fruits of industry" reducing the amount of capital available for investment by businessmen. 7 Pitt insisted that alternative taxes would be even worse, causing more hardship and producing less revenue. Furthermore, the failure of existing taxes to raise adequate revenue threatened to cause more economic damage than the new levy. 8

[11] Critics also charged that the new tax was unfair because it taxed all income equally, regardless of source. As one critic noted, it hardly seemed fair to tax a widow receiving a pension at the same rate as a capitalist making the same amount in interest. Other critics objected to taxing income from capital and work similarly, the latter deserving some sort of preferential treatment. In response to these arguments, Pitt offered what today would be called an argument for horizontal equity. 9 According to this norm of modern taxation, similarly situated individuals should be taxed similarly. In the case of an income tax, this precept demands the equal taxation of income, regardless of source. In theory, this approach minimizes market distortions, allowing maximum freedom in choices between various activities and economic decisions. Horizontal equity takes existing distributions of wealth as a given, and it does not necessarily imply any redistribution of wealth or income. 10

[12] Perhaps most interesting, at least in comparison to the American experience, was the objection that the income tax was inherently intrusive. As one opponent argued, the law "proposes to establish an inquisitorial power unknown in this country -- inconsistent with the principles of the British Constitution -- and repugnant to the feelings of Englishmen." 11 The crux of the problem lay in the knotty issue of enforcement. While taxpayers were required to offer only a limited statement of income, officials were empowered to demand additional details when they suspected understatement. Indeed, such probing was critical given the indeterminate concept of income. In an age before the automatic reporting of wages, salaries, and other forms of income, administrators had to rely on the honesty and completeness of individual taxpayers. When returns lacked credibility, administrators needed the authority to explore the situation for themselves.

[13] This authority to probe details of private financial lives rankled many critics. In response to such a probe from the tax commissioners, one critic voiced his displeasure.

    I have much more reason than the Commissioners can have to be dissatisfied with the smallness of my income. I have never yet in my life deserved or had occasion to reconsider any declaration which I have signed with my name. But the Act of Parliament has removed all decencies which used to prevail among gentlemen and has given the Commissioners, (shrouded under the signature of their clerk), a right by law to tell me they have reason to believe that I am a liar. They also have a right to demand from me, upon oath, the particular circumstances of my private situation. In obedience to the law, I am ready to attend upon this degrading occasion so novel to an Englishman and give them every explanation they may be pleased to require. 12

In Parliament, others complained that the law established a corps of collectors who were endowed with excessive and obnoxious powers. To properly assess the tax, collectors had to probe deeply the activities and property of individual taxpayers. Describing the character and responsibilities of tax inspectors, one critic observed:

    They are persons whose duty it is to go about and see the number of servants, horses, dogs etc. that each man has and to make a true return: in this it is their interest, as well as their duty, to be keen and active. These are the persons that are now to come abroad to survey and inspect men's properties and to get at the truth by getting at the secret of each man's affairs. How is this to be done? I know of no other way than by cajoling, corrupting and bribing the clerks and domestics of the respective houses they wish to examine: actions for which a man ought to be hooted out of society! 13

To critics such as these, the income tax threatened to inject the state into the most intimate financial affairs of British citizens. Resigned to paying taxes on things -- like tea, carriages, and beer -- these critics were far less willing to accept taxes on people and their income. "It is a vile, Jacobin, jumped up Jack-in-office piece of impertinence," griped one critic. "Is a true Briton to have no privacy? Are the fruits of his labour and toil to be picked over, farthing by farthing, by the pimply minions of Bureaucracy?" 14

[14] When the United States enacted its first national income tax in 1862, these complaints resurfaced, critics offering familiar arguments about the inquisitorial nature of taxing income. The "pimply minions of Bureaucracy" would prove just as unpopular in the U.S. as they had in Great Britain, suggesting that the income tax might come with unavoidable political baggage.

The U.S. Income Tax of 1861

[15] As the Civil War began, Congress found itself confronting dramatic revenue needs. 15 Tariff duties, the principal source of federal revenue since the end of the war of 1812, were proving inadequate to the task of wartime finance. A major economic slide, beginning in 1857, had not yet dissipated, and many regions of the country found themselves mired in depression. While the Midwest suffered disproportionately, Northeastern states were comparatively better off, and the South escaped relatively unscathed. Federal revenues, however, suffered dramatically, and legislators faced a looming federal shortfall. In the years immediately leading up to the Civil War, Democratic congressional leaders deflected efforts to raise revenue through higher tariff duties. The government had been borrowing to make up the shortfall, and the national debt totaled $62 million by November 1860. Deteriorating federal credit in the face of secession complicated new loans, and by the end of President Buchanan's presidency, another $14 million had been added to this figure, some of it borrowed at steep interest rates. After secession, new congressional leaders swiftly boosted the tariff, but to little immediate avail. Federal finance on the eve of the Civil War featured a woefully inadequate revenue system. 16

[16] As he entered the White House, President Abraham Lincoln appointed Salmon P. Chase to be Secretary of the Treasury. To Chase, a former governor and senator from Ohio, fell the daunting task of rebuilding federal finances. He was not the best candidate for such a job, having scant experience in financial matters. Nonetheless, he moved quickly to address the problem. 17 In July 1861, he sent Congress a report estimating that the federal government would need roughly $320 million to fight the war in 1862. 18 Later developments would show that figure to be wholly inadequate, but at the time, many observers believed the war would be relatively short.

[17] Chase suggested collecting $80 million in tax revenue, including $57 million in tariff duties, $3 million from land sales, and $20 million in new excise levies and other direct taxes. Chase's revenue target represented the money needed to pay for ordinary (non- war-related) operating expenses, interest on loans, and a contribution toward the eventual repayment of those loans. He suggested that the remaining $240 million necessary to fight the war should come from borrowing. Chase stressed, however, that the government's success in borrowing money depended on the enactment of his $80 million tax increase. "Public credit can only be supported by public faith, and public faith can only be maintained by an economic, energetic, and prudent administration of public affairs," he warned, "and by the prompt and punctual fulfillment of every public obligation." 19 This warning would be repeatedly echoed in the ensuing congressional debate. All too aware of the precarious nature of federal credit, lawmakers sought to appease skeptical lenders with a hefty boost in federal taxation.

[18] Chase suggested that Congress consider a direct tax on property, including possibly both real estate and personal property. He praised the direct tax for being visible to taxpayers, in contrast to excises and tariff duties that were often inconspicuously added into the sales price of an item. These awareness on the part of taxpayers would help ensure "economy and fidelity in administration," he argued. In addition, Chase commended the "manifest equity" of distributing tax burdens in proportion to accumulated wealth rather than consumption. Fair distribution of new tax burdens was all the more important given existing and proposed import tariffs, which were widely acknowledged to be regressive. 20

[19] For all his kind words about direct taxes, Chase warned that they posed administrative problems. Specifically, inconsistent state revenue systems often made it impossible to locate property valuations for use in assessing property taxes. Lacking these valuations on the state level, he warned, a federal property tax would likely require "the employment of an extensive and complicated federal machinery." Such a bureaucracy, in his view, was the most serious drawback associated with direct taxes. 21

[20] Legislators in the House of Representatives, led by Ways and Means Committee Chairman Thaddeus Stevens, R-Pa., quickly set about crafting a tax bill. On July 24, Stevens introduced legislation featuring a handful of internal duties and a direct property tax of $30 million. Of this sum, $20 million was apportioned to states still in the Union, while $10 million was allotted to those in the Confederacy.

[21] The direct tax proposal met with immediate criticism. Opponents charged that it would necessarily bear most heavily on western and southwestern states, while allowing northeastern states to escape lightly. Under the Constitution, direct taxes must be imposed in proportion to the population of each state. When direct taxes were employed during the War of 1812, this requirement worked to the advantage of states with relatively large property tax bases, and to the distinct disadvantage of states with large populations but small tax bases. 22 For two states with similar sized populations, allotments under the tax system would be similar, but the one with a larger property tax base would have a much lower rate of tax on each dollar of property. 23

[22] This sectional argument loomed large in the direct tax debate, but it was not the only issue. Critics also stressed the unfairness of taxing only land when property actually came in a wide variety of forms. All sides agreed that the federal direct tax -- at least as proposed -- would be levied exclusively on real estate; more general property taxation was considered by most observers to be administratively infeasible. 24 As a result, however, the tax would fall heavily on farmers while leaving "wealthy capitalists" untouched, since the latter maintained wealth in other forms of property. 25 As Rep. Schuyler Colfax, R-Ind., complained, "There is no stress of weather which can induce me to vote for the bill as it now stands. I cannot go home, and tell my constituents that I voted for a bill that would allow a man, a millionaire, who has put his entire property into stock, to be exempt from taxation, while a farmer who lives by his side must pay a tax." 26

[23] A direct real estate tax -- "the most odious tax of all we can levy," according to Colfax -- struck many critics as a poor method of taxing people according to their ability to pay. Several renegade legislators suggested that the direct tax should apply to a broader collection of property forms, including personal possessions, wealth held in commercial paper, and similar intangible forms of property; several states had tried this type of property taxation, and despite the inherent difficulty in taxing intangibles, some federal policymakers believed it worth a try. "I consider the honest and just method is to lay the tax upon all products alike, and compel each person to pay a tax upon all he is worth, whether it be real or personal estate," argued Rep. Owen Lovejoy, R-Ill. "It is not just to tax a man who owns a farm that is worth $1,000 while you permit a man who owns $1,000 of merchandise to escape taxation." 27

[24] The debate over what sort of property to tax followed the same sectional lines as arguments over allotment among the states. Representatives from western states quickly emerged as the most prominent critics of land taxation, repeatedly invoking the wholesome if somewhat pathetic image of the overtaxed yeoman farmer, toiling in the fields all day only to find himself the object of steep wartime taxation. These same critics cast eastern capitalists as the villains in this drama. As one member challenged his colleagues: "I ask if the farmers of this country are to have their lands pledged as security for payment of this debt, while the great stockholders, the money lenders, and the merchant princes of Wall Street, and all the great capitalists, are to go free, and bear none of these burdens?" 28

[25] These "merchant capitalists" played two roles in the House debate. In addition to being cast as villains in the debate over tax incidence, they were also offered up as the judges for federal fiscal prudence. Supporters of the tax bill repeatedly noted the importance of reassuring leery investors that the federal government would, in fact, meet its obligations. Chase had made the point in his message to Congress, and his comments found an echo in the House chamber. Stevens noted that "the capitalists must be assured that we have laid taxes which we can enforce, and which we must pledge to them in payment of the interest on their loans, or we shall get no money." 29 Opponents of the direct tax resisted such efforts to stampede them into passing the bill, rejecting the notion that "the credit of the country depends upon any spasmodic legislation." 30

[26] Still, both sides of the tax debate located eastern money interests at the center of their argument, either as the principal constituency for higher tax revenues or as the leading beneficiaries of a revenue system built on land taxation. Ultimately, the judgment of the money lenders escaped serious challenge; most lawmakers seemed to accept the notion that higher taxes were a necessary precursor to expanded federal borrowing. What remained to be sorted out was how this new revenue should be collected.

[27] Apart from its fairness, the direct tax also drew criticism for its administrative requirements. Indeed, lawmakers argued long and hard over the best way to collect the tax. The Ways and Means bill provided for the appointment of new federal tax collectors, charged with collecting a variety of new levies including the direct tax. Several members worried, however, that such a bureaucracy would prove burdensome, both economically and politically. Rep. Roscoe Conkling, R-N.Y., took the lead in arguing this point, insisting that "one of the most obnoxious -- perhaps the most obnoxious -- of all it features is that which creates an army of officers whose business it is to collect this tax." 31 Speaking the next day -- after having successfully engineered a recommittal of the bill to the Ways and Means Committee -- Conkling again decried the bill's burdensome collection machinery, reaching for his favorite metaphor. The legislation would create "an army of office-holders," he repeated. "It provides machinery cumbrous and unnecessarily expensive. It provides oppressive modes of assessment and collection." Indeed, he concluded with great rhetorical drama, it would create "a system more unendurable than the tax itself." 32

[28] Conkling suggested that instead of creating a federal tax bureaucracy, Congress should ask states to collect the tax on behalf of the federal government. This plan would have both economic and political benefits. "[S]o far as the State machinery can be used for the purpose," he told his colleagues, "will the expense to the Federal government be saved, and this obnoxious provision to the people be avoided." 33 Conkling hoped the federal government would rely on states to collect all new internal levies, not just direct taxes.

[29] Several members supported Conkling, echoing his argument that state tax collectors could collect federal revenues at a lower cost than any new officers. Like Conkling, they stressed not simply efficiency, but politics as well. Rep. Sidney Edgerton, R-Ohio, insisted that Congress must avoid "the appointment of this multitude of Federal officers, and the odium that will surely come upon us, if it is not prevented." 34 This "odium" soon became a rhetorical touchstone for BIR opponents, who repeatedly predicted that Americans would detest any new federal tax agency.

[30] Responding to such criticism, Ways and Means Chair Thaddeus Stevens acknowledged the unhappy qualities of the proposed law. "It is unpleasant to send the tax gatherer to the door of the farmers, the mechanics, and the capitalists of the country to collect taxes for defraying the expenses of this war," he granted. 35 Stevens insisted, however, that the new officers were a necessary evil, an administrative necessity given the range of new taxes under consideration. He reminded his colleagues that the bill included a provision allowing states to assume the tax bill allotted to them under the direct tax. If they agreed to provide the same amount of money to the federal government, he explained, then they might raise it any way they saw fit. Stevens stressed, however, that such a mechanism would not work for other federal taxes, including excises. Since the total amount due from such taxes was inherently unpredictable, states could not simply assume the debt up front. The amount due under the direct tax, by contrast, was specifically assigned to each state by the legislation, making state assumption of the liability administratively feasible. 36

[31] If states could not assume the tax debt for excise levies, Stevens continued, neither could they be deputized to collect these taxes using their own machinery. If states chose to ignore the request, the federal government would be left without recourse. Indeed, he warned, it would effectively return the nation to the days of the Articles of Confederation. Some states would pay, others would not, and the government would be left without sufficient money. Stevens warned of dangerous conflicts between state and federal governments -- a warning that carried special weight against the backdrop of the Civil War. 37

[32] In fact, Stevens draped himself in patriotic bunting, insisting that the war demanded unpleasant sacrifices, including new bureaucratic institutions. He also tried to discredit Conkling's overheated rhetoric, adapting the "army" metaphor for his own purposes.

    I know that the army of collectors are odious everywhere; but I know, also, that they are not quite so dangerous to my constituents, and I hope they are not to members of this House, as the army of rebels that renders this other army necessary; for the one must be raised or the other will be triumphant. 38

Stevens clearly hoped that Conkling's metaphorical "army" of tax collectors would seem less threatening when contrasted with the very real Confederate army then confronting Union troops.

[33] Stevens found support from other members, including Virginia Unionist Rep. Charles Horace Upton. Federal tax collectors were not simply necessary, Upton argued -- they were actually desirable. At a time when federal authority was under challenge, the government could not afford to appear weak. Congress, he declared, "should make the people feel the arm of the national Government, and know that we are in earnest in this matter." 39

[34] Administrative concerns helped prompt several members to look for alternatives to the direct tax. Some suggested that an income tax might be used to raise necessary revenue while also redressing fairness concerns about the direct tax. Acknowledging that efforts to tax personal property other than real estate were fraught with difficulties, they offered the income tax as a reasonable approximation of the same thing. "A tax upon incomes arising from estates, and from personal property" argued Maine Republican Frederick Augustus Pike, "is assessed as directly upon the property of the country as any tax can possibly be." 40 Pike, who noted approvingly the success of the English income tax, found support from several colleagues. While urging passage of the direct tax bill as a necessary expedient in the short run, Rep. Justin Morrill, R-Vt., endorsed an income tax in principle, adding "I have no doubt that it will, in the end, be adopted as it would be most just, and undoubtedly the most popular, if any tax can be popular." Even Stevens acknowledged that the tax might be "the most equitable that can be raised." 41

[35] Opponents of the direct tax twice managed to get the bill recommitted to the Ways and Means Committee. Eventually, the committee reported a revised bill that retained a direct property tax but coupled it with an income tax of 3 percent on all incomes more than $600. The income tax was small, especially given its exemption, which left the vast majority of Americans unscathed by the new levy. Apparently the tax agreed with most members, since they approved it with only limited debate. The House passed the revenue bill narrowly, including vague provisions for a federal tax collection effort. The legislation allowed for a nationwide network of new tax officials, but it stipulated that no appointments be made for several months. The delay reflected a widespread understanding that the bill was an interim measure, likely to be revised before the year was out. 42

[36] Meanwhile, the Senate considered its own version of the revenue bill, including an income tax proposed by Finance Committee Chairman James Simmons, R-R.I. Like House critics of the direct tax, Simmons insisted that it did not tax people according to their ability to pay. "Let us tax property, in the last resort," he exhorted his colleagues, "when we have to reach the poor as well as the rich, people of small means as well as those who have large." In the meantime, he suggested an income tax of 5 percent on those earning more than $1,000 annually. 43 Other members supported the idea, arguing that it would help distribute the tax burden equitably. "I am inclined very much to favor the idea of a tax upon incomes," agreed Sen. William Fessenden, R-Maine, "for the reason that, taking both measures together, I believe the burdens will be more equalized on all classes of the community, more especially on those who are able to bear them." 44

[37] Surprisingly, Senate debate over the income tax was relatively muted. The principle of taxing income drew relatively few objections, and the Senate spent far more time debating the practicalities of an income tax. Indeed, questions of tax administration quickly emerged as the principle point of contention. Several senators objected in particular to a provision in the Simmons bill that allowed imprisonment for failure to pay taxes. That approach to enforcement, they argued, was akin to outdated and discredited laws requiring imprisonment for debt. A fair and modern government would not allow these heavy-handed practices. 45

[38] Sen. John Sherman, R-Ohio, warned that the imprisonment provisions would engender popular resistance. "I will not vote to imprison a man," he asserted, "deprive him of his liberty, for refusing to pay taxes, or any money of any kind. You will have enough clamor about these bills; and a provision of this kind, which authorizes, in certain cases, imprisonment for debt, will be the cause of more clamor than anything else contained in the bills." Sherman also warned that the power to imprison delinquent taxpayers might well be abused by administrative authorities. 46

[39] Several senators spoke up in favor of the imprisonment penalties, however, maintaining that they were necessary to ensure collection of an income tax. How else to make rich men pay? "If you strike this out, you let the richest men in the country, who have stocks and large incomes, stare you in the face when you ask them for their taxes, and you will get them off poor men who cannot help themselves," objected Sen. John Hale, R-N.H. 47 Supporters of the stiff penalty argued that poor taxpayers, unable to meet their burden, were not the object of the provision. Instead, it was intended only for scofflaws thumbing their noses at the federal tax collector. "We never imprison a poor man who does not pay his taxes," Sen. John Ten Eyck said of his native New Jersey, "but if a man rolling in wealth and bloated with stocks, at this period of time, refuses to pay taxation for the support of the Government, and to save the nation from the consequences of this rebellion, he ought to go to prison." 48

[40] Ultimately, senators chose to retain the imprisonment penalties. Aware that taxing income would be difficult, requiring taxpayers to submit honest returns, they decided that stiff enforcement provisions were the only guarantee of an effective tax. Honesty among well-off citizens, their assets largely invisible outside the confines of a ledger book, could best be ensured through draconian penalties.

[41] Again, the income tax found legislative approval after relatively little debate: the Senate approved the revenue bill and after a conference with the House, both chambers passed the Revenue Act of 1861. The law included a direct tax as originally proposed by Treasury Secretary Chase, as well as 3 percent levy on all incomes exceeding $800. 49 With such a high exemption, only the richest were expected to pay; historians have estimated that this first income tax applied to only 3 percent of the population. 50 Congress levied the tax on money earned during calendar year 1861, with payment due within six months. They left collection methods, however, largely unspecified. States were encouraged to assume the direct tax and collect the money as they saw fit. Collection for other federal taxes was left up in the air. With Congress slated to return from recess later in the year, the law was widely considered provisional. 51

[42] Clearly, the income tax posed the biggest collection problems. For its part, the Treasury Department was less than enthusiastic about the new tax. Secretary Chase did nothing to prepare for it, insisting that enforcement would be too expensive. 52 And he was not alone in his concern about collection costs. While generally supporting the income tax, The New York Times voiced unhappiness with its concomitant bureaucracy. Editors were appalled by reports of patronage-seeking applicants thronging the Treasury. Taking their cue from Conkling, the editors argued that rather than create "an army of officeholders," 53 policymakers should rely on existing state tax collectors. The paper warned that "The legion of lean seekers who infest the Treasury department, and madden its already overtasked Secretary, will do wisely if they return to their homes, and save the money they are wasting at the capital to pay their proportion of the direct tax." 54

[43] In fact, office seekers would have been better served by hanging around a little longer. The Treasury's reluctance to implement administrative machinery for the income tax did little to dissuade a revenue-hungry Congress. On July 1, 1862, legislators enacted another, more robust income tax, and this time they provided the machinery to collect it.

The Revenue Act of 1862

[44] As expected, the 1861 revenue act proved inadequate almost immediately after passage. On December 9, 1861, Chase reported to Congress that revenues were running substantially short of expenditures, and as a result, the country would need another $50 million in new internal revenue. Once again, Chase suggested boosting several customs duties, although he acknowledged that revenue productivity would be limited by declining foreign commerce. He also suggested an increase in the new direct property tax.

[45] Chase grudgingly noted that the recently enacted income tax -- still awaiting implementation -- would likely provide new revenue. He pointed out, however, that the high exemption ensured it would play only a minor role in solving the nation's fiscal woes. He reiterated his concern that the tax's bureaucracy would prove a burden, and he urged Congress to reconsider "whether the probable revenue affords a sufficient reason for putting in operation, at great cost, the machinery of the act." Chase granted that a beefed up income tax might bring in real money, and he noted in passing that the tax was "just in its principle, inasmuch as it requires largest contributions from largest means." 55

[46] Within a month of Chase's report, banks throughout the United States suspended specie payment, prompting the federal government to do the same. In an effort to boost confidence, Congress approved in January 1862 a resolution calling for $150 million in new taxes; Wall Street's "merchant princes" needed reassurance that the government would continue to meet its obligations. In March, the House Ways and Means Committee reported a bill designed to yield $164 million, including $114 million in internal taxes. The legislation included a modest income tax of 3 percent on all incomes more than $600. Even with its exemption set $200 lower than it had been in the 1861 legislation, the proposed income tax was still only a modest component of the overall revenue package; officials projected that it would raise about $5 million. 56

[47] As he introduced the bill, Rep. Morrill offered an apologetic defense of the income tax, arguing paradoxically that it as one of the "least defensible" levies yet inherently fair. "Ought not men, too, with large incomes to pay more in proportion to what they have than those with limited means who live by the work of their hands or that of their families?" he asked his colleagues. 57 Similarly, Ways and Means Chairman Stevens justified the tax as a necessary balance to more regressive levies. "[T]he committee thought it would be manifestly unjust to allow the large money operators and wealthy merchants, whose incomes might reach hundreds of thousands of dollars, to escape from their due proportion of the burden." 58

[48] For both Morrill and Stevens, an income tax would help add progressivity to the overall tax system. The Ways and Means bill included only a single rate, but its still-large exemption ensured that citizens of modest means would escape the levy. The modest tax on those above the $600 exemption, however, ensured that well-to-do Americans offered something extra to the national coffers. The argument rested on the recognition that excise levies -- which were expected to yield most new revenue -- were burdensome for poor taxpayers. The flat-rate income tax with its high exemption would help ameliorate that inequality.

[49] Members of the House accepted this argument for the tax's fairness; the proposal to create an income tax met with relatively little opposition in the chamber. Notably, however, lawmakers argued long and hard over issues of tax administration. As reported by the Ways and Means Committee, the bill provided for a new Bureau of Internal Revenue in the Treasury Department. Charged with collecting all internal taxes, the BIR was to be headed by a commissioner and organized around a nationwide system of collection districts. The president would appoint an assessor and collector for each district, and these field staff would in turn supervise any necessary assistants.

[50] A vocal contingent on the House floor tried to limit the size and cost of this new bureaucracy. Several members argued that the positions of assessor and collector could be consolidated into a single office. Rep. Timothy Phelps, R-Calif., insisted that combining the offices would save money and sacrifice little in the way of administrative efficacy. 59 In addition, several members suggested that the bill provided overly generous compensation for the assessors. Supporters of the Ways and Means bill successfully beat back both suggestions, arguing that assessors were a key component of the new structure and deserving of adequate pay. 60

[51] Indeed, the assessors had a prominent role in the House debate. Most members understood that the assessors were the lynchpin of the new system. For the BIR to function effectively, the assessors had to be given broad authority to examine and evaluate the finances of potential taxpayers. While necessary, however, this authority brought with it some risks, including the possibility of corruption and taxpayer mistreatment. As one lawmaker warned, "in many instances, it may turn out that the assessor is a person of strong prejudices and passions, and he will have it in his power by this section as reported to do great injustice and wrong to a citizen." 61 These concerns would prove well founded in the years to come.

[52] Lawmakers also debated the use of informers to enforce the new tax law, as well as compensation for tax officials based on the amount of revenue they collected. Rep. William Holman, D-Ind., denounced provisions that awarded half of any recovered money to the BIR official who instituted the proceeding against a tax cheat. "I am not willing to say to the collectors, who invade every portion of the country, that they may resort to tricks and strategy for the purpose of inveigling unsuspecting citizens into a violation of this law," he declared. Holman's choice of words -- especially his suggestion that the collectors would "invade" all regions of the country -- demonstrated the enduring popularity of militaristic metaphors in debates over federal tax collection.

[53] Holman also argued that the official use of informers smacked of monarchical government. Paid agents, he contended, only served to enhance centralized authority.

    The very name of public informer is a word of dishonor, and yet while we are ingrafting [sic] upon our system of government a new feature, a system of permanent taxation, we here propose to accompany it with a feature which tends to increase intensely the centralizing power of our Government. 62

[54] Supporters of the informant provision insisted that it was a necessary enforcement technique, motivating officials to enforce the law vigorously. Rep. John Bingham, R-Ohio, dismissed the idea that it would promote centralized government, arguing that American institutions were immune from these tendencies. "The word 'centralization' has no meaning in reference to American institutions," he declared.

    I can understand it well enough when applied either to the effete or existing institutions of European monarchies; but in my judgement it has neither sense nor reason in it when applied to the Republic of the United States. There is no such thing as centralization under our system, so long as we recognize the supremacy of our written Constitution.

In Bingham's view, Congress should not shrink from exercising powers granted by the Constitution simply because critics might complain about centralization. The federal government was fully empowered to levy and collect internal taxes, he argued, and BIR officials should be given every incentive to exercise their powers vigorously.

[55] The specter of government centralization resurfaced when Rep. Conkling again offered his proposal that states be allowed to collect federal taxes. In general outline, it mirrored his suggestion from the previous summer: If a state agreed to do the collecting, then it should be allowed to retain a small percentage of the revenue. The president, in turn, would not appoint any BIR officials for affected collection districts, thereby saving money and forestalling popular discontent. 63 The plan mirrored administrative provisions of the 1861 direct property tax; at Conkling's urging, Congress had agreed to allow states the primary role in collecting the direct tax. Now Conkling and his supporters wanted to use the same technique to administer the much larger collection of federal taxes included in the 1862 revenue bill.

[56] According to Conkling, state machinery could collect federal taxes more efficiently. "There is every reason to believe," Conkling explained, "that the self-imposed method of gathering taxes, which I prefer, would be far more economical to the states than this machinery [in the pending bill] can be made." 64 Conkling stressed that his amendment still allowed for a new federal tax bureau; BIR officials would collect taxes in every state that declined to assume administrative responsibility. By giving states the option of assuming collection duties, however, the size of this new agency might be kept to a minimum.

[57] As before, Conkling argued that using state officials would be less obnoxious to citizens. Federal tax collectors, he warned, would be broadly and deeply despised by the populace. "These taxes will be onerous," he cautioned his colleagues, "but I think not so onerous as the mode in which they are to be gathered." Again reaching for his military metaphor, Conkling insisted that "No army that ever marched through the country was more hated than the army provided for in this bill." In light of advancing Confederate forces, such language must have seemed dramatic indeed. Conkling urged his colleagues "to avoid the march of this army of officeholders." 65

[58] Seizing the rhetorical baton, Rep. George Pendleton, D- Ohio, insisted that state authorities could collect federal taxes "with much less expense to the people and without that exasperation which I am sure will follow if this immense army of Federal tax gatherers are sent forth through all the States." Like Conkling, Pendleton warned his colleagues of impending disaster: "[W]hen this vast system goes into operation, and these tax gatherers are abroad in the land," he intoned, "there will go up a voice in the county that will make this Legislature tremble." 66 The broad and painful nature of the new federal tax system, Pendleton argued, demanded a less bureaucratic, more palatable collection mechanism:

    a tax bill like this which goes into every house, into every business, every neighborhood, which taxes everything a man eats and all that he wears, which enters into the consideration of every man engaged in every business of the country, which puts a tax upon every conceivable subject of taxation; such a tax bill has never before appeared in this country. It belongs to gentlemen, then, to take every means to ameliorate the burdens which will necessarily be imposed upon the people of the country, to remove as far as possible every cause of offense or exasperation, to lighten in every way the necessary load which you must call upon them to bear. 67

[59] House leaders were having none of this argument. Ways and Means Chairman Stevens insisted that the proposal was a step backward in American government. "In this emergency, we cannot afford to return to the pusillanimity of the old Confederation, and request the State to make their contributions, and shiver in the wind if any should fail to do so," he asserted. "It is indispensable that the Government shall have within its own control -- responsive to it at regular and stated intervals -- the means of meeting all its vast engagements." 68

[60] Supporters of the leadership proposal insisted that the proposed BIR was a practical necessity. State agencies, they argued, were not up to the task of collecting federal taxes; the Ways and Means Committee had explored the possibility but ultimately voted unanimously against it. New administrative tools were simply unavoidable. "I am not going to make any apologies for getting up this army of officeholders, as it has been called, if it be essential to have an army of officeholders in order to execute the law," contended Rep. Bingham.

[61] Several critics of the Conkling plan dismissed assertions that the BIR would prove more obnoxious to citizens than the taxes it was charged with collecting. "The odium, and the only odium that will attach itself to the minds of the people, is to the tax itself and not to the persons who are sent as tax gatherers," declared Rep. John Leake Newbold Stratton. "I apprehend that if a man is condemned by law to be hung, it makes but very little difference to him whether the rope is put round his neck by the sheriff of his county or by the marshal of the United States." 69

[62] Supporters of the committee bill warned that states might fall down on the job. "We cannot shut out the idea and the fact," declared Rep. John Hutchins, "though we may desire to do it, that taxation is odious, and that individuals, corporations, counties, and States will shirk as much as possible the payment of all taxes." 70 If states refused to collect the taxes -- especially if they had previously committed to do so, thereby forestalling the appointment of federal officers -- the federal government would be left without recourse. Hutchins and like-minded debaters referred ominously to the likely consequences of such state failures; resulting conflicts between federal and state governments seemed all the more perilous against the backdrop of the Civil War. 71

[63] Hutchins played to these fears, warning his colleagues to avoid excessive concern for states' rights. "I know that we have all been carried away with the idea that State rights and all that sort of thing must be carried out at all times, and that we have been afraid of the concentration and consolidation of the power of the Government," he acknowledged, but "Congress should not shrink from exercising those powers enshrined in the Constitution, including the right to impose and collect taxes. 72 Rep. Thomas Edwards went even further, declaring that "I have no great reluctance to the presence of the General Government where ever it has a right to be under the Constitution, to which it owed its existence, and to the exercise of all its rightful powers in every portion of the Union, wherever it is expedient that they shall be exercised." 73

[64] Eventually, Conkling and his supporters lost this debate; the House rejected his plan for turning collection over to the states and the bill included provisions for a large new tax collection agency.

[65] When the Senate took up the revenue bill, income tax rates quickly became the center of debate. The House legislation included a 3 percent levy on all income more than $600. Senators, it turned out, were inclined to add graduated rates. Their chief motive was revenue; members voted to eliminate a direct property tax included in the House bill, and they viewed higher rates as a way to make up the lost revenue. As passed by the Senate, the bill restricted the 3 percent income levy to incomes between $600 and $10,000. Taxpayers with incomes more than $10,000 and less than $50,000 were to pay 5 percent, while income over that amount would be taxed at 7.5 percent. 74

[66] Senate debate over tax administration followed the same lines as House arguments. Several members insisted that the bill would create a large and burdensome bureaucracy. In general, critics laid responsibility for this administrative burden on the multiplicity of items slated for taxation. Supporters of the bill, however, insisted that the new bureaucracy was essential. "It is impossible to devise a system for collecting so large an amount of money without necessarily being obliged to have recourse to a large number of officers," asserted Finance Chair Fessenden, R-Maine. In reply to the familiar complaints about "odious" tax gatherers, Fessenden insisted that these officials were far less obnoxious in a democracy than in less accountable forms of government. 75 Ultimately, the Senate agreed that new federal officials were necessary.

[67] The differing House and Senate bills emerged from a conference committee with a modified version of the Senate rate structure. The panel eliminated the top bracket, extending the 5 percent rate to all income more than $10,000. 76 The act provided that this new tax, as well as all other federal levies, would be collected by a new federal tax agency. Lawmakers also provided that some types of income be taxed at the source; certain corporations were required to collect taxes on dividends and interest, and federal agencies were directed to withhold tax from employee salaries. 77 The British income tax had used these collection methods since 1803, and the inclusion of withholding techniques in the 1862 legislation was an important innovation in American taxation. It reflected an understanding among lawmakers of the inherent difficulty of collecting taxes on income. Absent withholding, taxpayers would be required to report their own income, calculate their taxes, and save money to pay up when the year drew to a close. Every one of those steps would prove troublesome in the years to come. 78

[68] The 1862 act served as the foundation for Civil War taxation by the federal government. The new system was extremely comprehensive, touching almost every aspect of American life: few items, professions, or sources of income escaped taxation. As one observer noted, "the only principle recognized -- if it can be called a principle -- was akin to that recommended to the traditionary Irishman on his visit to Donnybrook Fair, 'Whenever you see a head, hit it.' Whenever you find an article, a product, a trade, a profession, or a source of income, tax it!" 79

The Revenue Act of 1864

[69] Lawmakers, however, were not quite finished with the income tax. Revenue needs continued to swell throughout the war, and the income tax was proving to be a flexible and productive tool. In April 1864, the House Ways and Means Committee introduced a bill to boost revenue by taxing smaller incomes more heavily. The legislation eliminated the 3 percent rate on incomes from $600 to $10,000, replacing the graduated structure with a flat 5 percent on all taxable incomes. Under the 1862 act, this higher rate had only applied only to the richest Americans. 80 This retreat from progressivity came despite the suggestion of BIR Commissioner Joseph J. Lewis that the graduated rates be increased in scale. 81

[70] Almost immediately, the House found itself in the midst of a bitter debate over graduated rates. Rep. Augustus Frank offered an amendment for graduated rates of 5 percent tax on incomes up to $10,000, 7.5 percent on incomes from $10,000 to $25,000, and 10 percent on everything above the figure. Seizing the successful argument used two years earlier for a graduated rate structure, Frank defended the rates on revenue grounds, and several colleagues weighed in to agree. 82

[71] House leaders remained staunchly opposed. Ways and Means Chairman Stevens argued that the new rates were discriminatory and unfair. "It seems to me that it is a strange way to punish men because they are rich," he observed. "I think the principle of taxing a man who is worth twenty thousand dollars more in proportion to his wealth is an unjust one." 83 Justin Morrill was even more vehement. "[E]xperience shows that people who are taxed unequally on their incomes regard themselves as being unjustly treated, and seek all manner of ways and means to avoid it. This inequality is in fact no less than a confiscation of property, because one man happens to have a little more money than another." 84 Even after the House had approved the new rates, he offered another ringing indictment of them. At its core, he maintained, the notion was unjust.

    The very theory of our institutions is entire equality; that we make no distinction between the rich man and the poor man. The man of moderate means is just as good as the man of more means, but our theory of government does not admit that he is better, and I regard it as evidence of the spirit of agrarianism to present a law here which shall make any such distinction. It is seizing property of men for the crime of having too much. 85

Foreshadowing arguments that would haunt the progressive income tax for decades to come, Morrill warned that a graduated rate structure might well induce rich men to flee the country. In any case, he argued, it was fundamentally unjust. 86

[72] Stevens and Morrill were clearly unhappy with the graduated rate structure introduced by the Senate in 1862. Their original bill sought to eliminate the two-tiered rate system in favor of a flat rate. In their eyes, this was fairness enough for the federal tax system. The majority disagreed, however, and the House sent the revenue bill to the Senate with Frank's graduated rate structure.

[73] The Senate Finance Committee adjusted the rates yet again, eliminating the 10 percent rate bracket and applying a tax of 7.5 percent to all incomes more than $10,000. Committee Chairman Fessenden reported the revised income tax with somewhat lukewarm endorsement. Rich citizens, he suggested, could afford a larger tax, including one that taxed them at a higher rate. He warned, however, that legislators should be careful to respect the rights of property, since it was this property that assured national prosperity. Progressivity run amok could endanger the nation's economy by weakening the rights of wealthy taxpayers. 87

[74] Sen. Charles Sumner offered more vigorous support for progressive rates, reading into the record supporting statements from the noted French economist J.B. Say and that all-purpose sage of Anglo-Saxon economic orthodoxy, Adam Smith. 88 James W. Grimes, a Radical Republican from Iowa, offered an amendment boosting the rates on incomes over $15,000 to 10 percent, arguing that rich taxpayers had a greater ability to pay. In general, he insisted, federal taxes weighed most heavily on the poorest Americans; consumption taxes of all types were broadly regressive. An income tax with reasonably progressive rates, he contended, would help shift this burden toward those more able to bear it. 89

[75] Concerned about a looming revenue shortfall, the Senate agreed to add more progressive rates. While issues of fairness may have played a role in the chamber's vote, bottom-line worries proved more central. 90 When the bill emerged from conference committee, moreover, rates got steeper still. The panel extended the 10 percent rate to all income more than $10,000. Incomes up to $600 were still exempted from taxation entirely. Those above that amount but under $5,000 were taxed at 5 percent, while those between $5,000 and $10,000 were taxed at 7.5 percent. 91

[76] Before the tax took effect, Congress passed a special income tax surcharge of 5 percent on all calendar year 1863 incomes. Lawmakers intended this tax, assessed in addition to the taxes due under the Revenue Act of 1862, to help pay for a special bounty offered to help boost army enlistment. The resolution raised the effective rate on 1863 incomes to 8 percent for incomes between $600 and $10,000 and to 10 percent for those more than $10,000. 92

[77] By the end of 1864, the income tax was firmly established in the federal revenue system. William Fessenden had left the Senate to take charge of the Treasury Department from the retiring Salmon Chase. In his annual report for 1864, he offered a strong case for graduated tax rates. "The adoption of a scale," he contended, "augmenting the rate of taxation upon incomes as they rise in amount, although unequal in one sense, cannot be considered oppressive or unjust, inasmuch as the ability to pay increases in much more than arithmetical proportion as the amount of income exceeds the limit of reasonable necessity." His argument enjoyed the force of law, as lawmakers had repeatedly demonstrated a willingness to include graduated rates in the wartime tax system. For the time being, at least, the income tax enjoyed solid political support, and it was well on its way to becoming an important component of the federal revenue system. 93

[78] Fessenden's 1864 report, however, also included a note of warning for supporters of income taxation. Collection of the tax, the secretary warned, was not all that it might be. "From the results of experience, as well as from all the information received," he acknowledged, "the Secretary is well convinced that much revenue fails to be collected through an imperfect execution of the law, and more through a fraudulent evasion of its provisions." 94 Already, the income tax -- so promising in prospect -- was proving problematic in operation.

Building a Bureau

[79] As lawmakers had foreseen, the income tax required a large and powerful collection agency. To provide for one, the 1862 revenue act established the Office of the Commissioner of Internal Revenue in the Treasury Department. The position was not unprecedented. Twice before, Congress had constructed domestic revenue agencies during times of acute revenue need, only to dismantle them when fiscal pressures abated. This time, however, the tax collecting agency would prove more durable; the Bureau of Internal Revenue would survive the postwar demise of the income tax, as well as the repeal of many excise levies. In fact, large components of the agency's administrative structure would remain intact well into the 20th century.

[80] Commissioner George S. Boutwell took office just two weeks after Congress created the bureau. He was destined to serve for less than a year, leaving his post to assume a seat in the House of Representatives, where he later emerged as a leader of the Radical Republicans. 95 During his brief stint as commissioner, however, Boutwell established the foundation for a reasonably effective, if broadly unpopular, federal revenue agency.

[81] The 1862 act authorized the president to divide the country into collection districts. The BIR began with 185 of these divisions, each with a presidentially appointed assessor and collector. These positions, which were subject to Senate confirmation, formed the basis for federal tax administration during the Civil War. Lawmakers hoped that appointing local officials (assessors, collector, and their assistants were required to live in their districts) would help smooth the way for new federal taxes, putting a familiar face on a painful process. It had the ancillary political benefit of creating a huge new class of patronage positions. As critics had warned during congressional debate over the income tax, the new revenue tools did, indeed, necessitate a large and politically valuable bureaucracy.

[82] Politics played an important role in the appointment of officials. In his autobiography, Boutwell insisted that assessors and collectors appointed on his watch had won their positions on their merits. He acknowledged, however, that Secretary Chase insisted on the appointment of two acquaintances, one in his home state of Ohio, and another in Massachusetts. President Lincoln also designated two appointees, one in Illinois and another in California. Of these four political appointees, Boutwell complained, three ultimately "proved unworthy." 96 Events would soon reveal that more than a few other officials were similar disappointments.

[83] With the assessors and collectors at its core, the BIR developed in a highly decentralized manner. The agency grew rapidly; beginning with just three clerks in July 1862, it had almost 4,000 employees by the following January. All but 60 were field staff. 97

[84] Back in Washington, regulatory and interpretive issues were reserved for the commissioner's office. It was a monumental task: The 1862 revenue act established many thousands of new taxes, including innumerable excise levies, as well as the income tax. The New York Times noted sympathetically that the commissioner would be burdened by a heavy responsibility, charged with ensuring "uniformity of action throughout the country, impartiality of administration in every department of the service, and the highest practicable security against oppression of the people or fraud and loss to the revenue." To meet these goals, Boutwell and his successors issued an unending stream of instructions, regulations, clarifications, and rulings. 98

[85] Boutwell faced a blank slate as he began implementing provisions of the 1862 act. Legislators had left many issues vague, especially surrounding the income tax. The definition of income proved particularly nettlesome, generating a host of legislative tweaks and numerous rulings from the commissioner's office. Interpretive decisions surrounding this and other issues were generally final, giving the commissioner an extraordinary, quasi- judicial authority. 99

[86] To assist with the task of devising regulations, and to help oversee the nationwide collection system, Congress gradually offered the commissioner some help. While the 1862 act authorized the Treasury Secretary to appoint clerks for the commissioner's convenience, later legislation established the position of deputy commissioner. Lawmakers also provided for a beefed up enforcement effort in the central office, authorizing positions for three revenue agents to investigate fraudulent returns. 100

[87] Boutwell was proud of his accomplishments at the Bureau. He later claimed that he created the agency out of whole cloth. Records of the defunct federal Excise Bureau, created during the War of 1812, offered little guidance, he said, and time was too short for a useful study of the British revenue system. 101 By necessity, the American system was purely functional, its organization derived solely from the requirements of the revenue law. Postwar studies of the revenue system supported Boutwell's claim to originality, noting important differences between the British and American revenue agencies.

[88] While BIR officials in Washington were busy setting policy, field staff were actually collecting all the taxes. Assessors, in particular, did most of the work. For the income tax, they were charged with valuing property and ascertaining income. Each assessor supervised numerous assistants -- junior employees charged with gathering information from individuals and businesses. These assistant assessors were the BIR's most familiar face, known to taxpayers throughout each district. In many ways, they personified the new internal revenue system.

[89] Each taxpayer was required by law to file an annual return with an assistant assessor. The assistant assessor, in turn, would rely on the return to calculate taxes due, eventually compiling a public list for all residents of the district. Taxpayers had the right to appeal assessments, but the final decision was left in the hands of the assessor. When taxpayers failed to file a return, assessors were empowered to estimate how much the taxpayer owed, tacking on a 50 percent penalty for good measure. To aid the assessors in making this estimate, the law empowered them to issue summonses and search homes and businesses. 102

[90] Collectors, for their part, were charged with making good on the assessment list. Within 20 days of receiving it, they were required to issue a public announcement that taxes were due. Taxpayers failing to pay risked having their possessions sold, although even delinquent taxpayers were allowed to keep professional tools, guns, furniture, and a cow. 103

[91] BIR field staff were poorly paid, especially at the junior level. Indeed, BIR Commissioners complained regularly to Congress that compensation was entirely inadequate, compromising the agency's operations. For their considerable pains, assessors received between $3 and $5 per day (depending on which of their duties they were performing), as well as $1 for every 100 names on the district's tax list. Assistant assessors received $3 a day, plus the same $1 for every 100 names on the assessment list. Collectors, meanwhile, were paid a commission of 4 percent on everything they collected up to $100,000 and 2 percent on sums above that amount (with compensation capped at $10,000). 104

Problems at the Bureau

[92] In many respects, the Civil War tax system was a success. While growth in revenue collection began slowly, it picked up steam as the BIR matured. In fiscal 1863, with the internal revenue system only partly in place, the government collected $38 million in internal taxes; by comparison, total federal revenue in fiscal 1862, composed largely of customs duties, had been $52 million. For fiscal year 1864, the first complete year for the new internal revenue system, federal tax revenues totaled almost $110 million. For its part, the income tax raised roughly $2 million in 1863, $20 million in 1864, $32 million in 1865, and $73 million in 1866, making the tax an important and fast-growing component of federal finance. 105

[93] But all was not well in the Bureau. The agency struggled with its rapid growth, especially in terms of personnel. From the very start, commissioners complained that high turnover was a problem, and low pay was the leading explanation. Almost since the day the agency was created, commissioners had been arguing that pay scales were inadequate, especially for assessors. As Boutwell noted in his report from January 1863: "It is of importance to the Government that the Assessor should be a man of intelligent business capacity and unfaltering integrity. The compensation provided by law is not adequate for the services of men who possess these qualifications." 106 Sympathetic members of Congress tried to increase that compensation, but without success.

[94] Commissioners pointed out that the BIR's work was complex and detailed, making experienced employees essential. Yet trained staff were regularly tempted away by businesses seeking tax expertise. "Private enterprise is everywhere offering superior inducements to those who are willing to sacrifice their days and nights in its service," noted Commissioner E.A. Rollins in his annual report for 1865. He pleaded with Congress to boost pay for employees throughout the Bureau. 107

[95] Low pay was also implicated in corruption scandals. Both during and after the war, BIR officials were at the center of embarrassing incidents. The agency's name, The New York Times noted acidly, had "almost become the synonym of corruption." 108 Secretary of the Treasury Hugh McCulloch acknowledged the "irresistible temptation to fraud on the part of revenue officers," though he laid responsibility for that fraud on high tax rates rather than on any unusual proclivity toward dishonesty. 109

[96] The corrupting influence of high tax rates was most notoriously evident around the liquor tax. In 1865, the tax rate on distilled spirits was $2 per gallon, yet the cost of ingredients and labor to produce that gallon was just 35 cents. Obviously, the temptation to cheat was strong, and rampant evasion was manifest, especially in large cities; Harper's Weekly reported in December 1865 that liquor was selling for less than the price of the tax alone. 110

[97] Enforcement varied from one district to the next, depending on the local BIR personnel. After an investigation by Congress, the tax was reduced to 50 cents per gallon, and revenue jumped dramatically, from just over $13 million in 1868 (the last year of the $2 tax) to more than $45 million in 1869. Still, the lower tax did not entirely remove temptation. In 1875, law enforcement officials again uncovered a broad conspiracy to evade the liquor excise. Known as the "Whiskey Ring," it was organized and led by BIR agents. 111

[98] Corruption surrounding the liquor tax brought considerable grief to the BIR. The title of an 1870 exposé illustrates the agency's degraded reputation: The secrets of internal revenue: exposing the whiskey ring, gold ring, and drawback frauds; divulging the systematic pillage of the public treasury and filchings of the revenue; with astounding disclosures of organized depredations, conspiracies, and raids on the government and people, and vivid portrayals of official turpitude, malfeasance, tyranny, and corruption. Purportedly written by a BIR revenue agent, the book was one of a slew of muckraking publications. 112

[99] BIR officials were forced to acknowledge the agency's corruption problem. Commissioner Rollins wrote in his annual report for 1867 that his top priority was "the recovery of the revenue service from the reproach under which it had fallen." Granting that "extensive and alarming frauds" had plagued the agency in recent years, he laid the blame on the patronage system. The BIR, he told Congress, must be "rescued from the control of purely political favor, which has for many years too largely dictated the appointments in most departments of the government." The answer, Rollins contended, was a depoliticized civil service system that would insulate the BIR and other agency's from such corrupting influences. 113

[100] Liquor taxes may have been the source of high-profile corruption, but the income tax also brought difficulties to the BIR. To begin with, charges that the tax was inquisitorial proved hard to shake. A statutory requirement that tax lists be made public resulted in the widespread publication of personal incomes. The practice raised hackles among taxpayers, and several BIR officials were uncomfortable with the practice; the collector for New York publicly denounced the publication of lists. Washington officials were sympathetic. "In order that it [the income tax] might not be felt to be inquisitorial in its character," noted Commissioner Joseph Lewis in 1863, "the instructions issued by this office required that the returns of income not be open to the inspection of others than officers of the revenue." 114 Soon, however, Lewis was compelled to change his position, and in 1865 he chastised a New York assessor opposing publication. "The lists being open to general inspection, how can an assessor prevent a person entitled to examine it from making a copy?" he asked. "[L]et any one take a copy that will; provided that no interference with the business of the office be occasioned. What use he may make of it is neither your business nor mine." 115

[101] Revenue officials insisted that publicity helped ensure compliance in a system that depended on taxpayer honesty. By publishing assessment lists, the BIR could effectively enlist the help of neighbors and colleagues in promoting truthful returns. "The object of the law seems to have been to afford every tax- payer an opportunity of ascertaining what returns his neighbors have made," noted the commissioner in 1865. "He is interested in these returns, because the burden of the national duties is a common one, and every person should be required to pay his due proportion of it." 116 At least some observers agreed. The New York Times supported the practice in 1865, arguing that it would help stem rampant evasion:

    The publication of the income lists, although it has raised a great deal of indignation, is yet approved by the mass of all upright loyal men who do not desire to see their Government, now in its day of trouble, defrauded of great sums of money which are rightfully due to it. 117

[102] List publication was intended to stem an even more serious problem: tax evasion. Treasury Secretary Fessenden noted in 1864 that the tax was not as productive as it might be, largely due to evasion. In January 1865, Commissioner Joseph Lewis felt obliged to remind BIR employees of their duty to enforce the law vigorously. "Delicacy under such circumstances must be laid aside," he warned them, "and respect for wealth, influence, or social position must yield to the higher obligations of official responsibility." When confronted with an incorrect return, BIR employees should prompt the taxpayer to correct it. If the taxpayer refused, then the law provided various remedies "which, if vigorously pursued, will eviscerate them." 118

[103] Clearly, the collection system was inherently adversarial, prompting considerable tension between officials and taxpayers. The sweeping powers that devolved on field staff -- especially the often ill-trained and always poorly paid assistant assessors -- exacerbated the problem. Charged with broad powers to compel the production of records and interrogate taxpayers, assistant assessors administered a deeply contentious system. Official IRS publications encouraged assessors to take a tough stance. They were instructed to watch for any reluctance on the taxpayer's part, and a failure to produce adequate records was considered particularly serious. Assessors and their assistants were urged to investigate zealously any questionable return. "If an assistant assessor is destitute of the needed intelligence or vigor," warned the commissioner, "his place ought to be supplied by one better fitted for it." 119

[104] Assessors, collectors, and all their assistants were granted the power to search homes and businesses, authority that sat uneasily with many taxpayers. In addition, they had broad powers to proceed with assessment and collection when taxpayers were unwilling to file returns and pay appropriate taxes. Many of their actions were difficult if not impossible to appeal. As critics had foreseen during congressional debate over the BIR's creation, these enforcement powers proved to be a sore spot. And while complaints during the war were relatively muted, focusing instead on the failure to adequately enforce the law, objections shifted once the fighting was over. When peace returned, critics assailed the BIR for an excess of enforcement zeal.

[105] The agency's size also engendered a few complaints during the war. At its birth, of course, congressional critics had warned ominously about the agency's cumbersome and oppressive machinery. The concern was thrust aside by the pressure of events, but gradually it resurfaced. Even supporters of stiff wartime taxation began to voice complaints. Americans were unaccustomed to large governmental organizations, they suggested, especially ones that touched so many individuals directly. The BIR's widely dispersed field staff struck these observers as un-American. As one editorialist lamented:

    [W]ith our system of government, it is a consideration of prime importance that the number of Government functionaries should be kept as small as possible. A vast and complicated system of raising revenue, overspreading the country like a minute network, would not only affect the popular vote prejudicially, but would, if the places of officials were permanent, speedily lay the foundation for a bureaucracy like that of France or Austria, that would eat out the vitals of the country and destroy free institutions. 120

These sentiments bore a striking resemblance to congressional warnings in 1862 that the BIR might prove to be a "centralizing" force in American government, reminiscent of European monarchies.

[106] During the war, most Americans and their political leaders tolerated the BIR's extensive administrative machinery. By 1865, however, this patience was nearing its end. Critics increasingly demanded that Congress scale back the federal tax system, as well as its associated bureaucracy. Resurrecting the military metaphor, one critic warned in 1865 that Congress must reform the tax structure or "an army of tax-gatherers will swarm through the country, like Lee's disbanded veterans, plundering friend and foe alike." Another pointed out that numerous taxes invariably brought with them numerous invading tax collectors. "To collect so infinite a number of small taxes requires an army of paid officials," complained a writer for Harper's Weekly. "To collect them so thoroughly as to prevent fraud would require every second man to be a detective." 121

[107] Complaints about the wartime tax system tended to focus on the number of taxes collected, as well as their type. The multitudinous excise taxes attracted considerable abuse, if only because the sheer effort of collecting often dwarfed the revenue involved. In addition, however, critics began to call for changes in the type of taxes imposed. The income tax would soon emerge as the principal target for many critics.

The Wells Commission and Revenue Reform

[108] In March 1865, pressure for tax reform prompted Congress to create a three-person revenue commission. Composed of three private-sector experts, the panel was asked to investigate the federal tax system, including the objects of taxation and the methods of administration. 122 Treasury Secretary Hugh McCulloch appointed David A. Wells, an ambitious and prominent public policy expert, to head the panel; he was joined by Stephen Colwell of Pennsylvania and Samuel Snowdon Hayes of Illinois. Wells and Colwell, both Republicans, won their positions as representatives of the rising eastern establishment. In contrast, McCulloch appointed Hayes, Chicago's Democratic comptroller, to ensure geographic and partisan diversity. Of the three commissioners, Wells was the most dominant, his ideas shaping the panel's eventual recommendations. 123

[109] The commission issued 13 special reports and a final, general report on the revenue system. Taken together, they outlined a sweeping overhaul of the tax system, including the BIR. To the relief of many tax critics, the commission endorsed a broad rollback in federal taxes, especially excise levies. As the panel noted, wartime exigencies had prompted Congress to tax widely, almost indiscriminately, "so that, at the present time, the sources of national revenue may be said to be commensurate with every department or sub-department of trade or industry in the country, as well as every form of fixed or circulating capital." An efficient system of taxation would tax fewer items but do so more effectively. 124

[110] The panel endorsed the retention of several key taxes, including levies on sugar, cotton, and liquor; all were expected to yield substantial revenue without undue administrative burden. Notably, the panel also recommended the retention of the income tax. Wells was no ardent fan of income taxation, but he appreciated its ability to raise revenue. "Although in many respects an obnoxious tax," he granted, "yet, falling as it does mainly on accumulation, it will probably be sustained with less detriment to the country than any other form of taxation." Still, the panel found room for improvement. The report called for a dramatic increase in the exemption from $600 to $1,000, reflecting the increased cost of living in postwar society; the shift promised to remove many thousands of taxpayers from the taxman's grasp. Panel members also opposed the graduated rate structure, arguing that it unfairly discriminated against successful and industrious citizens. A flat 5 percent tax would be more just, they suggested. 125

[111] On the subject of tax administration, panel members had much to say. "In regard to the Internal Revenue department," they intoned, "the commission have no allegation of fraud to present; but at the same time are constrained to say that, in point of organization and administration, it is very far from what it should be." The agency, they pointed out, was hopelessly constrained in its freedom of operation, hemmed in by budgetary and political strictures. Treasury Department supervisors tended to pinch pennies with the BIR, limiting the it effectiveness in gathering revenue. "In an honest desire to prevent the waste of public money," the commission warned, "a small sum may be saved at an expense of one of much greater magnitude." The commission recounted that some enterprising Bureau of employees, having devised novel means of collecting revenue or detecting fraud, had been docked for the minor costs of these innovations, despite the substantially increased revenue that resulted from the changes -- "a course equivalent," the commission complained, "to offering a premium for continued inefficiency and want of method." 126

[112] The commission further complained that limited budgets were hampering revenue collection. Administrative support within the agency was inadequate; the BIR hobbled along with too few clerks and administrative personnel. Moreover, the agency had difficulty attracting high-caliber personnel for positions it did have available. Many collectors, they noted, were "destitute of business experience," making it hard to rely on them for accurate information and reporting. "Great numbers of designing persons are ever on the alert to take advantage of imperfections in the law, and of the inexperience of officials, to evade the law and defraud the government," the report contended. 127 "The only counter-check, therefore, for government to rely upon is the integrity, faithfulness, capacity, and experience of its agents." 128 Attracting and retaining such first-rate personnel at second-rate salaries was virtually impossible; miserly salaries, moreover, probably ended up costing the government more in lost revenue than it saved in direct expenditures. 129

[113] Compounding these personnel problems, the panel continued, was the rampant use of patronage to staff the agency. Personnel were promoted and demoted based on political connections, fostering cases of gross incompetence, especially among field agents. The panel also reported cases in which talented personnel had been removed from office "for the sole reason that in the faithful discharge of their duties they have interfered with the private interests of wealthy and influential individuals." 130

[114] Overall, the commissioners painted a grim picture of bureau operations, especially regarding personnel. While resisting the temptation to heap corruption charges on the agency, Wells and his colleagues argued that inadequate staffing at all levels of the agency were severely hampering its operations. They urged that "Good men, honest, competent, and efficient, should be sought out and placed in all the positions requiring tact, skill, and judgment, and on such salaries as will enable them to live and continue honest." 131

The Battle Over Income Tax Repeal

[115] The recommendations of the Wells Commission met with broad support, both in the press and in Congress. The latter moved quickly to enact several key suggestions, eliminating numerous manufacturing excise taxes, as well as levies on various raw materials. 132 Notably absent in the initial legislative response to the Wells report, however, was any action on the income tax. The commission's support for a moderated, nongraduated income tax proved problematic, as numerous critics sought to repeal the tax altogether. With the tax slated to expire in 1870, both supporters and opponents were primed for a legislative battle, and they soon had one. Indeed, the congressional contest stretched over five years, with the income tax steadily losing ground until it disappeared in 1872. Throughout this period, the debate hinged on three key objections to the income tax: That it was unnecessary, unfair, and inquisitorial. The last would prove decisive.

[116] Revenue needs are a key determinant of tax policy; major innovations in the federal tax system have almost always grown out of acute -- generally war-borne -- revenue demands. 133 Conversely, ebbing revenue needs allow policymakers a measure of freedom in restructuring tax policies. Such was the case after the Civil War, when an improving fiscal situation opened the door to tax cuts. 134 The resumption of unimpeded foreign trade more than doubled customs revenues in 1866, and a declining need for federal spending left additional room for tax changes. 135

[117] Critics insisted that the income tax had been the child of necessity, a temporary expedient enacted in the face of wartime revenue needs. Now that the war was over, they contended, the tax was due for elimination. "This income tax bears what no other tax bears upon its face," asserted Rep. Dennis McCarthy, R-N.Y., "the evidence that it was only considered and passed as a war tax, being limited to five years in its duration. The five years are up; the war is over; our revenue will bear the reduction, and we can afford to let it die." 136

[118] Onetime supporters of the income tax argued that repeal was only prudent, preserving this extraordinary revenue tool for future use. "I believe that if you want to make this tax so odious so that during another war you can never levy such a tax, you had better renew it," warned Sen. Henry W. Corbett, R-Ore., "and then I assure you, you will never be able, even in that crisis, to establish or levy it again." 137

[119] Senate Finance Committee John Sherman offered a powerful counter to this "war tax" argument for repeal, maintaining that the income tax's original five-year term had been intended to reassure creditors of its durability, not to ensure its speedy demise. "It was a guarantee to the bondholders that for that time at least they should have the security of the income tax," he told his colleagues. 138

[120] Another supporter pointed out that virtually all internal taxes had been enacted as war taxes, and might therefore be equally due for repeal. 139 Other members insisted that income tax revenue was still important. Rep. Austin Blair, R-Mich., for instance, noted that every dollar lost to income tax reduction had to be shifted to some other tax, most of which would fall more heavily on the poor than did the income tax. 140

[121] Blair's argument -- and others like it -- eventually failed to convince most lawmakers. Enjoying a generally healthy fiscal situation, Congress had room to enact tax reductions. But why eliminate the income tax rather than some other levy? Several lawmakers responded with the necessity argument, contending that the tax was specifically enacted as a temporary measure and should therefore be first on the list for elimination. Others income tax foes, however, offered more affirmative arguments for repeal, including repeated assertions that the tax was unfair.

[122] The graduated rate structure was a particular target for critics. In proposing to eliminate it in 1866, Ways and Means Chairman Morrill argued that lawmakers should remove an unhealthy discrimination from the law. "In a republican form of government," he insisted, "the true theory is to make no distinctions as to persons in the rates of taxation. Recognizing no class for special favors, we ought not to create a class for special burdens." 141 Never a fan of the progressive rate system, Morrill saw the easing of revenue needs as a prime opportunity to eliminate this feature from the income tax.

[123] The most potent attacks on the income tax, however, were rooted in complaints about its administration. Critics had long complained that the income tax was inquisitorial -- that it required an array of enforcement officers empowered to investigate the financial dealings of American citizens. Wartime difficulties in collecting the tax only lent credence to this argument. Indeed, for many critics, the real problem with the tax's fairness lay not in its theory, but in its execution. 142

[124] In 1866, Morrill began an argument for income tax reform with a bow to American taxpayers, praising their integrity despite a powerful temptation to fraud. The income tax, Morrill told his colleagues, was "inquisitorial of necessity in its character." 143 Yet Americans resented its intrusions, tenaciously resisting inquiries into their private financial lives. The result was a powerful and morally destructive inclination to lie. "The temptation to make understatements, to lend to these statements the sanction of oath," he argued, "tends to sap and mine public morals, until men begin to excuse themselves for their own wrongdoing, because it being so common, that to do otherwise would be to fail in average smartness." 144 Or as another member complained almost eloquently in 1870:

    Those who pay are the exception, those who do not pay are millions; and the whole moral force of the law is a dead letter. The honest man makes a true return; the dishonest hides and covers all he can to avoid this obnoxious tax. It has no moral force. This tax is unequal, perjury-provoking and crime encouraging, because it is at war with the right of a person to keep private and regulate his business affairs and financial matters. Deception, fraud, and falsehood mark its progress everywhere in the process of collection. It creates curiosity, jealousy, and prejudice among the people. It makes the tax gatherer a spy. 145

[125] Critics had long complained about the abuses of assistant assessors, and members of the House specifically attacked the assessors' unchecked power to impose draconian penalties for fraudulent returns. 146 In addition, several members complained about the publicity of income tax returns, arguing that publication of the assessment lists infringed on taxpayers' rights. 147

[126] In fact, charges that the income tax was inquisitorial actually comprised two distinct arguments that were rhetorically complementary but logically inconsistent. On one hand, critics asserted that the government employed extreme and objectionable methods in seeking to collect the tax, trampling on the rights and privacy of American citizens. At the same time, however, they implicitly acknowledged that such extraordinary enforcement measures were inadequate, allowing many taxpayers to evade the tax. This widespread evasion, in turn, was a blow to national character, sapping the country's moral strength. To income tax opponents, the answer was obvious: Eliminate the tax, and both problems would disappear.

[127] Supporters of the income tax did not so much disagree that the tax was inquisitorial as they simply challenged the uniqueness of this quality. By way of defending the income tax, the Commissioner of Internal Revenue pointed out in his December 1869 annual report that property taxes of all kinds required similar enforcement. Yet these levies were in use across the country by states and localities. The income tax was hardly unique in its tendency to compromise personal financial privacy. 148

[128] Income tax supporters also suggested that most problems could be solved through better collection techniques. In 1869, for instance, the BIR commissioner suggested taxing profits and incomes as they accrued -- in other words, extending the collection-at-source methods included in the original 1861 legislation and employed successfully by the British since the early 19th century. While complex and difficult to establish, a broader system of withholding might well have blunted complaints about both intrusive enforcement techniques and successful evasion of the tax.

The Locus of Opposition

[129] Critics of the income tax argued that their position was overwhelmingly popular. "I do not hesitate to say there is more dissatisfaction with this tax than any other. Objections to its renewal are long, loud, and general throughout the country," proclaimed Rep. McCarthy. "The people demand that it shall not be renewed, but left to die a natural death and pass away into the future as pass away all evils growing out of the Civil War." 149

[130] Certainly, the income tax had opponents in the press, where attacks began to gather steam in the latter half of the 1860s. An article in the American Law Review bemoaned "this burdensome impost," noting its revenue capacity but insisting that such money was "a handsome revenue, wrung from an unwilling people." Chief among the journal's objections was the difficulty of enforcing such a tax. "[N]o tax," the editors noted, "is so completely beyond the assessor's control, so truly a premium upon corruption, -- a percentage upon the taxpayer's conscience." 150

[131] Similarly, the New York Daily Tribune attacked the tax in 1869 for being unequal. "We do not believe there is a tax levied by the Government so onerous upon so large a class of people as the Income Tax," the paper declared. The tax's burden, according to the editors, fell disproportionately on the shoulders of certain citizens, including federal employees, salaried workers, and owners of certain stocks and bonds. 151 The tax was enacted as a temporary, wartime measure, the paper contended, and should be allowed to expire. 152

[132] Meanwhile, an "Anti-Income Tax Association" appeared in both New York and Philadelphia, its members lobbying Congress to eliminate the tax entirely. To a great extent, opposition tended to follow the same sectional lines that had emerged during debate over the tax's enactment; southern and western representatives, while not exactly eager for the tax, were far more sympathetic to it than were their eastern and northern colleagues. 153

[133] Supporters of the income tax insisted that the anti-tax crusade was simply an organized effort among the upper class to discredit this most progressive feature of the federal tax system. "The clamor in favor of the abolition of the income tax is a local and a manufactured cry," complained a congressional advocate for the tax. "It does not come from the masses of the people. It originated among the railroad monopolists, brokers and dealers in stocks, wholesale importers, mostly foreigners, and men of colossal fortunes and extraordinary incomes. It was started by papers in their interest, and is mostly confined to those places and persons. It has not spread to the country." 154

[134] While the income tax was certainly a class tax, targeting well-to-do Americans, it was broader than such rhetoric might suggest. Nationwide, more than 10 percent of all Union households paid the tax by war's end. In the northeast, the number was closer to 15 percent. 155 While certainly not overwhelming, these numbers reflect a tax that affected all rich Americans and a fair number of middle-class taxpayers as well. The anti-tax forces had a limited but substantial constituency.

[135] Income tax supporters challenged the assertion that the levy was unusually susceptible to fraud or that it promoted dishonesty among the citizenry. "The collectors do not report any unusual willingness to pay it," noted The Nation in 1869, "perhaps fewer deliberate attempts are on the whole made to evade it than any other [tax]; and the corruption and abuses which mark its collection have thus been much inferior, both in number and gravity, to those of the custom-house or other branches of the internal revenue." Indeed, the most egregious tax scandals of the era had concerned the whiskey tax.

[136] The campaign to eliminate the income tax, according to the levy's supporters, was little more than an effort to shift the tax burden down the income scale. Every taxpayer naturally sought to foist the burden off on someone else. One member of Congress made the point in colorful fashion by comparing the tax to a boil on a man's nose: "He complained of its being there very much, and his friend asked him, 'Where else would you like to have it?' He thought of the matter for a while, and then answered: "Well, I swon [sic], I believe I would rather have it on some other man's back.'" 156 Senator Sherman offered a succinct assessment of the tax's supposed unpopularity. "We are told that this is an odious and unpopular tax," he declared. "I never knew a tax that was not odious and unpopular with the people who paid it." 157

The Disappearance of the Income Tax

[137] Ultimately, the critics of federal income taxation had little difficulty in eliminating the tax. Republican political leaders acceded to the demands of affected taxpayers, abolishing the progressive rate structure in 1867 by imposing a flat 5 percent tax on all incomes over $1,000 -- precisely the reform suggested by the Wells Commission. In 1870, they reduced the rate again, and eliminated inheritance taxes as well. Even more significant, legislators agreed that the income tax was near the end of its useful life, and they voted to let it lapse after 1871. Meanwhile, they introduced a variety of refinements to the excise taxes on alcohol and tobacco, and these levies assumed their role -- along with customs duties -- as the principal sources of federal revenue. They would remain the mainstay of federal finance until World War I, when the income tax reappeared as a major revenue source. 158

[138] As for the BIR, Congress enacted several modest reforms. The revenue legislation of 1866 featured a modest reorganization, including some sorely needed additions to the staff. For the first time, the agency was allotted its own administrative employees. 159 The act also addressed the commission's suggestion for a new BIR oversight entity, establishing a temporary Special Commissioner of the Revenue "[t]o inquire into all the sources of national revenue, and the best methods of collecting the revenue." 160 To no one's surprise, the post went to Wells. 161

[139] In 1872, lawmakers responded to the widespread complaints about assessors by eliminating the position entirely; duties were split between district collectors and revenue agents. The change left the collectors even more powerful. As presidential appointees, they remained largely independent of their nominal superiors in the Treasury Department and the BIR. Also in 1872, Congress experimented with private collection of federal tax revenues. Lawmakers authorized the commissioner to hire three private sector individuals to assist in collection efforts. These private collectors were to be paid from the taxes they actually collected. The commissioner approved several contracts for private collection, assigning 50 percent of collected taxes as payment for the services rendered. Two years later, however, Congress investigated the practice and discovered that these collectors were simply collecting taxes that would otherwise have been collected by federal officials. While lawmakers uncovered no corruption, neither did they see any reason to continue the arrangement, and legislators repealed the law in 1874. 162

[140] Despite these several changes at the BIR, the agency remained relatively intact. The end of the income tax brought with it a rollback in agency operations, but most of its organizational infrastructure stayed in place. The postwar reform efforts, initiated by Congress in response to widely acknowledged problems at the Bureau, produced more tinkering than restructuring.


[141] Lawmakers created the Civil War income tax to help boost fairness in the federal tax system. The tax was not expected to become a major revenue tool; with a high exemption and low rates, it was considered more symbolic than substantive. Supporters hoped it would ease the way for a larger tax package built on consumption levies; by assuring the rich citizens paid something extra, lawmakers hoped to bolster popular support for the wartime fiscal regime.

[142] Quickly, however, the income tax became much more than a symbol. Within a few short years, it was providing a substantial percentage of federal revenue, and policymakers were coming to realize that it could raise even more. One of the tax's most important features, its progressive rate structure, grew principally out of a desire for additional revenue, not from any effort to redistribute wealth or promote social justice. The story of wartime taxation generally -- and of the income tax in particular -- was all about revenue.

[143] Collecting that revenue, however, was no easy task. Federal officials had no experience running an income tax, and officials at the new Bureau of Internal Revenue confronted a daunting task in trying to administer it. Overall, they did a remarkable job, successfully devising procedures and policies for a nationwide collection effort. Congress helped the agency with one hand, allowing it extensive enforcement powers, but hobbled it with the other, providing inadequate funding and limited administrative support. The combination turned out to be less than helpful, as an overworked, underpaid, but powerful "army" of field staff were left to administer the tax.

[144] The taxpaying public and their elected officials tolerated this bureaucracy during the war. While congressional Cassandras warned that the agency would prove oppressive, their concern was swept aside by pressing revenue needs. Once fighting ended, however, such warnings found new voice, and this time from new critics. An easing fiscal climate opened the door for reform, and opponents began a campaign to repeal the tax. By 1872, it had been allowed to lapse.

[145] The income tax succumbed to relative prosperity. Absent wartime fiscal pressures, opponents of the tax managed to overwhelm those seeking to retain it. Fairness arguments were no longer convincing for most members of Congress, at least not in support of the levy. Instead, opponents of the progressive rate structure successfully argued that taxing people at different rates was inherently unjust.

[146] Critics also stressed the difficulties inherent in administering an income tax. Indeed, these concerns proved central during the debate over repeal. BIR critics denounced the agency for its corrupt operations; while excise levies had been the source of most BIR malfeasance, income tax critics neatly turned the agency's sullied reputation against a different target.

[147] At the same time, critics also attacked the agency for its heavyhanded enforcement tactics, insisting that income taxation was inherently inquisitorial. Requiring a powerful collection agency, armed with authority to evaluate the financial dealings of taxpayers across the nation, the tax was simply inconsistent with democratic government, they contended. When the war began, these arguments had been used to challenge the BIR's creation; critics insisted that the agency would prove oppressive and "odious" to American citizens. After the war, critics used the BIR's "army of officials" to discredit the income tax itself, shifting the odium from the collector to the levy.

[148] The Civil War experiment with income taxation illustrated the difficulty inherent in sustaining this progressive revenue tool. Some historians have dismissed the Civil War levy as symbolic window dressing for a broadly regressive tax system. 163 Clearly, however, many taxpayers saw things differently. The postwar reaction against income taxation, and the rhetorical vitriol that accompanied it, revealed the political and economic importance of this fiscal innovation.


1 For a comprehensive discussion of colonial faculty taxes, see Edwin R.A. Seligman, The Income Tax (New York: The Macmillan Company, 1921), pp. 367-387. While acknowledging the relevance of faculty taxation to the later introduction of income taxation, Seligman resolutely rejected efforts to view the former as an early version of the latter. As he noted scathingly, "To claim, then, that our colonial income taxes on faculty were income taxes, betrays a confusion of thought and an ignorance of economic distinctions." For a briefer discussion of faculty taxation, see Randolph E. Paul, Taxation in the United States (Boston: Little Brown and Company, 1954): 3-4.

2 These states included Pennsylvania, Maryland, Virginia, North Carolina, and Alabama. For an excellent discussion of state income taxes, see Seligman, note 1 supra, at 388-429. His treatment includes income taxation among Confederate States during the Civil War. See also Delos O. Kinsman, "The Income Tax in the Commonwealths of the United States," 4 (4) Publications of the American Economic Association 1, 3rd Series (November 1903).

3 Parliament enacted the income tax originally in 1799, only to repeal and re-enact it several times. In 1842, it found a permanent place in the British revenue system. See B.E.V. Sabine, A History of Income Tax (London: George Allen & Unwin, Ltd., 1966), chapters 1-5.

4 On U.S. policymakers and their awareness of the British tax, see Jerold Waltman, "Origins of the Federal Income Tax," 62(3) Mid-America: An Historical Review 147 (October 1980).

5 These taxes included many that remain the topic of contemporary tax policy debate. A tax on imputed rental income for owner occupied houses, for instance, continues to be a topic of spirited jousting among economists, many of whom believe that it boosts fairness in the tax system. Similarly, the British system included levies on successions (a forerunner of estate taxes), and a limited collection of luxury taxes. See Seligman, note 1 supra, at 57-114. For a useful survey of English taxation before the Napoleonic wars, see William Kennedy, English Taxation, 1640-1799 (London: Frank Cass & Co., Ltd., 1964). See also Sabine, note 3 supra, at 11-25; Margaret Levi, Of Rule and Revenue (Berkeley: University of California Press, 1988), pp. 122-144.

6 The British income tax of 1799 was novel in its attempt to tax all income, from whatever source it originated. In one sense, the tax built on earlier excise legislation that had capped consumption taxes at 10 percent of an individual's total income. The 1799 legislation took this income cap and made it the basis for an entirely new levy, featuring graduated rates on all income exceeding ú60. As with later income taxes, both in Britain and the United States, the 1799 tax included allowances for children, as well as deductions for interest on debt, other taxes paid, life insurance, and maintenance to rental properties. See Sabine, note 3 supra, at 29.

7 Id.

8 Seligman, note 1 supra, at 74.

9 Id. at 74-75. For additional discussion of the objection to taxing all income equally, see Kennedy, note 5 supra, at 173-179.

10 For a useful overview of horizontal equity, see C. Eugene Steuerle, "And Equal (Tax) Justice for All," in Tax Justice, Joseph J. Thorndike and Dennis J. Ventry, Jr., eds. (Washington, D.C.: Urban Institute Press, forthcoming). The definitive modern treatment of the concept can be found in works by economist Richard Musgrave. See Richard A. Musgrave, Public Finance in Theory and Practice (New York: McGraw-Hill, 1959), and Richard A. Musgrave, "Public Finance and Distributive Justice" in Public Choice, Public Finance, and Public Policy: Essays in Honour of Alan Peacock, David Greenaway and G.K. Shaw, eds. (Oxford: Basil Blackwell Ltd., 1985), pp. 1-14.

11 William Frend, Principles of Taxation. London: 1799, xv. Quoted in Seligman, note 1 supra, at 76. See also Humphrey Hourglass, "The Mouse Trap Maker and the Income Tax; a Tale, Supposed, by Anticipation, to Be Written in the Year 2000; With an Introductory Allegory Addressed to a Man in Office." London, n.d. (1799), 12.

12 Quoted in Sabine, note 3 supra, at 30.

13 Parliamentary Register, 5/VI/1800, quoted in Sabine, note 3 supra, at 32.

14 Man Midwife: The further experiences of John Knyveton, M.D., late Surgeon in the British Fleet during the years 1763-1809, quoted in Sabine, note 3 supra, at 31.

15 For the state of government finance at the opening of the war, see Robert T. Patterson, "Government Finance on the Eve of the Civil War," 12(1) Journal of Economic History 35 (Winter, 1952).

16 Harry Edwin Smith, The United States Federal Internal Tax History From 1861 to 1871 (New York: Hart, Schaffner & Marx, 1914), pp. 1-14; Robert P. Sharkey, Money, Class, and Party: An Economic Study of Civil War and Reconstruction (Baltimore: John Hopkins University Press, 1959), pp. 17-18; Frederick J. Blue, Salmon P. Chase: A Life in Politics (Kent, Ohio: Kent State University Press, 1987), p. 143; Albert Bushnell Hart, Salmon Portland Chase: American Statesman (Boston: Houghton Mifflin and Company, 1899), pp. 220-221; J.W. Schuckers, The Life and Public Services of Salmon Portland Chase (New York: D. Appleton and Company, 1874), p. 209. On the political effects of the Panic of 1857, including the Democratic refusal to boost tariff duties, see James L. Huston, The Panic of 1857 and the Coming of the Civil War (Baton Rouge: Louisiana State University Press, 1987), pp. 173-209.

17 For the best modern assessment of Chase's leadership at Treasury, see Blue, note 16 supra, at 129-172.

18 Report of the Secretary of the Treasury on the Finances, Senate Executive Document 2 (37/1) Serial Set (hereafter S.S.) 1112.

19 Id. at 1112.

20 Id.

21 Id. As an alternative to direct taxes, Chase floated the possibility of various indirect taxes on consumer goods, most of which he classified as luxuries. The list included taxes on stills and liquor, beer, tobacco, carriages, silverware, and jewelry. In addition, he proposed taxes on bank notes and on legacies. See Blue, note 16 supra, at 144; Phillip Shaw Paludan, "A People's Contest": The Union and the Civil War, 1861-1865, 2nd edition (Lawrence, Kansas: University of Kansas Press, 1996), pp. 115-116. Paludan also provides a general overview of Union taxation during the Civil War.

22 For a discussion of the direct taxation issue in early U.S. national history, see Charles F. Dunbar, "The Direct Tax of 1861," Quarterly Journal of Economics 3 (1889).

23 One critic noted that while Illinois and Massachusetts had roughly equal populations, different tax bases would produce starkly divergent rates of 0.60 percent in the former and only 0.26 percent in the latter; see Congressional Globe, Thirty Seventh Congress, First Session (Washington, 1861) (hereafter C.G. (37/1), 325-326. For similar comparisons, see C.G. (37/1), 248-249, 252. See also Seligman, note 1 supra, at 431, and Robert Stanley, Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861-1913, 28.

24 For a discussion of property taxation, including its evolution away from general property taxation to a strictly real estate-based levy, see Edwin R.A. Seligman, "The General Property Tax," in Essays in Taxation, 10th edition (New York: Macmillan Company, 1928), chapter 2.

25 See comments by Illinois Republican Owen Lovejoy, C.G. (37/1), 248; Ohio Republican Sidney Edgerton, C.G. (37/1), 282.

26 C.G. (37/1), 306.

27 C.G. (37/1), 248. See also John Alexander McClernand, D-Ill., C.G. (37/1), 249. For general discussion of the opposition to a property tax, see Joseph A. Hill, "The Civil War Income Tax," Quarterly Journal of Economics 419 (1894); W. Elliot Brownlee, Federal Taxation in America: A Short History, 25-26; Stanley, note 23 supra, at 28.

28 C.G. (37/1), 282.

29 C.G. (37/1), 247, 250.

30 C.G. (41/1), 279.

31 C.G. (37/1), 247.

32 C.G. (37/1), 272.

33 C.G. (37/1), 247.

34 C.G. (37/1), 300.

35 C.G. (37/1), 247.

36 C.G. (37/1), 247.

37 C.G. (37/1), 247.

38 C.G. (37/1), 807.

39 C.G. (37/1), 300.

40 C.G. (37/1), 251-252.

41 C.G. (37/1), 248.

42 C.G. (37/1), 252, 308, 323.

43 C.G. (37/1) 254. His proposal also included a tax of 7.5 percent on incomes from property in the United States but owned by citizens living overseas. Income from federal bonds were to receive preferential treatment, being taxed at only 2.5 percent.

44 William Fessenden, R-Maine, C.G. (37/1), 255.

45 Trusten Polk, D-Mo., C.G. (37/1), 320.

46 John Sherman, C.G. (37/1) 320.

47 John Hale, R-N.H., C.G. (37/1), 320.

48 See comments at C.G. (37/1), 320 by Sens. James McDougall, D-Calif., William Fessenden, R-Maine, and Ten Eyck, R-N.J.

49 See Hill, note 27 supra, at 419; Seligman, note 1 supra, at 434. Citizens residing abroad were expected to pay at a rate of 5 percent, and income from government securities was taxed at 1.5 percent. The higher rate for overseas citizens was meant to compensate for U.S. consumption taxes they avoided while living abroad. The lower rate for income from government securities, meanwhile, was designed to encourage bond purchases for the war effort.

50 Stanley, note 23 supra, at 41.

51 See Seligman, note 1 supra, at 436; Frederic C. Howe, Taxation and Taxes in the United States Under the Internal Revenue System 1791-1895, at 192; Hill, note 27 supra, at 418.

52 Report of the Secretary of the Treasury, Dec. 9, 1861 (Washington, D.C.), pp. 14-15. See also Seligman, note 1 supra, at 435; Hill, note 27 supra, at 420.

53 "The Tax Bill -- The Cost of Collecting the Taxes," The New York Times, July 8, 1862, p. 4.

54 "How to Collect the Direct Tax," The New York Times, Sept. 2, 1861, p. 4.

55 Report of the Secretary of the Treasury, Dec. 9, 1861 (Washington, D.C.).

56 Ratner, Taxation and Democracy, 68-69. Sidney Ratner, Taxation and Democracy in America (New York: W.W. Norton, 1967), pp. 68-69.

57 C.G. (37/2), 1196; Hill, note 27 supra, at 421. Morrill seemed to believe that the bill involved "double taxation" of some sort, although he was unclear in explaining his complaint.

58 C.G. (37/1), 1577.

59 C.G. (37/2), 1242.

60 For the case supporting lower pay, see remarks by Rep. John Hickman, R-Pa., C.G. (37/2), 1254; for those supporting higher pay, see those by Rep. Albert Riddle, R-Mass., C.G. (37/2), 1255.

61 C.G. (37/2), 1244.

62 C.G. (37/2), 1287.

63 For the text of the amendment, see C.G. (37/2), 1219.

64 C.G. (37/2), 1220.

65 C.G. (37/2), 1219-1220.

66 C.G. (37/2), 1226-1227.

67 C.G. (37/2), 1227.

68 C.G. (37/2), 1194.

69 C.G. (37/2), 1222.

70 C.G. (37/2), 1224.

71 C.G. (37/2), 1225.

72 C.G. (37/2), 1224.

73 C.G. (37/2), 1225.

74 Ratner, note 56 supra, at 72. Ratner argues that the graduated rate structure reflected an effort to raise revenue, tempered by a concern that lower incomes not be taxed too heavily. On this point, see also Brownlee, note 27 supra, at 27; Howe, note 51 supra, at 90-97; Seligman, note 1 supra, at 436-437.

75 C.G. (37/2) 2608.

76 George S. Boutwell, Manual of the Direct and Excise Tax System of the United States; including the forms and regulations established by the commissioner of internal revenue; the decisions and rulings of the commissioner; together with extracts from the correspondence of the office (Washington D.C.: Government Printing Office, 1863). The conference bill also included a preferential 1.5 percent rate on income from government securities, and a 5 percent rate on U.S.-based income accruing to citizens abroad.

The direct tax eliminated by the Senate was retained in the conference bill, but suspended for two years. Soon afterward, the tax would be eliminated entirely. The law also provided for deductions from income for all taxes paid, both to the federal government and to other jurisdictions. Of particular note was a provision allowing a deduction for "stamp and ad volorem duties" already paid on manufactured articles. This provision might have exempted all business incomes from manufacturing, since the 1862 act also included an extremely comprehensive collection of excise duties on manufactured goods. This potential loophole was quickly closed the following year. See Seligman, note 1 supra, at 438.

77 Id. (requiring deduction of income from source of payment); Ratner, note 56 supra, at 74-75; Seligman, note 1 supra, at 437. Corporations affected by the provision included railroads, banks, trust companies, savings institutions, and insurance companies.

78 Ratner, note 56 supra, at 75.

79 "The recent financial, industrial and commercial experiences of the United States," Cobden Club Essays, Second Series, 1871-1872, 475, quoted in Herbert Ronald Ferleger, David A. Wells and the American Revenue System, 1865-1870, PhD. diss., Columbia Univ., 1942, at 44. For a similarly tongue-in-cheek evaluation, see Office of the Commissioner of Internal Revenue, History of the Internal Revenue Service, 1791-1929, reprinted in Robert M. Willan, Income Taxes: Concise History and Primer, IV-22 (1994): "If any article or business escaped taxation, apparently it was an oversight on the part of Congress."

Contemporary critics were more direct, insisting that many of the new taxes would cost more to collect than they could ever produce. See "The New Tax Bill," The New York Times, Mar. 5, 1862, p. 4; "Taxation in America -- Its Principles and Practice," The New York Times, Jan. 18, 1864, p. 4.

80 Ratner, note 56 supra, at 82.

81 In his annual report for 1863, Lewis suggested that the rates be set at 4 percent for incomes from $5,000 to $10,000, 5 percent from $10,000 to $20,000, and 5.5 or 6 percent on incomes more than $20,000. Report of the Commissioner of Internal Revenue for the Year ending June 30, 1863, pp. 3-11.

82 Ratner, note 56 supra, at 83. See comments of Henry L. Dawes, R-Mass., and Rufus P. Spaulding, D-Ohio.

83 Seligman, note 1 supra, at 440. C.G. (38/1), 1876.

84 Seligman, note 1 supra, at 441. C.G. (38/1), 1876.

85 C.G. (38/1), 1940. Seligman, note 1 supra, at 441; Ratner, note 56 supra at 84.

86 C.G. (38/1), 1940.

87 C.G. (38/1), 2513. Seligman, note 1 supra, at 442; Ratner, note 56 supra, at 84.

88 C.G. (38/1), 2514.

89 C.G. (38/1) 2760.

90 Ratner attributes this quick escalation of rates to the emerging decision to abandon the direct tax. He contends that a majority of the senators supporting Grimes in his amendment also voted subsequently to eliminate the direct tax. The rate hike, in this scenario, was motivated as much by the looming revenue shortfall as by inherent fairness of the rates themselves. See Ratner, note 56 supra, at 72.

91 The tax on dividends from banks, trusts, insurance companies, and other financial institutions, set at 3 percent in 1862, were boosted to 5 percent. As before, these companies were directed to withhold the tax directly. In addition, transportation companies including railroads, canals, and turnpikes were directed to withhold a similar tax. The flat-rate dividends tax reflected the administrative difficulty of collecting a graduated rate at the source.

The withholding tax on government salaries, set at 3 percent in 1862, was raised to 5 percent. Distinctions in tax rates for citizens abroad and for interest on government bonds disappeared with the 1864 law. For details, see Seligman, note 1 supra, at 444-445; Ratner, note 56 supra, at 86.

92 Stanley, note 23 supra, at 35; Ratner, note 56 supra, at 89-90; Seligman, note 1 supra, at 446; C.G. (38/1) 3527, 3528-3532.

93 United States Department of the Treasury, Annual Report of the Secretary of the Treasury on the State of the Finances. (Washington, D.C.: Treasury Dept., 1864), p. 15.

94 Id. See also Seligman, note 1 supra, at 447.

95 Boutwell recounted his experiences at the BIR -- as well as the rest of his public service career, in George S. Boutwell, Reminiscences of Sixty Years in Public Affairs (New York: McClure, Phillips & Co, 1902).

96 Id. at 308.

97 By January 1, 1863, the BIR employed 3,882. The field staff included 366 collectors and assessors, 898 deputy collectors, and 2,558 assistant assessors. The headquarters staff included the commissioner and 59 clerks. See Willan, note 79 supra, at IV-23; John C. Chommie, The Internal Revenue Service, (New York, Praeger, 1970), p. 10. Staffing would remain almost constant for the next 50 years.

98 "The New Tax Districts," The New York Times, July 21, 1862, p. 4. For background on the commissioner's responsibilities, see Boutwell, note 76 supra, at 33-49; "The Internal Revenue System," American Law Review, January 1868, p. 243.

99 For details on the issuance of guidance during Boutwell's tenure, see Boutwell, note 95 supra, at 306-307. On the commissioner's broad powers, see "The Internal Revenue System," note 98 supra, at 243.

100 Boutwell, note 76 supra, at 122; see also John Taylor, The Internal Revenue Service: A Short History 3 (1996) (discussing dramatic increase in agency field force); Chommie, note 97 supra, at 10-11 (same); Willan, note 79 supra, at IV-23 (same).

101 Boutwell, note 95 supra, at 331-314.

102 Boutwell, note 76 supra, at 34-39; see also Hill, note 27 supra, at 435; Willan, note 79 supra, at IV-23-24; Chommie, note 97 supra, at 10.

103 Boutwell, note 76 supra, at 34-35, 40-47; see also Willan, note 79 supra, at IV-24.

104 Boutwell, note 76 supra, at 39, 47-48. See also Willan, note 79 supra, at IV-24; Taylor, note 100 supra, at 3.

105 For general revenue numbers see Taylor, note 100 supra, at 3. For income tax collections see Seligman, note 1 supra, at 471. As Seligman notes, this slow start was a popular argument among income tax supporters for keeping a federal tax agency even in times of peace.

106 "Commissioner Boutwell's First Report," The New York Times, Jan. 22, 1863, p. 2 (discussing important role of assessors in collecting taxes).

107 Report of the Commissioner of Internal Revenue, 1865 (Washington, D.C.), pp. 19-20. Similar comments can be found in annual reports for 1863 and 1864.

108 "Resignation of Commissioner Rollins," The New York Times, June 9, 1868, p. 1.

109 "Secretary M'Culloch's Rejoinder to Mr. Rollins," The New York Times, June 14, 1868, p. 1.

110 "Our Taxes," Harper's Weekly, Dec. 16, 1865, p. 786.

111 Laurence F. Schmeckebier and Francis X.A. Eble, The Bureau of Internal Revenue: Its History, Activities and Organization, 28-29 (1923).

112 U. S. Vidocq (pseudonym), The Secrets of Internal Revenue. Franklin Eliot Felton, ed. (Philadelphia, Chicago: W. Flint, 1870). See also James J. Brooks, Whiskey Drips (originally published 1873, republished on microfiche (Woodbridge, Conn.: Research Publications, 1988).

113 E.A. Rollins, Report of the Commissioner of Internal Revenue (1867), pp. xv-xxxi.

114 Joseph J. Lewis, Report of the Commissioner of Internal Revenue (1864), p. 11.

115 "Publication of the List of Incomes," The New York Times, Feb. 7, 1865, p. 4; see also "The Publication of the Income Tax Assessments," The New York Times, Jan. 16, 1865, 8; Lewis, note 114 supra, at 11; "The Income Lists," The New York Times, Jan. 13, 1865, p. 4.

116 "Publication of the List of Incomes," The New York Times, Feb. 7, 1865, p. 4. Whatever its advantages, publicity had a steep cost. Indeed, at least one observer voiced skepticism that any advantages "were great enough to offset the annoyance and some injury to which it often subjected the tax-payer, and the odium which was attached to the tax in consequence." See Hill, note 27 supra, at 436; Seligman, note 1 supra, at 477-79; Howe, note 51 supra, at 96-97.

117 "Our Internal Revenue System," The New York Times, Jan. 29, 1865, p. 3.

118 "The Special Income Tax," The New York Times, Jan. 29, 1865, p. 2.

119 "The Special Income Tax," The New York Times, Jan. 26, 1865, p. 2. See also Seligman, note 1 supra, at 477-478.

120 "Taxation in America -- Its Principles and Practice," The New York Times, Jan. 18, 1864, p. 4.

121 "Our Taxes," Harper's Weekly, Dec. 16, 1865, p. 786. See also "Our Tax System," The Nation, Sept. 7, 1865, pp. 297-298.

122 United States Revenue Commission, Reports of a Commission Appointed for a Revision of the Revenue System of the United States (1866).

123 On Wells and his rise to prominence in Washington, see Ferleger, note 79 supra, at 1-27, 43, 91-93.

124 See United States Revenue Commission, note 122 supra, at 1-51; see also Schmeckebier and Eble, note 111 supra, at 14 (stating specifications for new tax commission); "The Revenue Commission," The New York Times, Oct. 21, 1865, p. 2 (stating that revenue commission had been formed and will prepare a report on taxation of whiskey and coffee, among other subjects); Willan, note 79 supra, at IV-25 (discussing plans for a massive changing of tax collection system and appointment of David Wells as the commissioner).

125 United States Revenue Commission, note 111 supra, at 27-28; Ferleger, note 79 supra, at 63.

126 United States Revenue Commission, note 122 supra, at 46.

127 Id. at 47.

128 Id.

129 See "Our Revenue System," The New York Times, Jan. 30, 1866, p. 1 (stating difficulty in finding reputable collectors); United States Revenue Commission, note 122 supra, at 47.

130 Id. at 48. For similar comments about the agency's use of patronage, see also "The Internal Revenue System," note 98 supra, at 257. The commission's support for more permanent tenure in office encountered opposition from an unexpected quarter; former BIR commissioner Boutwell, who became Treasury Secretary in 1870, argued that such changes would harm the agency's effectiveness. See Ferleger, note 79 supra, at 41.

131 Id. The Wells Commission went on to suggest a thorough overhaul of the revenue agency, including a reorganization of the Treasury officials overseeing it. Maintaining that the Treasury Secretary was overburdened, they suggested creation of an undersecretary for revenue collection. Additionally, they called for the creation of two new commissioner positions, one devoted to customs duties and the other to internal taxes. Along with equivalent solicitor positions, these officers would join the undersecretary in supervising all revenue collection. The commission further suggested Congress could not adequately monitor the revenue system, and they recommended creation of a new entity to do so. See id. at 49-51.

132 Ferleger, note 79 supra, at 73.

133 On the role of national emergencies in the formation of tax regimes, see Brownlee, note 27 supra, at 1-8.

134 Postwar progress on the federal debt played a key role in weakening the case for income taxation. The federal government's gross debt declined from $2.755 billion in 1866 to $2.430 million in 1870. After years of rising debt, this decline reduced pressure on lawmakers to maintain high wartime tax levels. See Ratner, note 56 supra, at 123.

135 W. Elliott Brownlee, "Tax Regimes, National Crisis, and State-Building in America" in Funding the Modern American State, 1941-1995: The Rise and Fall of the Era of Easy Finance (Washington: Woodrow Wilson Center Press and Cambridge University Press, 1996), at 47.

136 C.G. (41/2), 3993.

137 C.G. (41/2), 4717. See also C.G. (41/2), 5100 for a similar argument from Sen. Charles Sumner.

138 C.G. (41/2) 4715.

139 C.G. (41/2) 3997.

140 C.G. (41/2) 3994.

141 C.G. (39/1), 2437. See also Ratner, note 56 supra, at 113.

142 See, e.g., the comments of Sen. William A. Buckingham, quoted in Elmer Ellis, "Public Opinion and the Income Tax, 1860-1900," Mississippi Valley Historical Review, September 1940, p. 229.

143 C.G. (39/1), 2437.

144 C.G. (39/1), 2437.

145 C.G. (41/2), 3993.

146 C.G. (39/1), 2788.

147 C.G. (39/1), 2788.

148 Report of the Commissioner of Internal Revenue for the Year Ending June 30, 1869, p. xiii.

149 C.G. (41/2), 3993.

150 "The Internal Revenue System," note 98 supra, at 254. The journal also derided the federal tax system as overly complex, both by design and in administration. "The whole law wants simplicity of arrangement. With each session of Congress, there are fresh experiments, and the whole system is remodelled [sic] every year. Uniform administration of the law thus becomes almost impossible."

151 The paper's complaint concerned the statutory requirement that tax be withheld at source from many salaries and certain kinds of investment income, including money from railroad, bank, and insurance investments.

152 "The Income Tax," New York Daily Tribune, Dec. 10, 1869, p. 4.

153 Ellis, note 142 supra, at 225-242.

154 C.G. (41/2) 4023; Seligman, note 1 supra, at 459-460.

155 Brownlee, note 135 supra, at 46. Other estimates, including those by Robert Stanley, place this figure anywhere between 1.3 percent and 20 percent, depending on assumptions. Brownlee's estimates seem a reasonable compromise. For a discussion of the debate over incidence, see Brownlee, note 135 supra, at 47, and Stanley, note 23 supra, at 40, 263-264.

156 C.G. (41/2), 4038; Seligman, note 1 supra, at 459-460.

157 C.G. (41/3), Appendix, 61.

158 Brownlee, note 135 supra, at 47-48.

159 Staff additions included two deputy commissioners (in addition to the one already extant), a solicitor, 7 division heads, 221 clerks, 8 messengers, and 15 laborers. Schmeckebier and Eble, note 111 supra, at 6, 22 (stating that internal revenue collections grew and detailing the creation of new office positions for greater efficiency); see also Willan, note 79 supra, at IV-25 (describing addition of new tax clerks and personnel expansion).

160 Schmeckebier and Eble, note 111 supra, at 6, 22.

161 Ferleger, note 79 supra, at 97.

162 Willan, note 79 supra, at IV-26.

163 See, most notably, Robert Stanley's arguments in Dimensions of Law, note 23 supra, chapter 1 and passim.