President Abraham Lincoln “created the Bureau of Internal Revenue, the predecessor of today’s Internal Revenue Service, and introduced the first U.S. income taxes in 1862 to pay for the North’s Civil War expenses. The Confederacy also imposed income taxes. After all, military wars, especially big ones, have to be paid for; at least, that used to be a fact of life.”
Mr. Lincoln’s levies fell mainly on the well-to-do. There was an exemption from taxes for the first $600 of income. Once beyond that amount, the maximum rate topped off at five percent. The taxes were temporary, not becoming permanent until the ratification in 1913 of the Sixteenth Amendment to the U.S. Constitution.
Lincoln wasn’t completely satisfied with the format of America’s taxation, just as no President has been since. But he noted the necessity of it to those who would carp and complain about the structure and miss the point entirely:
In an 1864 address to the 164th Ohio Regiment, Mr. Lincoln said “I apologize for the inequities in the practical applications of the tax, but if we should wait before collecting a tax to adjust the taxes upon each man in exact proportion with every other, we shall never collect any tax at all.”
Half a century later, amidst the hangover from the Gilded Age and a continuing boom in economic inequality that threatened the nation’s future prosperity, progressive candidate (and former Republican) Theodore Roosevelt said this about instituting the first-ever income tax:
“The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means, Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective—a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
Roosevelt would lose the 1912 election but his two rivals (Republican William Howard Taft and Democrat Woodrow Wilson) were also backing a federal income tax. The following year, 4/5ths of states ratified the 16th amendment and President Wilson signed it into law.
This funding of the federal government, in part, enabled the United States to enter WWI and help its allies defeat the German Empire that had threatened the entire world.