The First 1040


The short-lived Civil War tax gave rise to two institutions that are still very much with us. One was progressive rates, introduced not to make the burden equitable but simply to raise revenue. The other was the Internal Revenue Service, then known as the Bureau of Internal Revenue. Taxpayers were assessed by collectors through notices in newspapers and public places, which if not answered were followed up with personal visits. For a time the bureau tried paying commissions to its employees but it abandoned that idea when several agents, pocketing both tax payments and commisions, simply disappeared.

The Civil War tax forcefully demonstrated the revenue-raising power of an income tax, and the lesson was never forgotten. Between 1873 and 1879 fourteen income tax bills were introduced by congressmen from the South and Midwest, where income was lowest and the impact of tariffs greatest. A bill finally was passed in 1894 that would have put a flat 2 percent tax on incomes of more than four thousand dollars. It made Rep. David De Armond of Missouri nearly delirious: “The passage of the bill will mark the dawn of a brighter day, with more of sunshine, more of the songs of birds, more of that sweetest music, the laughter of children well fed, well clothed, well housed.” Stockholders of several companies saw things differently and filed suits to challenge the tax’s constitutionality. One of the cases, Pollock v. Farmers’ Loan and Trust Company, ended in one of the most questionable Supreme Court decisions of all time.

The Court had to decide whether the tax was an indirect one, permitted by the Constitution, or a direct one, forbidden by Article I unless apportioned on the basis of population. The plaintiffs argued passionately that the Founding Fathers had considered any taxes on rents and personal property direct. The record of the Constitutional Convention gives no indication of this, but in May 1895 the Court declared the entire income tax legislation invalid, even though it had retroactively upheld the Civil War tax fifteen years before. Justice Stephen J. Field, who had voted with the majority in that case, was still sitting in 1895, but he had changed his mind. “The present assault upon capital is but the beginning,” he wrote in his concurring opinion, and if it continues, “our political contests will become a war of the poor afiainst the rich.”

One Missourian wrote: “I have … left out some of the deductions I could claim, in order to have the privilege of paying at least a small income tax.”

Justice Edward D. White’s dissent seemed to support speculation that the Court was acting in self-interest: “If the permanency of its conclusions is to depend upon the personal opinions of those who from time to time may make up its membership, it will inevitably become a theatre of political strife and its action will be without coherence or consistency.”

Despite the ruling, the income tax idea would not die. Between 1895 and 1909 forty-two more income tax bills were introduced, exclusively by Democrats and Populists from the South and West. Even President Theodore Roosevelt came out for a tax during a 1906 speech. To the immense relief of fellow Republicans, he did not pursue the idea further.

One Democrat in the Tennessee legislature watched the development and demise of the 1894 tax especially closely. Cordell Hull, later Franklin Roosevelt’s Secretary of State, represented a poor, rural district and was convinced that “wealth was shirking its share of the tax burdens.” He was elected to Congress in 1906 and promoted the income tax idea almost to the point of obsession throughout the 60th Congress.

“I talked to some Congressmen so often they were no longer willing to listen,” he later recalled. “House leaders … strongly favoring an income tax, would turn and walk in another direction when they saw me approaching.” Unfortunately for Hull, the House was still dominated by Republican “standpatters,” who supported the tariff as a means of keeping wages (not to mention profits) high. He would not be deterred.

In 1909 Hull managed to get a bill considered as an amendment to the Republican-sponsored Payne Tariff Bill, but it was promptly defeated, and the tariff was approved and sent to the Senate, seemingly out of Hull’s reach. Then, in a quirk of fate with lasting reverberations, Hull had the good fortune to share a sleeping car with Sen. Joseph W. Bailey of Texas, a strong advocate of the 1894 tax. By the time the train reached Tennessee, Hull had persuaded Bailey to sponsor an income tax amendment in the Senate.


Meanwhile a bipartisan alliance was emerging in the Senate among those who opposed increased tariffs and thus supported an income tax. To counter this movement, President Taft secretly worked out a compromise during golf games at Chevy Chase and clandestine evening carriage rides. If the Democrats and pretax Republicans would drop the tax from the tariff bill, the administration and regular Republicans would back a resolution authorizing an income tax amendment to the Constitution— an amendment they doubted would ever be ratified.