Mr. Lincoln’s Hand in the Pocket—First U.S. Income Tax Funded the Civil War

 

Lincoln's Income Tax proposal was bitterly opposed by Democrats and mocked in the press.  Here he is not only depicted as a court fool, but his exaggerated nose is meant to suggest that he was a "greedy Jew."

Nobody, and I mean nobody—not even progressives—likes paying taxes.  Especially income taxes.  We are aware of the need to fund the essential work of government, and may even support wider spending for public benefit, but when the tax bite falls on us personally, it hurts. 

On August 5, 1861 President Abraham Lincoln signed into law the first American income tax.  It was a provision of the Revenue Act of 1861.  The new tax was 3% on all income above $800 to be “…levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever…”  The same act hiked the tax to 5% on all citizens living outside the country.  It was essentially a flat rate tax. 

Needless to say, it was unpopular.  But the President had few alternatives.  He had raised a massive Army, outfitted, and armed it with money that the government didn’t have.  And despite the hopes for a quick victory, Lincoln knew that the War to Preserve the Union, as he called it, was apt to take a while. 

Since the foundation of the Republic the Federal government had been on a strict revenue diet for both philosophic and practical reasons.  The realm of Federal activity was strictly limited by the Constitution as it was interpreted at the time.  Most governmental functions fell to the individual states and local governments. 

Federal revenues were limited.  Most came either from the Tariff or from the sale of government land.  But because of anti-tariff feeling in the agricultural South, where the plantation elites relied on the importation of cheap manufactured goods from Europe and resented protectionist levies that benefited Northern manufacturers, import levies had been slashed in 1841 and lowered again in 1856.  Land sales were also in the decline as most Federal land east of the Mississippi was settled and western sales were slowed by the continuing border wars in Kansas and Indian peril elsewhere.   Then, of course, the secession of the Southern states cut Tariff revenue from important ports like Charleston, Savannah, and New Orleans.  

                              

                                         Secretary of the Treasury Salmon P. Chase conceived the Income Tax plan.

Lincoln was caught in a bind between soaring costs and plummeting income.  He turned to his Secretary of the Treasury Salmon P. Chase for advice.  Chase, like other members of Lincoln’s Cabinet, notably Secretary of State William H. Steward, had been Lincoln’s rivals for the Republican presidential nomination.  Unlike Steward, who entered the job thinking he could be a prime minister to weak President but soon came to respect and admire Lincoln, Chase always looked down on the President and frequently was engaged in political sniping and backstabbing.  None-the-less, Lincoln had to rely on his judgment and the support he had in financial circles. 

Chase discounted the possibility of any kind of new Federal Tax on property as un-Constitutional.  Instead, he proposed borrowing most war funds by issuing bonds, the model of Albert Gallatin during the War of 1812.  He engaged Jay Cooke, a Philadelphia financier to handle the bonds.  Cooke performed spectacularly with special patriotic appeals that sold bonds not just to wealthy investors but to many middle class citizens.  Eventually nearly one quarter of all Northern families purchased war bonds.  But those bonds would eventually have to be repaid.  To reassure investors that there would be a revenue stream capable of repaying the bonds, Chase reluctantly advised the income tax. 

Surprisingly, given the fact that there was little ability for the government to assess actual income, voluntary compliance was relatively high, particularly in the industrial and commercial New England and Eastern states where both incomes and support of Lincoln’s war aims was highest.  The starting base for payment, $800, is estimated to be about the equivalent of $18,750 today.  When most Americans were still farmers and many city workers, even skilled craftsmen, earned far less, the tax fell on only a fraction of families.  Even with subsequent hikes and adjustments over the war 10% of families nationally and 15% in the northeast had paid some income tax by war’s end.  

New Yorkers line up to pay the first Income Tax in 1862.

The Revenue Act of 1862, which also created the office of Commissioner of Internal Revenue, moved from a flat rate to a modified “progressive” system that exempted the first $600, imposed a 3 percent rate on incomes between $600 and $10,000, and a 5 percent rate on those over $10,000. The first withholding taxes were imposed on Federal employees and on dividends paid by corporations.  In addition, the Act also imposed a raft of new or greatly hiked excises taxes—many of them sin taxes—and fees.  

Now freed from pesky southern Democrats, Congress also imposed a high new protective tariff, which would continue to be a hallmark of Republican policy for the next hundred years.  Even these measures were insufficient to the need. 

Key to financing the war was the Legal Tender Act of 1862 which authorized the Treasury to issue notes—Greenbacks—that were required to be recognized for the payment of all debts except redemption of bonds and payment of Tariffs.  This departure from traditional hard currency was inherently inflationary but combined with other measures kept inflation in the North well below the out-of-control Confederate rates and well below inflation during future American wars. 

A bonus was that shrewd investors could purchase war bonds with inflated Greenbacks and be repaid later in specie, which spurred more bond sales.  By war’s end, with costs running to an astonishing $2 million per day, income tax rates had been raised twice more.  In the end the income tax proved to be a reliable and flexible revenue stream.  But although tolerated as a war time necessity, there was no public support to continue the tax. 

This wealthy taxpayer paid a whopping $889 in Income Tax in 1884 and all he got was this lousy receipt.

After reductions in 1868, it was allowed to expire in 1872.  Efforts by Populists and other reformers in the late 19th Century to resurrect the tax were resisted.  An income tax adopted in 1898 was struck down by the Supreme Court because the tax was not levied proportionally among the states. 

It took the 1913 16th Amendment to the Constitution to make the income tax a permanent fixture in the U.S. tax system.

Lincoln’s Hand in the Pocket—First U.S. Income Tax Funded the Civil War

Lincoln's Income Tax proposal was bitterly opposed by Democrats and mocked in the press.  Here he is not only depicted as a court fool, but his exaggerated nose is meant to suggest that he was a "greedy Jew."

Nobody, and I mean nobody—not even liberals—likes paying taxes.  Especially income taxes.  We are aware of the need to fund the essential work of government, and may even support wider spending for public benefit, but when the tax bite falls on us personally, it hurts. 

On August 5, 1861 President Abraham Lincoln signed into law the first American income tax.  It was a provision of the Revenue Act of 1861.  The new tax was  3% on all income above $800 to be,  “…levied, collected, and paid, upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever…”  The same act hiked the tax to 5% on all citizens living outside the country.  It was essentially a flat rate tax. 

Needless to say, it was unpopular.  But the President had few alternatives.  He had raised a massive Army, outfitted, and armed it with money that the government didn’t have.  And despite the hopes for a quick victory, Lincoln knew that the War to Preserve the Union, as he called it, was apt to take a while. 

Since the foundation of the Republic the Federal government had been on a strict revenue diet for both philosophic and practical reasons.  The realm of Federal activity was strictly limited by the Constitution as it was interpreted at the time.  Most governmental functions fell to the individual states and local governments. 

Federal revenues were limited.  Most came either from the Tariff or from the sale of government land.  But because of anti-tariff feeling in the agricultural South, where the plantation elites relied on the importation of cheap manufactured goods from Europe and resented protectionist levies that benefited Northern manufacturers, import levies had been slashed in 1841 and lowered again in 1856.  Land sales were also in the decline as most Federal land east of the Mississippi was settled and western sales were slowed by the continuing border wars in Kansas and Indian peril elsewhere.   Then, of course, the secession of the Southern states cut Tariff revenue from important ports like Charleston, Savannah, and New Orleans.  

                               Secretary of the Treasury Salmon P. Chase conceived the Income Tax plan.

Lincoln was caught in a bind between soaring costs and plummeting income.  Lincoln turned to his Secretary of the Treasury Salmon P. Chase for advice.  Chase, like other members of Lincoln’s Cabinet, notably Secretary of State William H. Steward, had been Lincoln’s rivals for the Republican presidential nomination.  Unlike Steward, who entered the job thinking he could be a prime minister to weak President but soon came to respect and admire Lincoln, Chase always looked down on the President and frequently was engaged in political sniping and backstabbing.  None the less, Lincoln had to rely on his judgment and the support he had in financial circles. 

Chase discounted the possibility of any kind of new Federal Tax on property as un-Constitutional.  Instead he proposed borrowing most war funds by issuing bonds, the model of Albert Gallatin during the War of 1812.  He engaged Jay Cooke, a Philadelphia financier to handle the bonds.  Cooke performed spectacularly with special patriotic appeals that sold bonds not just to wealthy investors but to many middle class citizens.  Eventually nearly one quarter of all Northern families purchased war bonds.  But those bonds would eventually have to be repaid.  To reassure investors that there would be a revenue stream capable of repaying the bonds, Chase reluctantly advised the income tax. 

Surprisingly, given the fact that there was little ability for the government to assess actual income, voluntary compliance was relatively high, particularly in the industrial and commercial New England and Eastern states where both incomes and support of Lincoln’s war aims was highest.  The starting base for payment, $800, is estimated to be about the equivalent of $18,750 today.  When most Americans were still farmers and many city workers, even skilled craftsmen, earned far less, the tax fell on only a fraction of families.  Even with subsequent hikes and adjustments over the war 10% of families nationally and 15% in the northeast had paid some income tax by war’s end.  

New Yorkers line up to pay the first Income Tax in 1862.

The Revenue Act of 1862, which also created the office of Commissioner of Internal Revenue, moved from a flat rate to a modified “progressive” system that exempted the first $600, imposed a 3 percent rate on incomes between $600 and $10,000, and a 5 percent rate on those over $10,000. The first withholding taxes were imposed on Federal employees and on dividends paid by corporations.  In addition, the Act also imposed a raft of new or greatly hiked excises taxes—many of them sin taxes—and fees.  

Now freed from pesky southern Democrats, Congress also imposed a high new protective tariff, which would continue to be a hallmark of Republican policy for the next hundred years.  Even these measures were insufficient to the need. 

Key to financing the war was the Legal Tender Act of 1862 which authorized the Treasury to issue notes—Greenbacks—that were required to be recognized for the payment of all debts except redemption of bonds and payment of Tariffs.  This departure from traditional hard currency was inherently inflationary but combined with other measures kept inflation in the North well below the out of control Confederate rates and well below inflation during future American wars. 

A bonus was that shrewd investors could purchase war bonds with inflated Greenbacks and be repaid later in specie, which spurred more bond sales.  By war’s end, with costs running to an astonishing $2 million per day, income tax rates had been raised twice more.  In the end the income tax had proven to be a reliable and flexible revenue stream.  But although tolerated as a war time necessity, there was no public support to continue the tax. 

This wealthy tax payer paid a whopping $889 in Income Tax in 1884 and all he got was this lousy receipt.

After reductions in 1868, it was allowed to expire in 1872.  Efforts by Populists and other reformers in the late 19th Century to resurrect the tax were resisted.  An income tax adopted in 1898 was struck down by the Supreme Court because the tax was not levied proportionally among the states. 

It took the 1913 16th Amendment to the Constitution to make the income tax a permanent fixture in the U.S. tax system.

 

In Flanders Fields—The Poem of the Great War

Canadian poet, artilleryman, and medical officer Lt. Colonel John McCrae. 

It’s only been three days since I wrapped up the National Poetry Month series, but here I am already, back to verse.  This time it is history that that, in the immortal words of Sonny Corleone “keeps pulling me back in.”

It was 105 years ago today during World War I that Major John McCrae, a gunnery and medical officer of a front line Canadian regiment scribbled the first draft of the poem while sitting in the back of an ambulance in Flanders, the Dutch speaking region of northern Belgium.  It was just after the long and bitter 17 day Second Battle of the Ypres during which the Germans unleashed one of the first mass uses of poisonous chlorine gas of the war on Canadian positions resulting in heavy and gruesome casualties and one of those battles in the Great War that shattered expectations on all sides of a gallant and romantic display of national glory.  Nearly exhausted from the long battle during which he had never once had a chance to even change his clothes, McCrae had just presided at the burial of one of his closest friends, Alexis Helmer alongside hundreds of other victims of the fighting.  It was a large, open flat meadow and in the spring profusions of bright poppies bloomed between and among the newly dug graves.

With the scene still before him, McCrae sat in the ambulance that had delivered the body of his friend and scribbled a poem.  He lent it to regimental Sargent Major Cyril Allinson and the man was moved to tears.  McCrae, no an amateur but a serious and accomplished poet with extensive publication back home in Canada, was not satisfied with the work.  He crumpled the paper and tossed it aside.  Allinson retrieved the page and later convinced McCrae to submit it to publication.

McCrae relented, but spent weeks tinkering with and revising the poem before sending it off to The Spectator, London’s leading political and literary weekly.  But the paper, then a Liberal Party voice and strong supporter of the Prime Minister H. H. Asquith, who had once been an editor, rejected it.  Perhaps they thought that the theme of mass sacrifice was too depressing and could undermine moral despite the patriotic exhortation with which it ended.  McCrae’s second submission, to the more satirical Punch succeeded and it was published without attribution on December 8, 1915.

The poem and poppy images were widely used in Allied propaganda like this Canadian Bond drive poster.

The poem grabbed the immediate attention of the British public and it was widely reprinted.  The government, recognizing its power, began using it as a recruiting tool.  This was even more true back home in Canada.  Posters featuring the lines from the poem and images of poppy fields were used for both recruiting and  War Bond sales.  The Unionist Party used it in its campaign for re-election in 1916 against the French speaking Quebecois who opposed conscription.

In the United States the poem was used by those, like Theodore Roosevelt, who were eager to get the country into the war on the Allied side.  After President Woodrow Wilson was finally convinced to call for a declaration of War in 1917 U.S. propagandists also used the poem for recruitment.

John McCrae was born in Guelph, Ontario on November 30, 1872.  The grandson of Scottish immigrants, his father, Lieutenant Colonel David McCrae, was a professional soldier and strong Empire loyalist.  He attended high school at Guelph Collegiate Vocational Institute where he also rose to captain in the corps of cadets.  After graduation he joined the Army and trained in gunnery at Royal Military College of Canada in Kingston, Ontario.

Placed on reserve status, McCrae worked in 1894 as a Master of English and Mathematics at the Ontario Agricultural College in Guelph before enrolling at the University of Toronto to complete his B.A. and to study medicine.  His first poems were published while at the University.

After graduation from Medical School in 1898 he served his residency at Toronto General Hospital, and then in 1899, at Johns Hopkins Hospital in Baltimore, Maryland.  

Officers of the 1st Brigade Royal Canadian Field Artillery, circa 1901. John McCrae is in the top row, far left.

He interrupted his studies in 1900 in to command of the left section of D Battery of the Royal Canadian Artillery attached to the Second Canadian Contingent during the Second Boer War.  The contingent returned to Canada in 1901 after participating in several major campaigns.

In 1902, he was appointed resident pathologist at Montreal General Hospital and later became assistant pathologist to the Royal Victoria Hospital in Montreal. In 1904, he was appointed an associate in medicine at the Royal Victoria Hospital. Later that year, he went to England where he studied for several months and was admitted to membership in the Royal College of Physicians.

After establishing himself in private practice he continued to lecture as several institutions.  His reputation and social connections both grew.  He was invited to accompany Lord Gray, the Governor General of Canada, on a canoe trip to Hudson Bay as expedition physician.

He was appointed professor of pathology at the University of Vermont, where he taught until 1911 and also taught at McGill University in Montreal.   During these years he publish poetry, short stories—some of them illustrated by his own skillful drawings–and essays in addition to co-authoring the then definitive Canadian text on pathology.

When war broke out, McCrae was eager to join Canada’s Dominion forces in service of the Empire.  He turned down an offer of a high commission in the Medical Corps preferring active service with a front line unit.  He shipped out as Brigade Surgeon and a Major and second in command of the 1st Brigade, Canadian Field Artillery.  Not long after arriving in Europe he was in the middle of the Battle of the Ypres exhausting himself by dividing his time between firing his guns and tending the mounting wounded.

A little over a month after writing his famous poem, McCrae was transferred, over his voracious protests, to the Medical Corps where his services as a doctor and administrator were sorely needed.  But as he packed to report to his new duties, he complained to Sgt. Major Allinson that, “all the goddamn doctors in the world will not win this bloody war: what we need is more and more fighting men.”

But he loyally did his duty as ordered.  He was promoted to Lt. Colonel and placed in command  of the No. 3 Canadian General Hospital at Dannes-Camiers near Boulogne-sur-Mer in northern France where he operated out of Durbar tents from India for eight months through the cold misery of frosts, floods, and mud of the winter of 1915-16.  Eventually the hospital was relocated to the old Jesuit College in the town.  McCrae remained in command through most of the rest of the war and watched, with some amusement, as he became famous around the world for his poem.  In what little spare time he had, he prepared the manuscript for a collection of his war poems.

Lt. Colonel McCrae's funeral procession complete with the flag draped coffin--note the Union Jack rather than a Canadian Dominion flag--and being followed by his personal horse with his boots reversed in the stirrups.  All unusual military pomp in the middle of a war with millions of casualties.

But mostly, McCrae literally worked himself to death.  On January 28, 1918 he died of pneumonia and cerebral meningitis.  He was laid to rest the next day with full military honors and even an extra dash of pomp at the Commonwealth War Graves Commission section of Wimereux Cemetery, just a couple of miles up the coast from Boulogne.

His poem was later credited with helping the movement to establish the Remembrance Day holiday in Britain, Canada, and other Commonwealth countries and especially with the use of poppies to commemorate the dead.  That practice spread to the United States when the Veterans of Foreign Wars began selling Buddy Poppies to support the war wounded.

In Canada In Flanders Field has achieved particularly iconic status as patriotic set piece in a nation that holds it war veterans in unusually high regard.  Its words are inscribed on the Ten Dollar Bill and several commemorative quarters have featured the poppy, including one in 2004 with the poppy colored bright red—the first multi-colored circulation coin in the world.

The Lt. Col. John McCrae memorial statue in Ottawa.

In May 2015 on the centennial of the poem, a statue of McCrae by Ruth Abernathy was erected on Green Island in the Rideau River in Ottawa, Ontario. McCrae is dressed as an artillery officer and his medical bag nearby, as he writes. The statue shows the destruction of the battlefield and, at his feet, poppies. A copy was also erected at Guelph Civic Museum. 

Yet as a work of poetry, it does not get much respect.  Most Canadian literature courses omit it from their text books.  The darker, more bitter anti-war tinged work of soldier poets like Sigfried Sassoon  and Wilfred Owen get much more attention.  In Flanders Field is dismissed as patriotic fluff and propaganda, or worse was denounced by war historian Paul Fussell as “stupid and vicious…. propaganda argument against a negotiated peace.”  That was a bit unfair in that it was written so relatively early in the war that neither side was considering a negotiated peace outside of clear victory.  It is true that later in the war propagandists used the poem that way, however.

There remains to this day controversy over the first line of the poem that has nothing to do with its political use.  In the draft he sent to Punch, McCrae used the word grow at the end of the first line.  But the Punch editor noted that he had used the same word in the second to the last line.  They substituted the word blow in the first usage.  McCrae had no objections and used that form in his manuscript for his collection, In Flanders Fields and Other Poems published posthumously in 1919.  In sending handwritten copies to friends and admirers, however, McCrae used both forms as did some other publications.  The version below is how it appeared in the 1919 collection.

In the post war years Veterans' organizations like the British Legion began selling poppies on Remembrance and Armistice Days.

In Flanders Fields

In Flanders fields the poppies blow

Between the crosses, row on row,

That mark our place; and in the sky

The larks, still bravely singing, fly

Scarce heard amid the guns below.

We are the Dead. Short days ago

We lived, felt dawn, saw sunset glow,

Loved and were loved, and now we lie

In Flanders fields.

Take up our quarrel with the foe:

To you from failing hands we throw

The torch; be yours to hold it high.

If ye break faith with us who die

We shall not sleep, though poppies grow

In Flanders fields.

—John McCrae