This Day in History – August 5th, 1861

civil war soldiersBy August 5th, 1861 the United States was four months into its Civil War. The first shot was on April 12, 1861 when Confederate forces fired upon Fort Sumter, a key fort held by Union troops in South Carolina, and the next four years, three weeks, and six days would see 625,000 causalities. A war with a great cost to life, and a big cost to government coffers.

Both the Union and the Confederation borrowed vast amounts to finance the battle, but it was on this day in 1862 that Congress introduced the nation’s first income tax to finance the Union’s war efforts. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut. In 1866, internal revenue collections reached their highest point in the nation’s 90-year history—more than $310 million, an amount not reached again until 1911. Currently the U.S, collects about $2.2 trillion; close to half of that goes on military spending which seems most fitting for a tax that was introduced 153 years ago today to pay for a war.

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