May 24, 2025
The Wilson Gorman Tariff Act implemented, amongst others, a income tax on property. The Farmer’s Loan & Trust Company notified its clients that in compliance with the law they would pay the taxes on their clients behalf and notify the government of its clients liabilities. Charles Pollock, of Massachusetts, sued Farmer’s Loan & Trust and lost in lower court, but prevailed in the Supreme Court. The court ruled that tax on income from property was a direct tax and as a direct taxes were required to be levied in proportion to the states’ population or they were not legal.
Significance:
- Declared direct taxation without apportionment to the states based on population was unconstitutional
- Prevented Progressive Taxation and hence any income tax that was not a flat rate limiting the income tax to one bracket.
- Limited income taxes to essentially flat taxes until the ratification of the 16th Amendment in 1913.
Learn More
May 24, 2025
Prior to 1913 the majority of taxes were collected via Tariffs, and some Excise taxes. Several groups, including the Populist (aka People’s) Party, the Socialist Labor Party, and Democrat Party advocated for a graduated tax rate believing that Tariffs were disproportionately impacting the working class and that a graduated tax rate could shift the burden to wealthier businessmen. The 16th Amendment was passed by Congress in 1909, and ratified in 1913, the 16th amendment established a Federal Income Tax. The Amendment was ratified by 42 states with exception to Florida, Connecticut, Pennsylvania, Rhode Island, Utah, and Virginia. The Amendment allowed Congress to levy an income tax without apportioning it among the states on the basis of population making it legal to have the Progressive Tax system we have today. It was passed by Congress in response to the 1895 case of Pollock v. Farmers’ Loan & Trust Co.
Significance:
- First legal Progressive Tax system, took an Constitutional Amendment by Congress and ratified by the states to enact
- Allowed for taxation without apportionment, meaning taxes could be levied at different rates not according to population which in essence was a flat tax.
- Supported by a number of parties including Socialist Labor Party, Democrat Party, Populist Party
- Shifted the primary revenue source for Federal Revenue from Tariffs on other countries to Income Tax on American Citizens
Learn MoreMay 24, 2025
The Revenue Act of 1862 updated the Revenue Act of 1861 with the goal of increasing government revenue, in large part to support the Civil War expenses. It also addressed a major weakness in the Revenue Act of 1861, no enforcement. The acts revenue fell far short of expectations because of the lack of enforcement and with the new act a collection mechanism in the form of the Commissioner of Internal Revenue was created. It also created the first Progressive Tax with different rates based on peoples ability to pay by Income level, later to be struck down as unconstitutional before the passing of the 16th Amendment in 1913. It created 3 tax brackets:
| Income | Tax | 2025 Dollars |
| $0-$600 | 0% | $ 18,998 |
| $600-$10,000 | 3% | $ 316,633 |
| > $10,000 | 5% | |
Significance:
- First Progressive Income tax to individuals in United States with passing of Revenue Act of 1862
- Created a Commissioner of Internal Revenue, predecessor of the Internal Revenue Service (IRS)
- Progressive Tax implemented would later be ruled unconstitutional until the passing of the 16th amendment in 1913
Learn More
May 24, 2025
Since the nations founding, the government had survived on a number of different revenue streams, mostly Tariffs, but not taxes on individual incomes. However, the government implemented an income tax to support the Civil War. The Revenue Act of 1861 introduced the first federal income tax, levying a flat 3% tax on incomes exceeding $800 annually ($29,073 in 2025 dollars).
Significance:
- First Income tax to individuals in United States with passing of Revenue Act of 1861
- Issued as a Flat Tax (everyone pays the same rate) with only one Tax Bracket
- The Tax applied to all individuals with Income from all sources included in the tax
- First of many Tax increases to support War time spending
Learn More
