No emergency of sufficient moment arose for more than half a century after the establishment of our national government to force fiscal authorities to utilize every possible source of revenue. No attempt was made, consequently, by Federal fiscal authorities, to introduce income taxes until the unprecedented demands of the Civil War presented themselves. The income tax legislation of the years of this war, and those following, appears to have been on the spur of the moment, and shows evidence of no very mature deliberations of those who were responsible for it. Provisions enacted at one time would often be amended before the date for their becoming effective.

Civil War Income Tax. - The first bill which provided for a Federal income tax was passed in July, 1861. It was simple, and called for a 3 per cent tax on all incomes in excess of $800. The tax was not to go into effect for a year, and in the meantime a modification had been made. The exemption was reduced to $600 and a system of mild progression added.

Under this law incomes from $600 to $10,000, less the $600 exemption, were to pay the rate of 3 per cent, while incomes in excess of that amount were to pay 5 per cent. This act was in effect but a little while before the Revenue Act of 1864 became a law. This provided for a 5 per cent tax upon incomes between $600 and $5,000; 71/2 per cent on the amount of income between $5,000 and $10,000, and 10 per cent on all incomes over $10,000. Before this law became active, however, a modification was made by which all amounts over $5,000 were to pay 10 per cent.

By 1867 the pressure for revenue was somewhat reduced, and the law passed then, to remain in force for three years, raised the exemption to $1,000, and reduced the rate to 5 per cent. At the expiration of this law in 1870, it was only with the greatest difficulty that a re-enactment was secured. This was for a period of two years, after which the income tax fell into disuse.

Constitutionality. - The use of the Civil War income tax was, in a measure, successful. As might be expected, it was attacked upon the grounds of constitutionality, the contention being that it was a direct tax, and therefore repugnant to the constitutional provision in regard to the levy of direct taxes. The Supreme Court held, however, that the income tax was not a direct tax within the meaning of the Constitution, and was therefore constitutional.1

Administration. - At first the unorganized administrative machinery was a handicap, but as this became perfected, and while the motive of patriotism was active, the fiscal returns were large. The largest amount collected in any one year was in 1866, when $72,982,000 came into the treasury. In the following years evasion became more common, and the amount collected in 1872 had fallen to $14,436,000. The total amount collected from the income tax was more than $275,000,000.

Most dependence for the determination of incomes was placed in declarations of recipients, although some use was made of the source, and the assessors were given the power to estimate incomes where satisfactory declarations could not be obtained. Penalties were provided for failure to make returns, and for fraudulent returns, but in the latter years of the tax these seem to have instilled little fear into the recipients of incomes. It became a tax upon the honest individual, and consequently unjust. A systematic as well as successful income tax was used by the Confederate government as one of its sources of revenue.