After the abandonment of the income tax in 1872 revenues were so large from other sources that practically no consideration was given to this form of taxation. It was not until 1894 that an occasion seemed to demand more revenue than would come from existing sources. This resulted from a reduction of tariff duties and an enlargement of the free list under the administration of President Cleveland. An income tax provision was made a part of the tariff law of 1894, and was expected to provide the deficiency in the revenue which the reduced tariff rates would occasion. The bill provided for a flat rate of 2 per cent on all incomes above $4,000.
1 Springer vs. the United States, 102 V. S. 686.
Much opposition to the bill developed in Congress on the ground that it was undemocratic, inquisitorial, and the still more serious objection that it was a bid for the support of the poorer classes in a discrimination against the more well-to-do. The high exemption was strongly championed by the Populist party, while nearly the whole of the support of the measure came from the Western and Southern representatives.
Law Declared Unconstitutional. - The question of the constitutionality of the law soon came before the Supreme Court.1 This was considered under four separate heads:
(1) Was a tax on the income of real estate a direct tax within the meaning of the Constitution, necessitating, thereby, a levy apportioned according to population?
(2) Was a tax on the income from personal property a direct tax? (3) Did the law violate the principle of uniformity? (4) Was a tax levied upon incomes from state and municipal bonds constitutional?
The decision on the Civil War income tax was reversed when the court decided that a tax on the incomes from lands was direct, and therefore must be apportioned according to population. The court in its first decision was divided on the constitutionality of the other points, but at the rehearing decided against the law in every respect. Many considered that this decision settled once and for all the agitation for an income tax, while others began to seek a new method for securing its establishment.