Battle Cry of Freedom: The Civil War Era

by James M. McPherson

The Internal Revenue Act of 1862 taxed almost everything but the air northerners breathed. It imposed sin taxes on liquor, tobacco, and playing cards; luxury taxes on carriages, yachts, billiard tables, jewelry, and other expensive items; taxes on patent medicines and newspaper advertisements; license taxes on almost every conceivable profession or service except the clergy; stamp taxes, taxes on the gross receipts of corporations, banks, insurance companies, and a tax on the dividends or interest they paid to investors; value-added taxes on manufactured goods and processed meats; an inheritance tax; and an income tax. The law also created a Bureau of Internal Revenue, which remained a permanent part of the federal government even though most of these taxes (including the income tax) expired several years after the end of the war. The relationship of the American taxpayer to the government was never again the same. The Internal Revenue Act was strikingly modern in several respects. It withheld the tax from the salaries of government employees and from dividends paid by corporations. It expanded the progressive aspects of the earlier income tax by exempting the first $600, levying 3 percent on incomes between $600 and $10,000, and 5 percent on incomes over $10,000.39 The first $1,000 of any legacy was exempt from the inheritance tax. Businesses worth less than $600 were exempt from the value-added and receipts taxes. Excise taxes fell most heavily on products purchased by t...