Civil War income taxes expired in 1875. They were no longer necessary because the government had an alternative source of revenue. During the war, Republicans had raised tariff rates to about half a product’s value, arguing that if manufacturing was going to be taxed, industry had to be protected from foreign competition. Tariffs brought the Treasury more money than it spent every year from 1875 to 1893.
A national depression began in 1893, under a Democratic Congress. In 1894, Democrats tried to combat the economic turmoil by lowering tariff rates. Then, to make up for lost revenue, they enacted a tax on incomes of more than $4,000.
But Republicans had changed in the years since the Civil War. Where the party previously had worried about protecting equality, its Gilded Age members worried about protecting property. Although Civil War Republicans had invented the federal income tax, their Gilded Age counterparts assailed the levy as “communism.” And while Civil War Republicans celebrated an income tax that would rally Americans behind the government, those of the Gilded Age insisted that it was unconstitutional and that taxing power belonged to the states.
In 1895, the pro-business Supreme Court declared the income tax unconstitutional. Congress could only impose direct taxes, it said, meaning levies that would fall on farmers rather than manufacturers, on poor southerners and westerners rather than wealthy easterners. Four justices dissented, pointing out that the majority decision overturned 100 years of precedent, including the Civil War legislation.
The court, one justice lamented, had ignored the great principle that “in the imposition of taxes for the benefit of the government, the burdens thereof should be imposed upon those having most ability to bear them.”
Heather Cox Richardson is a professor of history at Boston College and the president of the Historical Society.