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The IRS: An Agency is Born
The Civil War period in American history saw the beginnings of the Internal Revenue Service, an increase in existing taxes, such as import tariffs, and the introduction of new taxes, like the income tax, all made possible by the Internal Revenue Act of 1862. The need for taxpayer funds became paramount to the Union's success, setting the stage for a quickly maturing Taxman.
Uncle Sam Runs Up a Huge Tab
Unlike the Revolutionary War, the French government wasn't supplying the United States with the necessary funds, leaving money in short supply. America's first big tab amounted to over $6 billion dollars, using a conservative estimate, roughly equivalent to $80 billion in today's dollars. Calculated relative to its share of GDP, the cost of the Civil War was dramatically higher.
Two Sides of the Same Coin Taxed Differently
The huge Civil War bill, by necessity, generated several “progressive” and/or “traditional” income generating decisions by both the Union and the Confederacy. The Union implemented new and higher taxes to support war bonds and Government revenue. The Confederacy initially didn’t look too kindly upon income taxes, by virtue of tradition and means of collection, until the value of the Confederate dollar became worth far less than the Union dollar.
The Taxman Comes of Age
The new income taxes instated during the Civil War lasted for several years, until 1872. However, income taxes were once again revived in 1894 but only for one year. By 1865 the U.S. Supreme Court determined the income tax to be unconstitutional.
The growth of taxes during the Civil War was fast and furious and revolutionaries from the 1700's might have frowned at the direction in which their country was headed. Nevertheless, Uncle Sam's financier the Taxman was inevitably growing up to be a big boy capable of financing wars, federalizing individual incomes, and re-politicizing old rules.
The Civil War period of U.S. history marked an important taxation development in what was to be accepted by the public and the government in the name of national identity and interests. In light of the costs incurred from the Civil War, the wealthy patrons and elite of the North supported the implementation of evolved governmental fundraising techniques for the sake of advancing the goals of the Union, with the knowledge and understanding that such taxation was only to be temporary.
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