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From Little Acorns. How modestly it all started! To help support the Civil War, Lincoln's Congress in 1861 adopted 33% levy on all incomes over $800. The New York Herald applauded: "Millionaires like Mr. W. B. Astor, Commodore Vanderbilt . . . and others will henceforth contribute a fair proportion of their wealth to the national Government." This act was never enforced, but in 1862 Congress passed a 3% levy, plus a 5% tax on incomes over $10,000, thus introducing the now famed principle of taxation according to ability to pay. There was little dissent. In 1864, more gradations were introduced. Was Representative Justin S. Morrill (R., Vt.) the voice of reaction or of conscience or of ironic prophecy when he opposed the bill? He said: "This provision goes upon the principle of taxing a man because he is richer than another. The very theory of our institutions is entire equality, that we make no distinction between the rich man and the poor man. The man of moderate means is just as good as the man with more means, but our theory of government does not admit that he is better."*
The Civil War tax was collected from about 250,000 people in a population of 39 million. The tax, which had been voted for a limited period, was dropped in 1872. After the Civil War, U.S. capitalism began to spawn millionaires, and millionaires begot mass envy and a burning sense of social injustice. The eyes of Southerners and Westerners saw hundreds of cigar-smoking millionaires swarming like cuttlefish around New York and Newport harbors. This contrast tells the story: in 1843, there were only 20 millionaires in the whole U.S. In 1909, the 92 members of the U.S. Senate included 17 millionaires—15 Republicans and two Democrats.
The rise of the millionaires revived sentiment for an income tax. It was strictly and frankly a soak-the-rich measure. In 1893, a St. Louis editor urged William Jennings Bryan to lead a crusade for a graded tax of 5% or 10% on incomes over $10,000. "There is nothing those Eastern plutocrats dread so much as that."
Bryan heeded the call. In 1894, he tacked on to a Republican tariff bill an amendment levying a 2% tax on incomes over $4,000. The silver-tongued old king of corn stood in the House, wrapped like an animated tamale in an American flag, and forced his colleagues to hear and act. He cried shame on those who accused proponents of the amendment of "extending their hands to anarchy and Communism." He attacked Ward McAllister, a leader of New York's "400" who had threatened to leave the country rather than pay the tax. "If some of our 'best people,' " he bawled, "prefer to leave the country rather than pay the tax of 2%, God pity the worst... Let them depart, and as they leave without regret the land of their birth, let them go with the poet's curse ringing in their ears . . ."
The Bryan-sponsored tax became law in August 1894. The Supreme Court, reversing "a century of error," quickly found it unconstitutional. The New York Sun fairly panted with relief: "The wave of socialistic revolution . . . breaks at the foot of the ultimate bulwark ... of our liberties. Five to four the court stands like a rock."