On December 19, 1893, William L. Wilson, Chairman of the House Ways and Means Committee, rolled out a new tariff reform bill, which passed the House on February 1, 1894 by a significant margin, 204 to 140. Tariff duties were modestly cut by 15 percent. However, to make up for any projected loss of revenue, the final House version of the bill included a provision for an income tax. The young Democratic congressman from Nebraska, William Jennings Bryan, introduced the tax amendment and vigorously defended it. “There is no more just tax upon the statute books than the income tax,” he told the House.
Though not a new concept, a tax on incomes had been first enacted in 1862 to help finance the Civil War, and, despite the Constitution’s prohibition against direct taxes, federal courts had left it alone as a war revenue measure. The original act created the Bureau of Internal Revenue, the forerunner to the IRS, to collect the tax. It covered all incomes over $600 a year at two graduated rates. Income above $600 and up to $10,000 was taxed at three percent, while everything over $10,000 at five percent. In 1864 the top rate was increased to ten percent. When applicable, the federal government had actually withheld the tax from people’s income, such as government salaries, dividends and interest from bank stocks and bonds, as well as from railroads and other corporations. By the end of the war, some 15 percent of households were paying the tax. In 1872, the law expired and Republicans were content to leave it dead, as the tariff was continually pouring money into the federal treasury, making additional taxes unnecessary. Continue reading