Revenue Act of 1862 Definition

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Revenue Act of 1862 Definition

What Is the Revenue Act of 1862?

The Revenue Act of 1862 expanded on the earlier Revenue Act of 1861, which introduced the first U.S. income tax. During the American Civil Fight, it was enacted to produce extra government money to pay the war against the Confederate States of America. It is famous for instituting the United States’ first progressive income tax and for creating a distinct federal tax agency that would later become the present Internal Revenue Service (IRS).

Key Takeaways

  • The Revenue Act of 1862 was a federal statute enacted in the United States to pay the war against the Southern States.
  • The Income Act of 1862 updated and enlarged the earlier Revenue Act of 1861 in order to generate more revenue when it became clear that the war would run longer and cost more than originally anticipated.
  • This legislation is remarkable for dramatically expanding the list of products and services subject to government excise, instituting the first progressive income tax, and establishing a centralized federal tax administration.

Understanding the Revenue Act of 1862

As the American Civil War entered its second year in 1862, the federal government of the United States realized the need to generate more funds for extra soldiers, ammunition, and other wartime costs. The previous year, the Revenue Act of 1861, had already established the first direct federal income tax to assist pay the war. After a succession of stalemated engagements in 1861 and the first half of 1862, it was evident that the war would go longer—and cost more—than President Lincoln had anticipated.

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The American Civil War began in 1861, when the southern states seceded to form the Confederate States of America. Economic problems had arisen in the years before the conflict, and the federal government was already in need of finance. The North’s economy deteriorated after its initial effort to support the war. The Revenue Act of 1861 imposed the first income tax on Americans. The legislation taxed imports, established a direct land tax, and placed a 3% tax on individual earnings above $800.

In light of this, Congress approved the Income Act of 1862 to increase government tax revenue to assist the war effort. The legislation replaced the 1861 act’s 3% tax on earnings beyond $800 (which had yet to be collected) with a progressive tax of 3% on incomes between $600 and $10,000 and a 5% tax on incomes above $10,000.

The new statute also imposed steep tariffs on alcoholic beverages and cigarette items. The Revenue Act of 1862 raised income tax rates, which were further doubled by the Revenue Act of 1864. In 1864, more income tax bands and higher tax rates were implemented. The income tax was eventually removed in 1872, only to be reinstated in 1913 with the passage of the 16th Amendment.

The 1862 legislation also significantly broadened the list of commodities subject to federal excise duties, which had previously been limited to mostly luxury and “sin” items. The new statute imposed government excises on everything from jugglers to pharmaceuticals, as well as a broad range of products and services in between, including manufactured goods, raw materials like as iron, feathers, and leather, and licenses for a variety of professions. Following the war, excise duties were reduced to apply solely to the sale of alcohol and tobacco.

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To manage and enforce the new federal taxes, the legislation established the Office of the Commissioner of Internal Revenue. Although the 1861 legislation empowered the president to designate one assessor and one collector for each state, the United States lacked a coordinated federal agency to collect and manage the new taxes. The federal government delegated enforcement of the tax to the states.

To standardize and enforce compliance with the new taxes, the Commissioner of Internal Revenue was given authority to issue tax rules, forms, and instructions, as well as take other steps to put the act into effect. The Internal Revenue Service replaced the Bureau of Internal Revenue (IRS).The name was changed to highlight a greater emphasis on helping the public as opposed to just collecting taxes.

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