George, This time period may also dovetail with our first temporary income tax in 1862 as found on Wikipedia.

"The Revenue Act of 1862 (July 1, 1862, Ch. 119, 12 Stat. 432), was a bill passed by the United States Congress as an attempt to help fund the American Civil War. The act was signed into law by President Abraham Lincoln on July 1, 1862. The act established the office of the Commissioner of Internal Revenue, a department in charge of the collection of taxes, as well as levied excise taxes on the majority of items consumed and traded in the United States. The act also introduced the United States’ first progressive tax with the intent of raising millions of dollars for the Union."

The new tax proposed by congress in the Revenue Act of 1862 was the first progressive income tax placed on United States residents. This tax reflected the taxpayers’ “ability to pay” by separating citizens into multiple categories and taxing accordingly:[9]

1.For U.S. residents whose annual incomes were less than $600, no tax was collected.

2.For U.S. residents whose annual incomes were greater than $600 and less than $10,000, a percentage of 3% of total income was demanded in tax.

3.For U.S. residents whose annual incomes were greater than $10,000, a percentage of 5% of total income was demanded in tax. The 5% tax rate also applied to the entire U.S.-source income over $600 of U.S. citizens who resided abroad, regardless of their income, unless they worked for the United States government.

The act also stated that in order to assure timely collection, income tax was “withheld at the source.”[9]

Lasting effects[edit]

In the long term, the Revenue Act of 1862 was only partially successful. The Office of the Commissioner of Internal Revenue became the IRS, which is still a functional department of the Treasury. The excise taxes continued to be enforced, though the majority of the revenue was eventually generated through the taxes on liquor and tobacco. The progressive nature of the income tax remains to this day, but the rates established in 1862 did not produce enough revenue to support war expenditures and were increased with the Revenue Act of 1864.