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Tax Day 2011: When did America levy its first income tax? The Civil War.

To finance the Civil War, the Union government levied taxes on products, companies, and incomes. How income taxes have – and haven't – changed in the 150 years since.

William Farley fires a mortar at Fort Johnson, near Fort Sumter, on April 12, to commemorate the first shots of the Civil War, fired 150 years ago in Charleston, S.C.

Alice Keeney / AP

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The Civil War, which began on the twelfth of April 150 years ago, transformed America financially as it did in so many other ways.

Abraham Lincoln instituted America's first income tax in 1862, as he searched for money that would enable the union to wage and win the war. Along with this move came tax-code complexity and a new agency called the Bureau of Internal Revenue.

Some 150 years later, things have changed ... and things have stayed the same.

Since the Civil War, the income tax has been declared unconstitutional, then legalized by an amendment to the US Constitution, then expanded, then greatly reduced.

But after 150 years, Americans still owe income taxes – due April 18 this year. They still struggle with arcane tax rules. And they still worry about the far-reaching tentacles of the agency now known as the Internal Revenue Service.

"The Civil War income tax was the first tax paid on individual incomes by residents of the United States," wrote Cynthia G. Fox, chief of the Military and Civil Records Unit of the National Archives. An article she wrote for an Archives publication recounted the gory details – not of the war, but of how it was financed:

• Taxes were levied on residents of "all states and territories not in rebellion," including areas of the South after Union troops established control. People in northern and western Virginia were subject to the income tax from its very start. Georgians paid the tax in 1865, even though Georgia was not readmitted to the Union until 1870.

• The tax was progressive: the initial rate was 3 percent of incomes over $600, and 5 percent on any income over $10,000. In 1864, the rate bumped up to 5 percent on incomes above $600 and 10 percent on incomes above $5,000.

• The tax provided for deductions, such as for a farmer's cost of livestock, insurance, and interest. Businesses could deduct expenses including rent, freight, and wages.


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