THE INCOME TAX

Opposition to the tariff was strong, particularly in the South and West. But if tariffs were cut, where would federal revenues come from? The answer, according to the Populists and Progressives, was from an income tax. The income tax was not a new idea. Income taxes had been used sporadically before the Civil War at the state level and sometimes proposed for the federal level. The Civil War income tax, a federal tax, had been a successful moneymaker. It was allowed to lapse in 1872. In 1894, however, Congress passed income tax legislation, only to have it declared unconstitutional in 1895. Overcoming the Supreme Court decision would require an amendment to the Constitution, which became possible because support for the income tax continued to grow.

Two categories of spending proved extremely popular and increased support for a tax to fund them: more generous army pensions and increased military spending, particularly on the navy. Support for the naval buildup in turn is explained by the growing role of the United States in the world competition for colonies (which we will discuss later) and for naval supremacy. By 1907, when President Theodore Roosevelt sent the Great White Fleet of the United States around the world, the U. S. fleet, measured in battleship strength, was already second only to Britain’s. Some states, moreover, that had opposed the income tax earlier saw that they would benefit from expenditures for naval construction.

In 1909, Congress passed an amendment to the Constitution providing for an income tax; it was ratified in 1913. The income tax, as Baack and Ray (1985) concluded in their classic study, did not cause the great expansion of government spending that occurred later in the century, but it did make it possible.