What did the Revenue Act of 1862 tax and how was it structured?
Executive summary
The Revenue Act of 1862 broadened the federal tax base far beyond the short-lived 1861 income provision by levying excise duties on many retail and business items, instituting the nation’s first sustained progressive income tax scale, and creating a federal bureaucracy to collect those taxes—the precursor to today’s IRS [1] [2] [3]. Its structure combined targeted excise and stamp taxes on goods and activities (Schedules), a graded income tax with exemption thresholds and multiple rates, and the Office of the Commissioner of Internal Revenue to enforce collection [4] [5] [1].
1. What the Act taxed: widespread excises and stamps on consumption and business
Congress turned to excise taxation across retail and commercial life: the 1862 law placed duties on a broad range of consumer and business items, including liquor and tobacco (which became major revenue sources), telegraph services, carriages and jewelry, and other luxury goods, often collected via stamp duties or licenses specified in schedules attached to the statute [1] [5] [4] [6].
2. The income tax: a graduated, limited personal levy
The Act replaced the flat 1861 income provision with a progressive income tax that exempted low earners and imposed a graduated scale—historical summaries cite a 3% rate on net incomes above modest exemption levels ($600 is commonly reported as the first bracket) and a higher 5% bracket for very large incomes (above $10,000), with later wartime legislation raising top rates still further [5] [3] [7] [8].
3. How the excises and inheritances were organized (Schedules and specifics)
Legislative schedules itemized the excise and stamp taxes—for example, Schedule A applied duties on inheritances and luxury articles and directed those taxes to the Office of Internal Revenue—while other schedules covered business activities and required specific stamps or licenses for taxable transactions, making the law a patchwork of commodity and transactional levies rather than a single uniform tax [4] [9].
4. Administration and enforcement: creating a national revenue apparatus
A central innovation of the 1862 Act was institutional: it established the Office of the Commissioner of Internal Revenue to prepare forms, regulations, and to supervise assessors and collectors, creating an enforcement and collection mechanism that the 1861 law lacked and that evolved into today’s Internal Revenue Service [1] [9] [2].
5. Structural design: progressive rates, withholding at source, and temporary expectations
Structurally the statute combined progressive personal taxation with flat excise levies, included provisions to withhold income “at the source” to assure timely collection, and reflected wartime contingency—rates and brackets were designed to hit luxury consumption and higher incomes while sparing most citizens, although later acts raised rates when revenue proved insufficient [1] [3] [5] [2].
6. Impact, limitations, and legal-historical caveats
The Act laid the foundation for the modern internal revenue system and funded a portion of Civil War expenditures, but its income-tax provisions were temporary and politically contested; enforcement problems and inadequate early rates meant excises on liquor and tobacco produced much of the revenue, and later statutes adjusted rates and structure—some of these earlier income tax designs were later challenged in court and ultimately reshaped by the Sixteenth Amendment decades later [2] [1] [8] [10].