George, Abe, and Unpleasant Taxes
Sure, we all were taught that George Washington couldn’t lie about chopping down the cherry tree, and that Abe Lincoln grew up in a log cabin. But did you know the two Presidents who inspired Presidents Day both struggled with tax policy during their terms in office?
When Washington became our country’s first President, he took the reigns of a fledgling nation left deep in debt due to the Revolutionary War. He allowed his first Secretary of the Treasury, Alexander Hamilton, to impose tariffs on imports and exports to raise revenue. Hamilton soon devised a tax on whiskey and created a federal agency that was the precursor to today’s Internal Revenue Service to collect the tax.
Of course, Americans had just fought a long war to become independent of those who would tax them without proper representation, so they were not going to sit quietly while their new government levied a tax on one of their favorite beverages. Public protests, refusals to pay, and even violence became the norm, leading to the Whiskey Rebellion. Washington used the militia to end the Rebellion in 1792. The tax remained in place but was largely ignored and was rarely collected. It wasn’t until Thomas Jefferson took office that the whiskey tax was repealed.
George Washington’s farewell speech at the end of his second term included a statement that all citizens “should practically bear in mind that towards the payment of debts there must be revenue; that to have revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant.”
The country continued to subsist mainly on tariffs and import duties until another war caused another much-revered President to implement an inconvenient and unpleasant income tax. With the costs of the Civil War rising, Abraham Lincoln signed the Revenue Act of 1861. Revisions in 1862 and 1864 created progressive tax brackets, additional taxes on tobacco and alcohol, and the Internal Revenue Service to oversee it all. The tax survived a court challenge that went all the way to the Supreme Court. It was set to expire in ten years, by which time the country was busy with reconstruction.
In the 1862 revision, when stating that there would be a 3% tax on the salary of every individual in the country, Congressional leaders were careful to write "senators and representatives and delegates in Congress” were included in this new tax. Because the office of President was not similarly mentioned, some assumed Lincoln was exempt from the tax. Although during his life he paid the tax, several years after his death the executor of his estate won a ruling that resulted in a refund of all income taxes Lincoln had paid.
Of course, due to the nature of the Civil War, Lincoln’s law only applied to Northern States. It’s interesting to note that the Confederacy also imposed a graduated tax system in 1863. However, Southern lawmakers failed to establish a revenue agency to oversee the collection of the tax, so it was not as effective as the Union’s tax law.
George Washington and Abraham Lincoln are both honored as great Presidents and were both closely involved with tax issues. As you celebrate Presidents Day, whether by enjoying a slice of cherry pie or shopping the sales, perhaps you should take a moment to reflect on your own taxes. If you’re ready to file, give us a call to set up an appointment. We cannot tell a lie … we can help you make sense of all the recent tax law changes and make filing your return easy as pie!