1894 Income Tax and the Wilson-Gorman Tariff Act

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1894 Income Tax and the Wilson-Gorman Tariff Act

Norman Stein

Prior to the Civil War (18611865), America's revenue needs were met primarily through tariffs, duties, and other consumption taxes. In 1861, however, Congress adopted an income tax aimed at the nation's most affluent to finance the Civil War. The U.S. Supreme Court upheld the constitutionality of the income tax in Springer v. U.S. (1864). And in 1871, when the need for government revenue declined, Congress repealed the income tax, thereby placing the burden of financing government again almost entirely on tariffs and duties, increasing the cost of goods paid by workers. Thus, the repeal of the income tax shifted a portion of the tax burden away from the affluent to consumers generally.

Many Americans and populist politicians saw the tariff-based tax system as protecting capitalists by immunizing their products from competition from imports. Some also resented the wealthy, who were sometimes seen as shirking their responsibility to help pay for government services. Thus, the idea and appeal of an income taxreducing tariffs and increasing the tax burden on the affluentnever fully retreated from the American political landscape. There was, in fact, constant political pressure on Congress to restore the income tax; Congress introduced more than sixty bills between 1871 and 1894 to restore the income tax, culminating in passage of an income tax as part of the Wilson-Gorman Tariff Act of 1894. Less than a year after its passage, however, the U.S. Supreme Court held that portions of the income tax levied by the Wilson-Gorman Tariff Act of 1894 were unconstitutional.


An understanding of the controversy and public policy debate surrounding the income tax at the close of the nineteenth century requires an exploration of that era's social, economic and political context. After the Civil War, the Republican Party dominated national politics and local politics in states that had aligned with the Union in the Civil War. The interests of those statesor rather the interests of the powerful political actors within those statesdictated much of the Republican Party's platform during that era.

The former Union states were centers of finance and industry and contained areas of concentrated wealth. This era, sometimes called the "Gilded Age," was noted for its robber barons, industrialists and financiers who amassed great wealth often at the expense of the working class. The most important issues to Republicans were relatively high tariffs to support American industry and limit foreign competition with domestic products; maintaining a gold standard for currency to check inflation; and governmental regulation of the work force (both in limiting relief networks for the unemployed and in preventing workers from organizing unions). The Republican Party of the Gilded Age tended to incorporate the positions of the great industrialists and financiers on these issues into its platform.

This was not, however, an era of universal prosperity or stability; rather, it was an era of extremesgreat poverty for many amidst great wealth for a few. The average family income was less than $400 and fewer than 90 percent of American families had income in excess of $12,000. It was a hard time, especially for wage earners in cities and family farmers in the rural West and South. Many farmers and wage earners viewed government policy as favoring the interests of the financiers and capitalists, with high tariffs serving as an example of this preference. Such tariffs raised the price of domestic goods, imposing a steep tax burden on consumers. It was from this environment that populism emerged as a national political force at the end of the nineteenth century.

Populists, along with farm and labor political groups, sought lower tariffs. To replace the lost tariff revenue, some populist leaders favored reintroducing an income tax, which would also addressing the problem of the concentration of vast wealth in the hands of a few citizens.

The Democratic Party began to adopt some of these populist ideas. In 1892 Democrat Grover Cleveland won back the White House on a platform that favored lower tariffs and duties. Some Democratic members of Congress also sought to reinstitute an income tax.


In 1894, Cleveland supported the Wilson-Gorman Tariff Act, whose original purpose was to lower tariffs substantially. In the House, however, Benton McMillan, a Tennessee representative, amended the Wilson-Gorman Tariff Act to include an income tax. The amendment began:

That from and after the 1st day of January, 1895, there shall be levied, collected, and paid annually upon the gains, profits, and income of every person residing in the United States, or any citizen of the United States residing abroad, derived in each preceding calendar year, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, a tax of 2 per cent on the amount so derived over and above $4,000.

Thus, a flat 2 percent tax would be imposed on income in excess of $4,000. Fewer than 5 percent of Americans earned sufficient income to have to pay the tax. The amendment also imposed a 2 percent tax on the income of corporations and certain associations, although there were exceptions for charitable organizations, mutual banks, and insurance companies.

The income-tax amendment was bitterly opposed by all Republicans and many northern Democrats, as the tax would disproportionately affect citizens of northern states. The amendment, however, found a fiery and gifted advocate in Nebraska Congressman William Jennings Bryan. Responding to those who argued that subjecting only the wealthy to the tax was socialism, Bryant retorted that "they weep more because fifteen millions are to be collected from the rich than they do at the collection of three hundred millions upon the goods which the poor consume."

The Wilson-Gorman Tariff Act, with the income-tax amendment, passed in the House. Its fate in the Senate was a different story. Republicans and northern Democrats, oriented toward protecting manufacturing and financial interests, generally opposed the lowered tariffs contained in the House bill. They were joined by senators from Louisiana (interested in protective tariffs on sugar), and West Virginia and Maryland (interested in protective tariffs on coal and iron). Ultimately, the Senate gutted the provisions that lowered tariffs. But the income tax amendmentdespite fierce opposition from Republicans and northern Democrats, who labeled it "class legislation" and a communistic idea foreign to American idealspassed. It passed, perhaps in large part, because America was in the midst of a depression and its revenue needs might not be met by tariffs and duties alone. President Cleveland, furious that many Democratic senators had deserted his call for lower tariffs, allowed the bill to become law without his signature.


Litigation on the constitutionality of the income tax commenced almost immediately after the tax became law. Opponents of the tax argued principally that the tax was a direct tax, which Article I, Section 2, of the Constitution requires be "apportioned among the several states" according to their populations. The classic direct tax would have been a tax on property. The income tax, on the other hand, taxed wages and earnings derived from property. Supporters of the tax argued that a tax on earnings was not a direct tax on the property itself, thus constitutional as an indirect tax.

The U.S. Supreme Court consolidated several separate cases challenging the tax in Pollock v. Farmers' Loan and Trust Co. (1865). The Supreme Court, with one justice not participating because of illness, held, in a 53 vote, that the income tax as applied to rents earned on real property was an unconstitutional direct tax on that property. The Court also held, on federalism grounds, that the federal government lacked constitutional authority to tax income from state government bonds. The Pollock Court, however, split 44 on the constitutionality of an income tax to income produced by personal property, such as stocks and bonds. The Supreme Court granted a rehearing on the case, allowing all nine judges to participate. On rehearing, the Pollock Court, by a 5-4 vote, held that a tax on income from personal property was also constitutionally infirm as an unapportioned direct tax. The decision declared the entire statute unconstitutional, as the court determined that enforcing the remaining portions of the law was inconsistent with the intent of Congress.

In finding the income tax unconstitutional, the court distinguished a case that affirmed the constitutionality of an income tax during the Civil War. The Pollock Court held that the earlier case had only considered the constitutionality of a tax on wages, not a tax on income from property. Some commentators, then and now, have argued that the Pollock Court's distinction of Springer was disingenuous.

Justice Harlan issued a stinging and memorable dissent in Pollock, considered by some as one of the great dissents in U.S. Supreme Court history. The dissent traced Supreme Court jurisprudence on the federal taxing power, concluding that Pollock was a radical and unfortunate break from the legal precedent. Justice Harlan also criticized the decision as one intended to favor the wealthy, who derive their wealth from capital rather than labor:

[B]y its present construction of the Constitution the court, for the first time in all its history, declares that our government has been so framed that, in matters of taxation for its support and maintenance those who have incomes derived from the renting of real estate or from the leasing or using of tangible personal property, or who own invested personal property, bonds, stocks and investments of whatever kind, have privileges that cannot be accorded to those having incomes derived from the labor of their hands, or the exercise of their skill, or the use of their brains.

Ultimately, the nation enacted the 16th Amendment, which made the income tax a part of the nation's Constitutional scheme, rendering Pollock void.

See also: Income Tax Act of 1954; Internal Revenue Code of 1986; Personal Income tax Act of 1913; Tax Reform Act of 1986.


Grossfeld, Bernhard, and James D. Bryce. "A Brief Comparative History of the Origins of the Income Tax in Great Britain, Germany and the United States." American Journal of Tax Policy 211 (1983).

Seligman, Edwin R.A. The Income Tax: A Study of the History, Theory and Practice of Income Taxation at Home and Abroad. New York: Macmillan, 1914.

Weisman, Steven R. The Great Tax Wars. New York: Simon & Schuster, 2002.

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1894 Income Tax and the Wilson-Gorman Tariff Act