Prior to the passage of the 16th Amendment in 1913, the United States government funded its operations mainly through excise taxes, tariffs, customs duties and public land sales. The federal government had relatively few expenses compared to today and did not have as much need to raise large amounts of money.
The U.S. government was capable of paying for its expenses without an income tax prior to 1913 largely because it had fewer responsibilities. Thomas Eddlem noted in The New American that the federal government’s responsibilities were limited to basic operational matters and did not include such modern expenses as social insurance programs, welfare programs or agricultural subsidies.
The early Americans accumulated a lot of debt associated with the Revolution. The federal government assumed the debt of the colonies and sought to pay it off by taxing imports and imposing excise taxes on products such as alcohol, tobacco and refined sugar. Congress passed an excise tax on all distilled spirits in 1791, causing an uprising among farmer/distillers in the western part of Pennsylvania. The Whiskey Rebellion ended with President George Washington mobilizing 13,000 militiamen from multiple states and arresting 150 rebellious farmers. Only two were convicted of treason and they were later pardoned.
In peacetime during America's early decades, most of the federal government’s revenue came from import taxes called tariffs. The U.S. Congress passed the Tariff Act of 1789 to help generate revenue to pay off its war debts and to encourage and protect manufacturers in the northern states. Congress also passed major tariff bills in 1816, 1824, 1828 and 1832.
Land Sales and Taxes
The Continental Congress passed the Land Ordinance of 1785 to help the government raise money through land sales in territories northwest of the Ohio River. Congress established the Treasury Department in 1789 to oversee the sale of public lands and then, in 1812, the General Land Office within the Treasury Department took over these responsibilities. Meanwhile, the federal government imposed direct taxes on land and property in the 1790s, but these were abolished by President Thomas Jefferson in 1802.
Passing the 16th Amendment
Article I, Section 9 of the U.S. Constitution states, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken." A federal income tax had been enacted in 1861, but was struck down as unconstitutional by the Supreme Court in 1895 because it was found to be a direct tax outside the constitutional constraints. Congress removed these limits in 1913 with the passage of the 16th Amendment, which allows it to impose income taxes specifically, "without regard to any census or enumeration."
- The New American: Before the Income Tax
- Library of Congress: The Whiskey Rebellion
- Teaching American History: The Tariff History of the United States
- Almanac of Policy Issues: History of the US Tax System
- Forbes: Updated: 2013 Federal Income Tax Brackets And Marginal Rates
- Bureau of Land Management: Land Office History
- Transcript of the Constitution of the United States - Official Text
- Creatas/Creatas/Getty Images