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Government and Taxation During The THE PERCEIVED POWER: GOVERNMENT AND TAXATION DURING THE AMERICAN CIVIL WAR A Dissertation by JANE FLAHERTY Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY December 2005 Major Subject: History THE PERCEIVED POWER: GOVERNMENT AND TAXATION DURING THE AMERICAN CIVIL WAR A Dissertation by JANE FLAHERTY Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Approved by: Chair of Committee, Harold C. Livesay Committee Members, Thomas Dunlap Henry C. Schmidt Pamela Matthews Head of Department, Walter Buenger December 2005 Major Subject: History iii ABSTRACT The Perceived Power: Government and Taxation during the American Civil War. (December 2005) Jane Flaherty, B.A., Boston University; M.A., Texas A&M University Chair of Advisory Committee: Dr. Harold C. Livesay This dissertation examines how the internal revenue legislation enacted during the American Civil War fostered a new role for government in society. The delegates to the 1787 Constitutional Convention constructed a system of fiscal federalism for the United States. The national government relied on indirect taxes, particularly customs duties, as its primary source of revenue. Concurrently, the states developed an array of unique financing strategies, including taxing citizens directly. The dire need for war funds compelled this “unperceived” government to expand beyond the constraints imposed by this antebellum fiscal structure. Through my research, I found that the taxes imposed during the war represent an attempt to cope with a financial crisis, rather than impart a particular preconceived agenda. Because Congress had depended on customs receipts as its primary source of revenue for four decades, lawmakers had few ready options for meeting the overwhelming war costs. In developing the war revenue measures, lawmakers borrowed policies and statutes from the past, rather than relying upon the “free labor ideology” that united the party. The need to meet the escalating costs of war forced lawmakers to react with more speed than deliberation. They often sacrificed their principles to provide the means to prosecute the war and reunite the nation. Once peace returned, the question of whether to “sink” the debt or shrink revenues, vexed lawmakers, and kept the government from returning to its limited role in the economy. As a result, the United States government emerged from the Civil War as a perceived power, one that touched citizens “individually” through the new internal revenue system. I concluded that the fiscal powers of the national government expanded beyond the restraints imposed throughout the antebellum era. The internal revenue measures enacted during the war played a significant role in this transformation. iv DEDICATION For my parents, with love and gratitude. v ACKNOWLEDGEMENTS I would like to thank my committee chair, Harold C. Livesay, and the members of my committee, Thomas R. Dunlap, Henry C. Schmidt, and Pamela Matthews, for their guidance and many helpful comments regarding this dissertation. I wish to give special thanks to Harold Livesay whose insights and editorial skills helped me tremendously. Other individuals who commented on parts of this work include: Joseph G. Dawson, April Hatfield, both of Texas A&M University, and James L. Huston of Oklahoma State University. All these scholars have generously shared their expertise, and offered encouragement throughout the course of my studies. The Department of History at Texas A&M University has generously supported my research. I would also like to thank the Glasscock Center for Humanities Research and the College of Liberal Arts at Texas A&M University for the fellowships and travel support they have given me. James Rosenheim, director of the Glasscock Center, has provided a vigorous intellectual environment that stimulated my thinking and development as a scholar. I would also like to thank the citizens of the state of Texas who have supported my work through their contributions to Texas A&M University. I would like to thank my friends, both near and far, who have provided support and encouragement throughout my career as a graduate student. Finally, I wish to give my thanks to my parents and my children, whose love and encouragement have sustained me. vi TABLE OF CONTENTS Page ABSTRACT.................................................................................................. iii DEDICATION .............................................................................................. iv ACKNOWLEDGEMENTS .......................................................................... v TABLE OF CONTENTS.............................................................................. vi CHAPTER I INTRODUCTION................................................................. 1 The “Forgotten Force”.............................................. 7 The Paradox of Federal Power.................................. 14 The Myth of Laissez-Faire........................................ 18 The Revolution in Government ................................ 22 II FISCAL FEDERALISM....................................................... 26 Development of Fiscal Federalist.............................. 29 “The Life and Soul of Government” ......................... 33 The Direct Tax.......................................................... 45 “To Annihilate Totally the State Governments” ....... 54 Government and Taxation......................................... 60 War of 1812............................................................... 68 Other Revenue Options............................................. 72 State Policies............................................................. 75 Conclusion................................................................. 80 III THE “EXHAUSTED CONDITION OF THE TREASURY” 81 The Growing Debt..................................................... 87 The Secession Crisis and the Treasury...................... 98 The New Administration........................................... 101 The “Stunted Government”....................................... 111 The “Paper Anarchy”................................................ 118 The Secretary’s Choices............................................ 123 Conclusion................................................................. 125 vii CHAPTER Page IV ENGLISH ORIGINS OF AMERICAN CIVIL WAR TAXATION.............................. 127 English Taxation....................................................... 134 “Ye Best and Easiest Tax” ........................................ 141 Necessaries of the Poor............................................. 146 The Fiscal-Military State........................................... 150 Necessaries of Life.................................................... 157 Other Origins............................................................. 164 Conclusion................................................................. 171 V THE POVERTY OF THE TREASURY............................... 174 The “Magnitude of the Contest”............................... 178 Civil War Revenue Measures.................................... 187 The Touchstone of Our Patriotism............................ 198 Those Who “Suck the Vitals of Society”.................. 207 The Income Duty....................................................... 212 The General Sales Tax.............................................. 217 Conclusion................................................................. 224 VI THE “MOST BURDENED OF THEM ALL” .................... 226 The “Most Lightly Taxed Nation on the Earth”........ 238 “Obvious as the Sun’s Pathway Through the Heavens” ................................................................... 242 Debt or Taxes............................................................ 244 David A. Wells.......................................................... 249 The Direct Tax.......................................................... 262 The Income Tax........................................................ 266 Conclusion................................................................. 272 VII CONCLUSION ..................................................................... 274 REFERENCES ................................................................................. 281 VITA ................................................................................................. 308 1 CHAPTER I INTRODUCTION “Nothing is more striking to the European traveler in the United States,” commented Alexis de Tocqueville in 1834, “than the absence of what we term the government.” Coming from a country with a “completely centralized” authority, the American government impressed de Tocqueville by retaining its “vigor” while distributing its influence so broadly. “This accounts for [the government] passing unperceived,” he continued. “The power exists but its representative is nowhere to be seen.”1 This dissertation examines one aspect of the maturation of the American government from Tocqueville’s “unperceived” force into a perceived power. Through the internal revenue legislation drafted during the American Civil War, the national government became a tangible force in the American economy and society. This legislation, I suggest, played a significant role in expanding the national government beyond the state centered federalist structure of the antebellum era. Before
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