Toward a Progressive Income Tax
In the decade after the Civil War War, Congress allowed the income tax to expire. Tariffs on imported goods again dominated national finance. By the 1880s, however, a series of economic crises and the post-Reconstruction return of the Democratic Party to national politics weakened support for tariff-based finance and propelled a popular movement in favor of a progressive income tax.
Democrats attacked the tariff as the “mother of all trusts” – both a symbol and a producer of special privilege, monopoly power and public corruption. In the 1880s and 1890s, populists, representatives of a Southern and Western rural insurgency were even more critical of the tariff. In its 1892 platform, the Populist Party demanded a “graduated income tax” to “restore the government of the Republic to the hands of the ‘plain people’ with which class it originated.”
Democrats soon coopted parts of the Populist agenda. In 1894, Congress approved a 2 percent federal income tax on incomes over $4000. The tax survived only a year. The Supreme Court’s controversial 5-4 decision in Pollack v. Farmers Loan and Trust (1895) found the income tax unconstitutional.