The nation’s funding policies were ill suited to the enormous costs of war, as figure 3 makes clear.10 This was particularly true because Southern cus-toms officers simply stopped sending in revenue to the federal government after Lincoln was elected.11 Lincoln himself recognized the prob lem: in his message to the special session of Congress called on July 4, 1861, he ruefully remarked, “One of the greatest perplexities of the government is to avoid receiving troops faster than it can provide for them.”12
The frantic first step was a near doubling of tariff rates proposed by the aforementioned Justin Morrill. Figure 4 shows the sharp increase in rates as compared with the previous two de cades. Representative Morrill was a busy man during the first years of the war—he not only sponsored the tar-iff bill but also authored the Land-Grant College Act and the Anti- Bigamy Act, both of which passed in 1862.
The House vote on the Morrill Tariff was largely regional in nature, as figure 5 illustrates. The gestation of the bill in the Senate took just over nine months; by then, most of the South had departed the halls of Congress, and the vote fell largely along party lines (fig. 6).13 A logistical regression re-veals that Demo crats in the House were 42 times as likely to vote no on the Morrill Tariff as Republicans, whereas the Senate figure was 312.14 The renegades in the Senate were Demo crat William Bigler of Pennsylvania and Republican Benjamin Wade of Ohio.
Party- line votes were critical for funding the war, as figure 7 shows. Re-publicans held a majority in both houses of the Thirty- Seventh Congress (March 4, 1861– March 4, 1863), and this group of men was responsible for
10Robert Patterson, “Government Finance on the Eve of the Civil War,” Journal of Economic History 12 (1952):35–44, makes this point as well.
11Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War (Prince ton, N.J., 1970), pp. 31–32.
12Roy P. Basler, ed., The Collected Works of Abraham Lincoln, 9 vols. (New Brunswick, N.J., 1953–55), 4:432.
13Senate Journal, Feb. 20, 1861, 36th Cong., 2d sess., p. 275, http:// memory . loc . gov / ammem / amlaw / lwcg . html.
14Logistical regression is a statistical tool used to predict the likelihood of an outcome as a function of explanatory variables— here, the party of the representative or senator—
when the dependent variable is dichotomous (that is, the vote is either yes or no).
Fig. 3. U.S. government bud get: what a difference a year makes! (Source: HSUS, Series Ea584–5)
Fig. 4. Import duties as a percentage of import values, 1840–95. (Source: HSUS, Series Ee429)
Fig . 6 . Morrill Tariff vote by party. (Source: http:// memory . loc . gov / ammem / amlaw / lwcg . html)
To Form a More Perfect (Financial) Union 37
shaping virtually all of the legislation concerning the nation’s finances dur-ing the war.
But was Justin Morrill’s tariff enough? Not by a long shot. As figure 2 illustrates, import duties went from covering about 80 percent of federal spending in 1860 to covering only 10 percent less than two years later. Tar-iff revenues did not come close to matching the federal government’s enor-mous new expenditures.
So the Thirty- Seventh Congress had to resort to other mea sures. Shortly after the rout at Bull Run, the Revenue Act of 1861 increased customs duties still further, imposed taxes on real estate and other property, re-quired direct taxes on each state, and, most shocking of all, included an individual income tax (which was beefed up a year later). House Demo crats were 253 times as likely to vote no as House Republicans for this law. As figure 8 shows, however, I could not perform a logistical regression for the Senate, because not a single Republican senator voted no.15
How much did the vari ous taxes bring in? Figure 9 breaks down federal receipts by category for the years 1861 to 1865. Just like today, “sin” taxes
15The vote appears in House Journal, Aug. 2, 1861, 37th Cong., 1st sess., pp. 226–27;
Senate Journal, Aug. 2, 1861, 37th Cong., 1st sess., p. 167, http:// memory . loc . gov / ammem / amlaw / lwcg . html.
Fig . 7 . Percent Republican, by House, Thirty- Sixth– Thirty- Eighth Congresses.
(Source: Congressional Globe, Thirty Sixth– Thirty Eighth Congresses, http:// memory . loc . gov / ammem / amlaw / lwcg . html)
on liquor and tobacco were part of the package. Liquor eventually bore a tax of almost ten times its cost, cigars up to 100 percent of cost. Of course, these high rates created incentives to avoid tax. The revenue from the liquor tax went from $28 million in fiscal year 1864 to only $15 million a year later— and I doubt that people became teetotalers.16
16Susan B. Car ter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright, eds., Historical Statistics of the United States, Millennial Edition (New York, 2006), ser. EA588–592, pp. 600–602, http:// dx . doi . org / 10 . 1017 / ISBN–9780511132971 . A . ESS . 01.
Fig . 8 . Revenue Act of 1861 vote by party. (Source: http:// memory . loc . gov / ammem / amlaw / lwcg . html)
Fig . 9 . Federal receipts by category, 1861–65. (Source: HSUS, Series Ea588–92, 600–02)
Fig. 10. Federal expenditures by category, 1861–65. (Source: Wesley Mitchell, “Greenbacks and the Cost of the Civil War,” Journal of Po liti cal Economy 5 [1897]:117–56)
The income tax fi nally started generating funds by the end of 1864, and a tax on manufactured items played a role as well. One innovation was with-holding at the source—by 1865, almost half of income tax revenue was collected via withholding.
Yet note that the maximum height of the columns in figure 9 is only about
$100 million, and recall that expenditures had reached $500 million in 1862.
Spending only grew from then on, as figure 10 shows. Taxes simply could not cover the massive bills piling up for the federal government.