Legal history of income tax in the United States adopted an income tax modeled on the tax instituted in England. The British theory was that you tax the income from property, and not the property itself; thus, sales of property were not subject to taxation. In order to help pay for its war effort in the American Civil War, the United States government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861. Tax rates were 3% on income exceeding $600 and less than $10,000, and 5% on income exceeding $10,000. This tax was repealed and replaced by another income tax
Legal history of income tax in the United States bonds) was within the category of an excise or duty, and was neither a capitation tax (based on population) nor a property tax. The court also concluded that direct taxes, within the meaning of the Constitution, were only capitation taxes and taxes on real estate. In 1894, a Democratic-led Congress passed the Wilson-Gorman tariff. This imposed the first peacetime income tax. The rate was 2% on income over $4000, which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions. This was