Revenue Act of 1862

The Revenue Act of 1862 (July 1, 1862, Ch. 119, 12 Stat. 432), was a bill the United States Congress passed to help fund the American Civil War. President Abraham Lincoln signed the act into law on July 1, 1862. The act established the office of the Commissioner of Internal Revenue, a department in charge of the collection of taxes, and levied excise taxes on most items consumed and traded in the United States. The act also introduced the United States' first progressive tax with the intent of raising millions of dollars for the Union.

The American Civil War commenced in 1861 with the secession of many southern states (the group known as the Confederate States of America) from the United States (also known as the Union). In the early stages of the war, the Union believed that the conflict would be a relatively quick and easy victory. The federal government was in need of funding because of economic issues in the years leading up to the war, and as result, Congress' first attempt to fund the war came with the Act of July 17, 1861. This act authorized the Secretary of the Treasury Salmon P. Chase to raise money by issuing $50,000,000 in Treasury Notes. However, due to the deteriorating economic conditions of the years leading up to war, the production of these notes ceased, and they were officially declared unredeemable.

As economic conditions worsened in the North, Chase needed to raise more revenue. He was initially opposed to the notion of internal taxes, and believed that the better way to raise revenue was through the selling of war bonds. Citing the success of war bonds in raising revenue during the War of 1812, Chase consulted Philadelphia banker Jay Cooke to administer the sale of war bonds to citizens in the Union. Cooke was able to employ a sophisticated propaganda campaign to market bonds to the middle classes as well as to the upper classes, and was able to persuade almost one million northerners to invest, resulting in bond sales of over $3 billion. However, the majority of these sales occurred during the later stages of the war, and the Union still needed an immediate method of raising funds.

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