The first US income tax was instituted at a time of crisis. In the summer of 1861, with the Civil War raging, Union forces were hemorrhaging revenue as credit dried up, with some banks threatening to stop doing business with the federal government altogether. At the time, Confederate forces from the South were making gains while Northern armies ran out of supplies, dulling the North’s advantage in wealth and industry.

The Union was in the midst of a financial emergency that threatened to derail the abolition of slavery. To generate the resources needed to destroy the Confederacy, and to establish independence from banks interested only in profit-making, the government turned to a new way to fund itself: placing a tax on the money Americans made. That new taxation system included another novelty: forcing the rich to pay more.

The Revenue Act of 1861, signed by President Abraham Lincoln in August of that year, levied a 3 percent tax on all incomes over $800 — a threshold that, at the time, affected only the richest 3 percent of all Americans. The following year, Lincoln and Congress passed a subsequent income tax bill that included a graduated rate. Prior to these laws, the government had collected revenue primarily through tariffs on goods which essentially served as a flat tax, impacting all Americans the same regardless of their income level. Now, the United States had established the first progressive income tax in its history.