FINANCING THE CIVIL WAR:THE OFFICE OF INTERNAL 

REVENUE AND THE USE OF REVENUE STAMPS

By

Gary Giroux

Texas A&M University

And 

Sharon Johns

Brigham Young University

April 2000

Department of Accounting

Texas A&M University

(409) 845-2375

fax: (409) 845-0028

email: g-giroux@tamu.edu

We thank Mike Mahler for his comments on an earlier draft of this paper.

Financing the Civil War: The Office of Internal Revenue and the Use of Revenue Stamps

Abstract

The Civil War was expected to be short and relatively low cost.Treasury Secretary Salmon Chase initially financed the war effort by borrowing. As Northern losses mounted, it became obvious that the war would be long, bloody, and expensive.The Revenue Act of 1862 increase taxes dramatically, including the first federal income tax, the creation of the Office of Internal Revenue, and the first federal use of adhesive revenue stamps.The total cost of the war to the federal government was $3 billion, about a quarter of it financed through taxes, customs duties, and other federal revenues.The purpose of this paper is to describe the finances of the Civil War and post-war period, with particular focus on the Office of Internal Revenue and the use of adhesive revenue stamps.

Financing the Civil War: The Office of Internal Revenue and the Use of Revenue Stamps

The Civil War cost the federal government some $3 billion.The primary revenue source before the war was customs duties, which raised less than $40 million in 1861.The government ran huge deficits, financed through borrowing.Taxes were increased to finance about a quarter of the total military costs.The Revenue Act of 1862 created new taxes and established the Office of Internal Revenue.¹The new taxes were necessary to provide partial funding and generate the confidence in the financial markets to continue to fund the war.

The purpose of this paper is to review the impact of the new taxes on the finances of the federal government and use of taxes by the public.Particular attention will focus on the use of adhesive stamps and what their use said about the period.By the time of their final repeal in 1883, stamp taxes totaled $210 million using eight billion stamps.Virtually every document was taxed, as were many proprietary articles such as matches, medicines, and perfumes.These have become collectibles and are a window into the business and cultural world of Civil War-era America.

The Civil War and the Revenue Act of 1862

The most significant aspects of the law were (1) the first federal income tax, (2) the creation of the Bureau of Internal Revenue (now Internal Revenue Service) under the Treasury Department, and (3) the use of adhesive tax stamps.The income tax was certainly the largest single tax source, bringing in over $340 million over the ten-year period the tax was in effect.The income tax lasted a decade, repealed in 1872, seven years after the end of the war.It set the precedent for the income tax in 1894 (declared unconstitutional) and the current income tax provisions beginning in 1913 after the passage of the 16^th Amendment.For good or bad, the Internal Revenue Service is still around.Perhaps the most interesting aspect is the first use of adhesive stamps by the federal government for revenue collections.Although this accounted for relatively low levels of revenues, some eight billion revenue stamps were used.These became collectibles, found on virtually every document issued and many proprietary and related articles.

The provisions of the 1862 Revenue Act and subsequent amendments are summarized in Tables 1 and 2.The 1862 Revenue Act included three schedules.Schedule A described the income tax and other taxes payable directly to the Office of Internal Revenue.The income tax rate was three percent per annum on incomes between $600 and $10,000.Above $10,000 the tax rose to five percent."Ability to pay" was the principal used to justify progressive tax rates.²Income subject to tax included wages and salaries, interest and dividends, and no exemptions were provided for children.Taxes were withheld on salaries of government employees and dividends paid by corporations, the first withholding system.The income tax apparently was paid by about 10% of northern households, based on a four-page tax form.The annual tax forms were required by the first Monday in May following the taxable (calendar) year.In 1870 almost 277,000 income tax returns were filed.An inheritance tax (called a "legacy tax") was levied on estates valued over $1,000 at a rate of 1% for lineal relatives (and scaled up to 5% for others).Additional taxes were levied on public utilities, distilled spirits, tobacco, banks, and insurance companies.

Schedule B described the taxes on documents, requiring the use of adhesive stamps directly on the documents.There were 25 major categories.Several of these had several sub-categories (e.g., certificates included stock, deposit, profit, damage, and those not specified).Others had several monetary categories.Inland Exchange (primarily promissory notes) had ten specific categories, beginning with amounts between $20-$100, 5¢, to $2,500-$5,000, $1.50, with each additional $2,500 or fraction, $1.

Schedule C described three categories of specific retail articles:(1) medicines, (2) perfumery and cosmetics, and (3) playing cards.Each box, bottle, or pack required a proprietary stamp (Proprietary or Playing Card), with the stamp amount based on retail price.These are often referred to as proprietary articles. However, a proprietary item includes: "(1) private formula, (2) exclusive right, (3) letters-patent and (4) representation as a proprietary medicine" (Mahler 1987, p. 131).Medicines were proprietary articles, playing cards were not.Perfumery and cosmetics could be.The Revenue Act of 1864 refers to "any stamp appropriated to denote the duty charged on proprietary articles, or articles enumerated in Schedule C".

The Revenue Act was amended regularly, often for usual political reasons.Income tax rates were raised in 1864: to 5% on incomes from $600-$5,000, 7 1/2% from $5,000-$10,000, and 10% over $10,000.The rise in tax rates provided more revenues as the military expenditures escalated.Schedules B & C also were amended (generally on an annual basis).New categories were found to tax, such as new Schedule C stamp taxes on matches and photographs.Other taxes were rescinded including express company receipts in 1863 and telegrams in 1864, and the tax on photographs was rescinded in 1866.The reason seems to be lobbying by these industries and probably cash payoffs (this was a period of rampant corruption).³An oleomargarine tax was introduced in 1866, a poor revenue generator, but passed to reduce the competition with butter.Existing stamp taxes were raised (playing cards in 1864) or lowered (inland exchange in 1863, to be raised again in 1864).Also, many stamp tax rates were simplified (e.g., conveyance to 50¢ for each $500, in 1864).The inheritance tax was repealed in 1870.

Taxes were substantially reduced in 1872, including the elimination of the income tax.All documentary stamp taxes were rescinded in 1872 except the 2¢ Bank Check, and all stamp taxes in 1883.Adhesive stamps were again used for the 1898 Spanish American War and during World War I.⁴Thus, as a fiscal "experiment", it was successful.

A timeline is presented in Table 3 to summarize major developments in chronological order.

George Boutwell and the Bureau of Internal Revenue

Boutwell had been elected to Congress in November 1862 and resigned as Commissioner on March 3, 1863.A major reason for the resignation (Chase would have allowed him to serve both in Congress and as Commissioner) was a new requirement to post a performance bond.From March to August he prepared a volume on rulings and decisions of the Bureau.He was succeeded as Commissioner by Joseph Lewis, President Lincoln's first choice for the job.Boutwell served in Congress from 1863-69 and was a member of the impeachment trial of President Andrew Johnson.He was U. S. Grant’s Secretary of the Treasury from 1869-73 and U. S. Senator from Massachusetts from 1873-79.He was appointed by President Hayes to codify the statutes-at-large, resulting in the second edition of the U. S. Revised Statutes (1878).He became an overseer of Harvard and Secretary of the Massachusetts Board of Education.

The Bureau of Internal Revenue divided the Union into 185 collection districts, roughly based on the number of representatives in Congress.Each district was authorized an assessor and a collector.The assessor determined the amount of taxes authorized for collection, the use of proper forms, and was generally responsible for enforcement of internal revenue regulations.Persons and companies liable for taxes were required to submit an annual return to the appropriate assistant assessor by the first Monday in May.Assessors were paid $3 per day(increased to $4 in 1864) plus other incentives.The office of assessor was abolished on July 1, 1873, when the income tax was repealed and many other taxes eliminated or reduced (Schmeckebier and Eble, 1923).

The collector was a fiscal agent responsible for collecting taxes according to the documentation prepared by the assessor.The collector gave notice to taxpayers by using newspaper advertising or posting notices that taxes were due and payable.When past due, the collector served notice on the delinquent taxpayer by mail or in person (a travel fee was then added to the tax bill).Assistant collectors generally received the cash for the collection of tax and issued receipts, such as the 1863 receipt for $1 buggy tax in Figure 2.Collectors initially were paid on commission of monies collected (e.g., 4% on collections up to $100,000).Later, they were paid a salary plus commission.Figure 3 illustrates a receipt for salary of $83.33 to an assistant collector.

Inspectors could be hired to enforce revenue collection of distilleries and tobacco producers.The number of inspectors rose with tax law changes and eventually topped 1,000.Inspectors were paid from fees on manufacturers, a process subject to corruption when overgenerous "fees" were paid for favorable inspections (Schmeckebier and Eble, 1923).

Internal revenue collections were less than expected.In the first ten months, collections were under $38 million instead of the $100 million estimated.Collections rose every year during the War (to $209 million in 1865), but less than expected ($500 million was projected for 1865).Several reasons were suggested.The spoils system was used rather than merit and employee turnover in the Bureau averaged 33% a year, largely because of low pay.Competence was a problem. An 1865 Treasury Circular identified 365 errors over the previous four months.Dishonesty by officials also was common (Howe, 1895).

As tax rates rose, tax evasion increased.Corrupt whiskey rings were particularly pervasive, with inspectors and collectors often on the take.In 1868 the Bureau was given authority to hire detectives (later to be called agents) to detect and prevent tax fraud.Despite lower tax rates, fraud was rampant in the 1870s.In 1875 the Commissioner seized 24 distilleries and 37 other businesses; over 50 federal officials were implicated (110 people were eventually convicted).It was estimated that lost federal revenues totaled $1.65 million over a ten-month period.Moonshine stills were common, especially in the South, and several Internal Revenue and other government officials were killed attempting to shut these down (Howe, 1895).

Federal Finances

From 1862 through 1865, federal expenditures totaled $3.35 billion, an incredible sum for the period.Most of this was for the Army ($2.72 billion) and the Navy ($314 million).Also growing was the interest on the national debt ($169 million for the war period and over $100 million each year from 1866-1876).This was the basic financial problem—how to finance the cost of the war effort.

Almost $4 billion was borrowed from 1862-65, about half long-term debt (over 5 years) and half short-term.Each year saw an increase in borrowing and a general shift from short-term loans to long-term bonds.Specific bond issues were listed in the annual Report of the Secretary of the States of the Finances.These included individual bonds (e.g., 6% 20-year bonds in 1864), serial bonds (5-20 year bonds in the same year, presumably with varying interest rates), Treasury notes (2-year 5% notes in 1864), and certificates of indebtedness.The creditors were not listed.Treasury Secretary Salmon Chase used Philadelphia banker Jay Cooke to broker bond sales.Cooke used newspaper advertising and some 2,500 agents to sell bonds to almost a million northerners.Also, national banks were required to hold federal bonds equal to one third of their capital.

The federal government began issuing paper currency.The Legal Tender Act of February 1862 authorized the issue of $150 million in Treasury Notes (called greenbacks) and the authorization was eventually increased to $450 million.Investors were allowed to buy federal bonds with greenbacks (which depreciated relative to gold), but the bonds were redeemable in gold.

Investor confidence required the massive tax increases beginning with the Revenue Act of 1862.Revenues increased from $52 million in 1862 to $113 million in 1863, $265 million in 1864, and $334 million in 1865.The highest annual revenue level occurred in 1866 at $558 million.Internal Revenue collections were only $38 million in 1863 (about a third of total federal revenue), but increased to $100 million in 1864 and $207 million in 1865 (about two thirds of total federal revenues).Internal Revenue collections peaked in 1866 at $309 million.According the Doris (1994), income tax collections were more than $340 million for the 1863-73 period.Income tax revenues peaked in 1866 at $73 million, about 24% of Internal Revenue collections that year.

For the 1862-65 period, revenues at $763 million were only 23% of expenditures ($3.35 billion).The remainder (net of paper currency issued) was borrowed.However, the taxes were high enough for the federal government to sell bonds and notes at interest rates that averaged about 6%.Beginning in 1866, the federal government would run surpluses for almost 30 years.The national debt, which rose to $2.8 billion in 1866, gradually fell below one billion dollars by 1892.A major factor was the continuation of taxes collected by the Bureau of Internal Revenue, started with the Revenue Act of 1862.

The Use of Adhesive Revenue Stamps

Finished stamps from B&C were delivered to government stamp agent William Kemble in Philadelphia (Kemble was succeeded by Isaac Pugh in 1864).Most documentary stamps (perhaps 70%) were sold through the Treasury Department network (Mahler 1993).From 1862-6 collectors and deputy collectors were responsible for distribution.Many documentary stamps were then sold to private agents, who sold the stamps directly to the public on a commission basis (Boutwell established the commission rates).From 1866-72 Assistant Treasurers of the U. S. (located at large cities such as New York, Boston, St. Louis and San Francisco), national banks serving as designated federal depositories, and collectors of customs assumed responsibilities.Kemble delivered stamps to these institutions and others for regional distribution.These agencies could deliver stamps to local agents or sell directly to the public.Treasury Secretary Boutwell (he was Secretary from 1869-73) returned the responsibility back to Internal Revenue collectors.This system probably worked well in larger cities.However, this was likely an inadequate system in small cities and rural areas.Commission at 2%-5%, with higher rates for larger volume, were too low to attract enough agents. It must have been difficult to find stamps at most small towns (Mahler 1993).

Most proprietary (Schedule C) stamps and private dies were ordered directly by the manufacturers from the Office of Internal Revenue and shipped by stamp agent Kemble (and later Pugh).These stamps were initially sent by registered mail.In 1866 the Treasury Department contracted Adams Express Co. and Adams delivered the stamps from 1866-76, after which delivery reverted to the Post Office (Mahler 1993).

Most stamp types were initially delivered to Kemble by the end of 1862.There were 94 separate stamps, from four 1¢ (Express, Playing Card, Proprietary, and Telegraph) to $200, using 25 categories.Ironically, as mentioned above, the need to “match” types of stamps was repealed by the end of 1862.Some stamps were also printed in two separate colors.For example, the 2¢ Bank Check was initially printed orange with production starting September 17, 1862.On October 10, Boutwell ordered all 2¢ stamps printed in blue.So blue 2¢ Bank Check stamps were printed from October 10, 1862 to August 10, 1864, when Commissioner Lewis ordered them printed in orange again.The Bureau was concerned about the possible loss of revenue from the washing (eliminating the cancel) and reuse of stamps.Various experiments were made using different colors on stamps that would reduce this threat (i.e., making it difficult to wash or washing would ruin the color on the stamp).Counterfeiting was a small problem.Only three examples of counterfeit revenue stamps are known from this period (the 1¢ Proprietary, $3 Manifest, and the 1¢ B. & H.D. Howard match stamp).

All stamps were supposed to be perforated to facilitate separation, The technique was first adopted in the U.S. by the firm Toppan, Carpenter in 1857.The perforating equipment had to be set up and used by hand, a time consuming step in stamp production.B&C had difficulty delivering stamps at the beginning of production, with perforating being the major stumbling block.Boutwell allowed B&C to ship stamps without perforations (called imperforate or imperfs) on November 7, 1862.Consequently, many early documents and Schedule C articles used imperf or part-perforated stamps.

Stamp tax information is summarized in Table 4.Stamp collections in 1863 were only $4 million, about 10% of Internal Revenue collections, but less than 1% of 1863 expenditures ($715 million).Stamp tax duties were considered effective.The method was simple, collection was relatively easy (the purchase of stamps represented the prepayment of taxes), and enforcement was considered uncomplicated.In 1868, the use of stamps was extended to tobacco, malt and distilled liquors, and license duties.Stamp revenues continued to grow until it reached about $15 million a year in 1866 and stayed at this level until 1872.After 1872 most documentary taxes were eliminated(stamp taxes remained on bank checks and Schedule C articles) and collections fell by more than 50%.Over 20 years, $210 million was collected from this tax.

Documents

The most widespread documentary usage was on bank checks.The tax was initially 2¢ on checks and sight drafts over $20, with all checks drawn on banks taxed at 2¢ beginning in 1864.The tax continued until all stamp taxes were repealed in 1883.Almost a billion 2¢ stamps were sold, primarily the 2¢ Bank Check.

The 2¢ Bank Check was the only documentary stamp issued and delivered to stamp agent Kemble when the stamp tax took effect on October 1, 1862.The only documents that still exist from October 1862 with stamps are bank checks--and these are rare.Illustrated is an August 30, 1862 trade acceptance (time draft 15 days after sight) from the Pennsylvania Mining Co.It was issued before the tax took effect and therefore exempt from the tax.However, the head office applied a 2¢ Bank Check stamp on October 10, probably because of uncertainties of the law's provisions.(The correct rate would have been a 5¢ Inland Exchange stamp for a time draft.The 2¢ Bank Check may have been the only type of stamp the head office had at the time.)It was signed by agent Sam Hill, a mining engineer reputed to have the foulest mouth in the mining industry (and possibly of "What the Sam Hill…!" fame).

Mahler⁶ (1995a, 1995b, 1996a, 1996b) identified four significant document hoards: (1) some 200 bills of exchange (sight and time drafts, sometimes referred to as bankers' acceptances) from Cuba (1865-72) to the New York banking firm of Danford Knowlton (sold by a Florida stamp dealer in the 1970s); (2) a document archive from the Iron Cliffs Co., an iron mine formed in 1864 and continuing until 1892 (held by collector Bob Richards); (3) a document archive from the Quincy Mine Co., a copper producer in Upper Michigan, chartered in 1848 and not shut down permanently until 1945 (the archive was headed for the New Jersey landfill about 1976 and rescued by a worker who sold it to a New York stamp dealer); and (4) Pennsylvania Mining Co. of Michigan, also a copper mining company which existed from 1861-66 (the archive was held by collector Morton Dean Joyce).The company was taken over by creditors and reorganized several times.

Some of the earliest uses of revenue stamps are found on Quincy and Pennsylvania Mining Co. documents.Many sight and time drafts from these mining companies were used as scrip, effectively serving as paper currency.These were endorsed by the mining agent or company clerk and changed hands for several months in the mining camps.Money was scarce during the Civil War and this proved to be an expedient substitute.

This era was before the invention of the typewriter and most documents were partially printed, with blanks left to be filled out in pen.The exceptions were manuscript documents, where the entire documents were completed by pen.

Certificates in the Civil War period took several forms, many of which are still familiar.Stock certificates were taxed at 25¢ for the entire 1862-72 period.An example is the Quincy Mining stock issued on December 6, 1862, the second earliest recorded use (the earliest was December 5).At that time Quincy was required to match the title of the stamp to the type of document (Certificate in this case).Since B&C had difficulty delivering stamps on time during this early period, this must have been frustrating to users such as Quincy.

Certificates of deposit (CD) were taxed at 2¢ under $100 and 5¢ over $100.The CD of the Colorado National Bank was taxed at 5¢ (CD for $1,650).The vignette shows Denver, then in Colorado Territory.A gold rush started in 1858 near Denver and Colorado Territory was formed in February 1861 (when Southern states were seceding).Colorado did not become a state until 1876, but was still subject to federal tax while still a territory.

Certificates of profit represented stock dividends (or equivalent⁷), taxed at 10¢ for values from $10-$50 and 25¢ over $50 under the 1862 Act.In 1866 the 25¢ rate was for values from $50-$1,000 and an additional 25¢ for each additional $1,000 or fraction.The 1868 certificate of profit for the Atlantic Mutual Insurance Co.was taxed at 50¢ for a value of $1,600, payable in "the Capital" of the company.

Marriage certificates were taxed at the "not specified elsewhere" rate of 10¢ under the 1862 Act and 5¢ under the 1863 Act.The legal formality was based on state laws and, thus, these certificates varied by state (only the federal tax was standardized).In Illinois a license was required, which was filled out at the time of marriage and returned to the recorder.Illustrated is a large Illinois certificate from 1866, stamped at the 5¢ rate with an embossed county court seal.⁸

Several types of certificates are not familiar today (most were taxed at the "certificate, not specified elsewhere " rates).Several are illustrated.First is an 1865 certificate of intention to become an U. S. citizen for George Blass of Baden (now Germany).Immigration was substantial during much of the 19^th century and the procedure for citizenship--a legal process--important.

Also from 1865 is a certificate of redemption, paying past-due real estate tax, presumably to avoid foreclosure (the 5¢ stamp thus represented a tax on a tax).As today, taxpayers were subject to taxes at the local, state, and federal level.All had procedures to sanction non-payers, with foreclosure of real estate probably the most common at the local level.

Last is a certificate of disability to entitle Joseph Steimer an exemption from military duty.Avoiding military duty was common during the Civil War.A payment of $300 could be used to hire a "surrogate".This document demonstrates the use of medical exemptions during this period, with proof documented with a certificate.

Common power of attorney documents were for stock transfers, taxed at 25¢, and proxy voting, 10¢.The power of attorney for stock transfer seemed to be a formality for using a broker to sell the securities.Other powers of attorney were to transfer legal authority for various purposes.Illustrated is an 1869 power of attorney, taxed at the 50¢ "not specified elsewhere" rate.An U. S. sailor aboard the S. S. Yantic appointed his wife attorney to collect what was due from her father's estate in England.This suggests the limited legal status of married women at the time.(The 50¢ rate was overpaid by a nickel.)

Several types of documentary stamp rates were based on transaction value and could be high-tax items, such as mortgages or conveyance--both associated with real estate sales.Conveyance represented the deed associated with real estate transactions, taxed at 50¢ per $500 value under the 1864 Act.An interesting example is an 1865 deed for Rhode Island real estate for the Rumford Chemical Co, (this was a transfer from Rumford of Massachusetts to Rumford of Rhode Island), valued at $10,000 and taxed at $10.⁹This demonstrates how low usage, high value documents could raise substantial revenue.

A mortgage example represents Southern usage.As Southern areas became subject to federal control, they were required to pay these federal taxes. Presented is a 1867 mortgage to Spring Island Plantation, signed by George Trenholm, blockade runner and former Secretary of the Treasury of the Confederacy.¹⁰The usual interpretation of the post-Civil War South was that only carpetbaggers from the North succeeded.This is a case of a Southern businessman returning to his pre-Civil War business.Post-Civil War sales of Southern plantations were common, likely by families ruined by the war.What percent was acquired by Northerners is unknown.

Fire insurance was common for commercial properties.Life insurance was available, but not common.Insurance policies were initially taxed at 25¢, policies with premiums under $10 were taxed at 10¢ under the 1863 Act, and policies over $50 taxed at 50¢ under the 1864 Act.The 1864 Hope Fire Insurance policy was for $5,000 of coverage for the Steamship Metropolis, with specific coverage stated.It took several policies from different companies to provide coverage for this single ship.Broad policies with complete coverage for an entire fleet would seem more logical.Why this limited coverage was provided is not known.It could be the standard for the industry at the time.Alternatively, companies buying insurance may have preferred to "diversify" coverage from several companies.

The agreement rate represented contracts not specified under other categories.An interesting example is an 1867 assignment of a patent on a washing machine for $300, taxed at 5¢.This seems an early date for a washing machine.F. L. Maytag manufactured his first washing machine in 1907, a hand-cranked wooden model (an electric motor was added in 1911).

Broker's contracts were taxes at 10¢, such as the 1870 sale of 200,000 pounds of ingot copper from the Quincy Mining Co., at 21 1/2¢ per pound.This suggests the importance of the use of brokers to sell minerals and other commodities.

Bonding was an important form of control and individuals were subject to surety bond contracts, taxed at 50¢ (raised to $1 in 1864).Other bonds included guardianships, loan guarantees, and export bonds¹¹, all taxed at 25¢.Illustrated is an 1869 performance (surety) bond for a newly elected tax assessor, which required a bond of $2,000, taxed at $1.

Schedule C (Proprietary) Articles

Proprietary items represented patent medicines that manufacturers claimed an exclusive right to prepare.Under Schedule C of the 1862 Revenue Act, taxed articles included medicines, perfumes and cosmetics, and playing cards.Medicines and perfumes were taxed from 1¢ (for retail prices up to 25¢) to 4¢ (75¢-$1) and an additional 2¢ for each additional 50¢.Playing cards were taxed from 1¢ for each pack (priced to 18¢) to 5¢ (over 36¢).Under the 1864 Act matches and photographs were added as Schedule C articles subject to tax:matches at 1¢ for each 100 matches (raised to 1¢ for each 25 matches in 1866) and photos taxed from 2¢ (retail prices to 25¢) to 5¢ (50¢-$1) and an additional 5¢ for each $1 or fraction.¹²Photographers lobbied Washington and the tax was repealed in 1866.Except for these changes, Schedule C taxes stayed on the books at these rates until 1883.

Proprietary and Playing Card (Schedule C) stamps accounted for 74% of all revenue stamps sold (some 6.6 billion), but only 40% of the revenue (over $86.5 million).Revenues from Schedule C stamps rose in most years, from under $300,000 in 1863 to $3.8 million in 1866, over $4 million annually from 1870-1879, to over $5 million annually from 1880-1883 (Mahler 1993).

Manufacturers subject to Schedule C taxes were allowed to issue their own stamps, but under government control.It is not clear where the idea originated, but Toppan et al. (1899)¹³ referred to an August 26, 1862 letter from the B&C archive indicating a conference with Commissioner Boutwell in Washington concerning these stamps, now called private dies (or match and medicine stamps).It was useful to the manufacturers for several reasons.This could be used as a form of advertising featuring the company.They could implicitly claim their products had "government approval," although from the government's viewpoint this was only a tax mechanism.Finally, they received a discount on the stamp orders of 5%-10%.This discount was particularly important to match companies, because of the small margins in this competitive business.¹⁴The discount could be the difference between success and failure.The Treasury Department believed the use of private dies would reduce the reuse of stamps and corresponding loss of revenue.B&C benefited by charging companies for the new engraved plates required.¹⁵They also were allowed to charge the manufacturer a rate per sheet in addition to what they charged the government for production.¹⁶

On October 15, 1862, B&C wrote to Dr. L. R. Herrick:"Your stamp will be the first private proprietary die printed and, in this respect you will enjoy an advantage over your equally afflicted brethren in trade" (Toppan et al., 1899, p. 257).The Herrick stamp was first issued November 18, 1862.Dr. Herrick began manufacturing in 1835 in Albany, New York.Until about 1870 the company bought about a million of these 1¢ stamps featuring the old alchemist (representing $10,000 in taxes and total retail prices of up to $250,000).¹⁶

According to West (1980) B&C produced 150 medicine stamps, 103 match, seven perfumery, nine playing card, and one canned goods stamps.As other companies received the government contract (National Bank Note Co. from 1876-78, American Bank Note from 1879-81, and Bureau of Engraving and Printing from 1881-84), additional private dies were produced.

Most manufacturers used the First Issue stamps of B&C (and later issues after the death of John Butler), usually because they didn't have the volume to justify the additional expenses involved for private dies.Several firms used hand or machine stamp cancels over the revenue stamps and a number of these later had a private die produced.Illustrated are the 2¢ proprietary stamps with a "Fred'k Brown" overprint (these were called provisionals) and the Frederick Brown "Essence of Jamaica Ginger" private die from 1869.The additional advertising value of this private die is obvious.

Generally, the stamps were wrapped around the boxes or bottles in such a way that the stamp would be broken when opened.Illustrated are the 1¢ private die of James C. Ayers of Lowell, Massachusetts and a box of Ayer's Pills with the 1¢ stamp around the package (cut into two with the opening of the box).

The stamps were such a popular form of advertising, that when the stamp tax was repealed in 1883 many manufacturers created facsimile labels virtually identical to the stamps.Illustrated are Schenck's 1¢ stamps and medicine box of Schenck's Mandrake Pills with facsimile label.Joseph Schenck is on the right, Joe Jr. is on the left.

None of the photographers used a private die.They expected the tax to be repealed, which it was in 1866.In the meantime, First Issue proprietary stamps were used on the back of photographs.The most common type of photo was the cartes de viste (CDV), which was small and cheap.Photos of famous people were reproduced and sold to the public.Illustrated is a CDV of General Siegel.The original was taken by Matthew Brady, the most famous war photographer, and reproduced by Anthony of New York.The 2¢ stamp represented a retail price up to 25¢.

Conclusions

The taxes associated with the Civil War were an important component for financing the federal war effort and paying down the accumulated debt when peace returned.In addition to the first federal income tax was the first use of adhesive revenue stamps by the federal government.A substantial sum of revenues was raised--over $200 million--and the collection of documentary and proprietary stamps and ephemera provides additional information on business practices during the period.

Schedule A:

Individual income tax of 3% on income from $600-$10,000, including salaries, interest, dividends, and rents; above $10,000 a tax rate of 5%.Deductions included local and other taxes.Taxes for each calendar year to be paid by the following May 1.Salaries of government employees taxes at 3% over $600.

Legacy (inheritance) taxes on estates valued over $1,000, from .75%-5%.

Duties on carriages ($1-$10), yachts $5-$10), billiard tables ($10), and plates of gold (50¢) and silver (3¢).

Per head tax on slaughtered cattle, hogs, and sheep.

Three percent duty of gross receipts on railroads, steamboats, and ferryboats.

Duty of 3% on railroad bonds and dividends of financial institutions.

Gross receipts of advertisements, 3% duty.

Schedule B calls for a long list of stamp duties on documents.The initial rules called for specific titles for each stamp category; e.g., 2¢ Bank Check, Telegraph of 1¢ and 3¢, 13 separate values for Inland Exchange.Examples include:

Bank check for amounts over $205¢

Indemnity bonds50¢

Certificate of stock25¢

Broker’s contract10¢

Power of attorney for stock transfer25¢

Power of attorney for proxy voting10¢

Protest of a note or similar document25¢

Original process (of a lawsuit)50¢

Other documentary taxes varied by the monetary value of the transaction:

Inland exchange (promissory notes)$20-$1005¢

$100-$20010¢

….

$2,500-$5,000$1.50

For each additional $2,500 or fraction$1

Foreign exchange to $1503¢

….

$3,500-$5,00070¢

For each additional $2,500$1

Schedule C:Taxes on proprietary and other articles, usually massed produced, that seem to have been considered luxury goods.Taxes were based on retail price.

Medicines – retail value to 25¢1¢

25¢ - 50¢2¢

50¢ - 75¢3¢

75¢ - $14¢

each additional 50¢2¢

Perfumery & cosmetics – same rates as medicines

Playing cards – each pack, price to 18¢1¢

18¢ - 25¢2¢

25¢ - 30¢3¢

30¢ - 36¢4¢

over 36¢5¢

The Revenue Act was changed by new Congressional acts periodically.On December 25, 1862 taxpayers were no longer required to match stamps category, only the correct monetary value.However, documents required documentary stamps (various) and proprietary articles, proprietary stamps (Proprietary and Playing Cards).

March 3, 1863 – New taxes on Bill of Sale of Ship, 25¢ for value up to $500 (plus higher taxes).Lottery Ticket, 50¢ for each $1.Tax rescinded on express company receipts.Tax on Inland Exchange sharply reduced; e.g., to 1¢ for amounts between $20-$200 payable within 33 days.Minor changes in other categories.

August 1, 1864 – Income tax rates raised to 5% on incomes of $600-$5,000; 7 ½%, $5,000-$10,000; and 10% over $10,000.Many taxes were simplified; e.g., 50¢ for each $500 or fraction on conveyance; 5¢ for each $100 or fraction on Inland Exchange.Tax rescinded on telegraph dispatches and lottery tickets.New proprietary taxes on matches (1¢ for each 100 matches); photographs (beginning at 2¢ for retail price to 25¢); and taxes on playing cards increased.Inheritance taxes (now called succession tax) raised from 1% for lineal relatives to 6% for distant relatives and others.

July 19, 1866 – Taxes begin to be reduced or eliminated (e.g., the tax on photographs is eliminated).Income taxes were reduced to 5% on incomes over $1,000.

July 14, 1870 - Income tax rates were lowered to 2 1/2% on incomes over $2,000 to apply to years 1870 and 1871, and "no longer."The legacy and succession (inheritance) taxes were repealed.

June 6, 1872 – The income tax and all stamp taxes under Schedule B (documentaries) were eliminated (beginning October 1, 1872) except on bank checks.

March 3, 1883 – Internal revenue stamp taxes repealed, including bank check and all Schedule C items.

November 1860	Abraham Lincoln elected president
December 20, 1860	South Carolina secedes, six states follow between January and February 1, 1861
April 12, 1861	Fort Sumpter fired on, Civil War begins
August 5, 1961	First Civil War tax increase enacted, which quickly proves to be inadequate
February 1862	Legal Tender Act authorized the issue of breenbacks
April 24, 1862	George Boutwell confirmed by President Lincoln for the position of Commissioner of Internal Revenue
July 1, 1862	Revenue act passed, creating the first federal income tax & other taxes
July 17, 1862	George Boutwell becomes the first Commissioner of Internal Revenue; he serves less than one year (to March 1863)
August 8, 1862	Bids opened to produce the revenue stamps and Butler & Carpenter awarded the contract
September 27, 1862	First revenue stamps issued
October 1, 1862	New stamp taxes begin
November 18, 1862	First private die issued – L. R. Herrick
December 25, 1862	Taxpayers no longer have to match stamp titles to documents
January 1, 1863	Bureau of Internal Revenue has almost 4,000 employees, including 365 collectors and assessors
February 25, 1863	National Banking Act created national banks chartered by the federal government; by 1865 11,500 banks joined the national banking system
March 18, 1863	Joseph Lewis appointed the Second Commissioner of Internal Revenue after the resignation of Boutwell on March 3
Fiscal year 1863	Revenues more than double for the year, but deficit is $600 million and national debt tops $1 billion for the first time in U.S. history
August 1, 1864	Significant tax changes occur under the Revenue Act amendments, including increasing income tax rates and several changes in stamp taxes
April 9, 1865	Lee surrenders at Appomattox, effectively ending the Civil War
Fiscal year 1865	Annual expenditures over $1 billion; national debt almost $2.7 billion
1866	Annual revenues exceed half a billion dollars; Internal Revenue collect over $300 million, almost $70 million from income tax; revenue stamp taxes begin to be reduced or eliminated; federal government Treasury collects over half a billion dollars in revenue and achieves a surplus; surpluses will continue for the next 27 year
March 1868	A Congressional Committee investigated revenue frauds
July 20, 1868	Commissioner given authority to hire 25 detectives to prevent fraud in the collection of taxes (the job title was changed to agent in 1872)
October, 1868	Death of John Butler, firm continues as Joseph Carpenter Co.
March 12, 1869	George Boutwell becomes Secretary of the Treasury
October 1, 1872	The income tax and all documentary stamp taxes (except bank check) eliminated; the number of internal revenue districts reduced to 80
December 24, 1872	The offices of assessor and assistant assessor abolished and duties transferred to collectors
1873	A major panic led to depression, a recurring problem for the rest of the century.Populists would advocate income taxes as a symbol of reform and to regulate the economy
1875	The "Whiskey Ring" broken up, of conspiracy of distillers and internal revenue officials. 238 people indicted (110 convicted), $3 million in taxes recovered
1875	Carpenter looses the revenue stamp contract to National Bank Note Co.
1878	American Bank Note Co. obtains the federal revenue stamp contract
1881	Bureau of Engraving and Printing receives the federal revenue stamp contract
July 1, 1883	Internal revenue taxes repealed, including bank check and proprietaries
1884	E. B. Sterling buys the B&C archive from Carpenter

A.Federal Finance Summary, 1861-70(in thousands)

 

	Revenues	Expenditures	Surplus/Deficit	National Debt
1861	$41,510	$66,547	$-25,037	$90,582
1862	51,987	474,762	-422,774	524,178
1863	112,697	714,741	-602,043	1,119,774
1864	264,627	865,323	-600,696	1,815,831
1865	333,715	1,297,555	-963,841	2,677,929
1866	558,033	520,809	37,223	2,755,764
1867	490,634	357,543	133,091	2,650,168
1868	405,638	377,340	28,298	2,583,446
1869	370,944	322,865	48,078	2,545,111
1870	411,255	309,654	101,602	2,436,453

B.Federal Revenues, 1862-83 (in thousands)

 

Year	Total Revenues	Customs Revenue	Internal Revenue	Income Tax*	Stamp Taxes