10c. Taxes

Taxing the poor: A Civil War tale

How did the Confederacy pay for the war?

They did so by taxing the poor. It must be remembered that the number of ‘rich’ in the South were relatively few. They were, however, the most influential; essentially in charge of everything.

Initially – like the North – Jefferson Davis’ government sold bonds to finance the raising and equipping of its army. But they soon ran out of rich financiers. European money was also not forthcoming, as many had hoped it would.

So they resorted to taxation. But money itself was short throughout the South and mostly in the hands of those few rich plantation owners; who by the way also owned the majority of slaves. So the Confederacy instituted a ‘tax in kind’. Ten percent of all production (mostly agricultural products; mostly cotton) were claimed by the government to be further sold or used directly to feed and clothe the troops. Oddly enough, slaves were not an item of taxation. Although the plantations surrendered their 10% of products, they could easily ‘afford’ to do so since the Union blockade was preventing them from selling the cotton in Europe. That taxed 10% was simply less they had to store and care for.

The poor on the other hand, producing crops on subsistence plots were much more burdened by the 10%. Not only that, but they obviously provided the majority of troops to the army as well.

The Union on the other hand had a much easier time of it. They, too, started out by selling bonds but even with an abundance of money this source quickly dried up as the war dragged on past a few months. The rich were willing to finance a short and decisive victory but not a prolonged war. Lincoln’s Secretary of the Treasury came up with a plan = tax everything.

Here, too, it is worth remembering that ever after four-score years of a US government, the Federal government was still small and unobtrusive. The only thing that that government did that affected the common man was deliver mail.

Samuel P. Chase, the SECTRES, built a veritable fiefdom within that Department. First, by controlling  the outlets for War Bonds which brought with them a commission for the seller. Then, by increasing the workforce by nearly three-fold to accommodate the collection of taxes. He instituted the first income tax at a rate of 3%. Since there were many salaried workers throughout the North this brought in an enormous flow of cash. But he didn’t stop there. He hit ‘the rich’ with a series of “sin taxes” on just about every luxury item on the market from cigarettes to ships. He created the first inheritance taxes on the dead. Fortunately, for all concerned, all these taxes lapsed at war’s end.

10c.1 Economic Potential

Such comparisons are undoubtedly gross oversimplifications, but provide a concept of the up-hill battle that the South was struggling with to break from the North. Historian Kenneth Davis provides the following comparison:

pop’n (mil)229
military age men41.2
factory workers1.10.1
rail roads (miles)20K9K
bank deposits81%19%
gold reserves (mil)$56$27
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