By Joseph J. Thorndike -- email@example.com
The history of presidential tax returns is filled with minor curiosities, as one might expect from a basically voyeuristic enterprise. But one of the odder episodes came at the very start. Abraham Lincoln paid income taxes throughout the Civil War, but after his death, Treasury returned all his payments to his estate.
The Civil War prompted Congress to enact the first income tax in U.S. history. (Treasury had floated the notion of taxing income during the War of 1812, but Congress studiously avoided any acknowledgment of the proposal.) After dithering briefly between various alternatives, Congress included a reasonably comprehensive income tax in the Revenue Act of 1862. Among the law's various provisions was a special 3 percent tax on the salaries of every person in the "civil, military, naval, or other employment of the United States."
Lawmakers took pains to include themselves in the new levy, specifying that the tax applied to "senators and representatives and delegates in Congress." Paymasters and other federal disbursing officers were instructed to withhold taxes from the paychecks of these luminaries, as well as various less exalted federal employees. Those same paymasters were further instructed to report amounts withheld to Treasury by means of a "certificate" (presumably a forerunner of the modern Form W-2).
Constituents were apparently happy to see their representatives paying up. "A very handsome sum will be realized to the Government from the tax upon the salaries of members of the House of Representatives," reported The New York Times. All told, members of the House would pay $14,520 a year (about $342,000 in today's dollars), while House staffers would contribute another $7,438 (about $175,000 in today's dollars).1
But if lawmakers were careful to include themselves, they notably declined to include someone else: the president. The omission was obvious and presumably significant, given the law's specific inclusion of legislators. But these same lawmakers did not see fit to explain the omission at any length, leaving interested parties at both ends of Pennsylvania Avenue to ponder the possibilities.
Some observers insisted that the president was clearly excluded. The Chicago Tribune, for instance, reported that the president had been "specially exempted by the law." The paper noted, however, that President Lincoln had chosen to make voluntary payments to Treasury equal to the taxes he might otherwise have owed. According to the Tribune, these payments would total $1,220 annually.2
Indeed, the paper was correct that Lincoln was making payments to Treasury. But whether he was required to make those payments was unclear. And the paper was certainly wrong about the amount Lincoln was paying. According to the leading scholar of Lincoln's personal finances, the president was paying $61 monthly, or 3 percent of his $25,000 salary, minus a $600 exemption. These payments, moreover, were being directly withheld from Lincoln's pay in the manner prescribed by the 1862 revenue act.3
Lincoln's tax payments -- voluntary or otherwise -- continued throughout the war, and they varied with changes in the tax law. The revenue measure enacted on June 30, 1864, revised the tax on federal employees, retaining the $600 exemption but increasing the rate to 5 percent. Thereafter, Lincoln had $92 per month withheld from his paycheck. Also, he made a lump sum payment of $1,279 on December 15, 1864, consistent with a special 5 percent tax on 1863 incomes imposed by the revenue measure passed on July 4, 1864, to help fund war bounties. (Lincoln's payment reflected taxes on his salary, as well as interest income from Treasury bonds that he owned.)4
Lincoln's payments do not seem to have been entirely voluntary, in the sense of being optional. As the Supreme Court later observed in a 1939 case considering the taxability of judicial salaries, the 1862 legislative language had been "construed by the revenue officers to comprehend the compensation of the President," as well as salaries paid to federal judges.5
Lincoln accepted this prevailing view, but federal judges did not. In 1863 Chief Justice Roger Taney wrote the Treasury secretary in protest: "The act in question, as you interpret it, diminishes the compensation of every judge three percent, and if it can be diminished to that extent by the name of a tax, it may in the same way be reduced from time to time at the pleasure of the legislature."6
The judiciary needed protection from a grasping Congress, which might be inclined to starve judges into submission, insisted Taney. The Founders, in their wisdom, had tried to prevent that mischief, adding to the Constitution a requirement that judges be paid "a compensation, which shall not be diminished during their continuance in office."
The new tax violated this requirement, said Taney.
The judiciary is one of the three great departments of the government, created and established by the Constitution. Its duties and powers are specifically set forth, and are of a character that requires it to be perfectly independent of the two other departments, and, in order to place it beyond the reach and above even the suspicion of any such influence, the power to reduce their compensation is expressly withheld from Congress, and excepted from their powers of legislation.
Language could not be more plain than that used in the Constitution. It is, moreover, one of its most important and essential provisions. For the articles which limit the powers of the legislative and executive branches of the government, and those which provide safeguards for the protection of the citizen in his person and property, would be of little value without a judiciary to uphold and maintain them which was free from every influence, direct or indirect, that might by possibility in times of political excitement warp their judgments.
The facts were indisputable and the policy implications plain for all to see, Taney concluded. "Upon these grounds, I regard an act of Congress retaining in the Treasury a portion of the compensation of the judges as unconstitutional, and void," he told the Treasury secretary.
The secretary chose not to answer Taney's letter, and federal judges continued to see their salaries diminished by tax withholding throughout the 1860s. But in 1869, a new Treasury secretary sought an opinion from the attorney general on the taxation of judicial salaries, as well as compensation paid to the president, which seemed to enjoy a similar constitutional protection. Ebenezer Rockwood Hoar responded with an opinion more or less identical to Taney's argument, and that brought an end to presidential and judicial income taxes -- at least for the time being. Amounts collected to that point were refunded.7
Lincoln, of course, was not alive to claim his refund. But on April 25, 1872, the administrator of his estate filed for a refund of taxes that the president had paid during his years in office, including $2,306 in regular taxes paid on salary income and $1,250 paid under the special tax of July 4, 1864. Treasury agreed with the claim and refunded $3,556 to the estate in 1872.8
1 "News From Washington," The New York Times, Oct. 4, 1862, at 5.
2 "The President a Taxpayer," Chicago Tribune, Oct. 30, 1862, at 2.
3 Henry E. Pratt, Personal Finances of Abraham Lincoln 126 (1943).
5O'Malley v. Woodrough, 307 U.S. 277 (1939).
6 Quotations from Taney's letter are drawn from the Supreme Court's majority opinion in Evans v. Gore, 253 U.S. 245 (1920).
8 Pratt, supra note 3, at 127.
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