Before the federal income tax became a permanent fixture in 1913 with the ratification of the 16th Amendment, the United States funded its government through a mix of revenue sources that evolved over time. Here’s how it worked, roughly in order of significance:
1. **Tariffs (Customs Duties):** For most of the 19th century, tariffs on imported goods were the backbone of federal revenue, often accounting for 80-90% of the budget. The U.S., as a growing industrial nation, relied heavily on trade, and taxing imports—like textiles, steel, or sugar—generated steady cash. For example, in 1860, tariffs brought in about $53 million of the $56 million total federal revenue. Rates varied widely, from the low single digits under the 1789 Tariff Act to peaks like the 1828 "Tariff of Abominations" (over 60% on some goods). They weren’t just revenue tools—protectionism shielded American industries from European competition.
2. **Excise Taxes:** Internal taxes on specific goods, like whiskey, tobacco, and carriages, supplemented tariffs. The 1791 Whiskey Tax, which sparked the Whiskey Rebellion, was an early example, raising modest sums (about $1 million annually by 1800). Excise taxes grew during crises—by 1865, they covered nearly 20% of federal costs, thanks to Civil War levies on everything from alcohol to playing cards. They were less consistent than tariffs but politically easier than taxing land or income directly.
3. **Land Sales:** Selling public land was a big deal in the expanding U.S. From the 1780s, the government auctioned off western territories to settlers and speculators. Peak years, like 1836, saw $25 million from land sales—over half the year’s revenue. This dwindled after the 1862 Homestead Act shifted to free land grants, but it was a key funding source for decades, especially for infrastructure like canals and roads.
4. **Direct Taxes (Apportioned by State):** Before 1913, direct taxes on property or people were rare and constitutionally tricky, requiring apportionment among states by population. The 1798 Direct Tax on land, houses, and slaves raised $2 million to prep for war with France. During the Civil War, the 1861 Revenue Act imposed a short-lived 3% tax on incomes over $800, collecting $20 million before being repealed in 1872. These were stopgaps, not staples.
5. **Borrowing:** When revenues fell short—think wars or panics—the government issued bonds or loans. The Revolutionary War left a $75 million debt, funded by foreign lenders like France. The War of 1812 and Civil War saw massive borrowing too; by 1865, the national debt hit $2.7 billion, dwarfing annual revenues. Borrowing wasn’t routine funding but a lifeline for emergencies.
6. **Miscellaneous (Postage, Fees, etc.):** Smaller streams like postal service profits (before it became self-funded), patent fees, and fines chipped in. In 1900, these “miscellaneous” sources were about 5% of the $567 million total revenue—minor but not trivial.
Pre-1913 budgets were tiny compared to today. In 1900, federal spending was $521 million (about 2.5% of GDP), mostly for defense, debt interest, and basic administration. No sprawling social programs existed—states and localities handled most public services, funded by their own property taxes. Tariffs dominated because they were easy to collect at ports and aligned with a small-government ethos. The shift to income tax came as industrialization swelled personal and corporate wealth, and World War I’s costs ($33 billion) made old methods obsolete.
So, the U.S. leaned on trade taxes, liquor levies, and land deals, with debt as a backstop—pragmatic, patchy, and far less centralized than today’s system.
| 
