Groton History Center

By Jeffrey Boutwell

“ The bottom is out of the tub.”

That was the situation in the summer of 1862 when President Abraham Lincoln bemoaned the state of his government’ s finances and the condition of the cashstrapped Union army in seeking to end the rebellion of 11 southern secessionist states during the Civil War.

The war was costing $ 2 million a day. Lincoln and his Treasury Secretary, Salmon P. Chase, desperately needed new sources of revenue to equip and train growing numbers of Union troops. In response, Congress enacted the Revenue Act of 1862 on July 1, implementing a broad array of duties and excise taxes on everything from whale oil to billiards tables in a desperate search for revenue. In addition, after much debate, Congress decided to impose the country’ s first-ever income tax, on both individuals and private businesses; it was a progressive tax, set at zero for the first $ 600 in income, 3 % from $ 600 to $ 10,000 and 5 % above $ 10,000( approximately $ 300,000 in today’ s dollars).

A few weeks later, the little-known former governor of Massachusetts, George S. Boutwell, arrived in Washington, DC, to set up shop in the Treasury building as

Portrait of George S. Boutwell during his tenure as US Secretary of the Treasury. the nation’ s first Commissioner of Internal Revenue. Boutwell was tasked with overseeing the assessment and collection of a dizzying array of taxes throughout the 19 Unionist and the four border states: Maryland, Delaware, Kentucky and Missouri with their deep pockets of sympathy for the Confederacy.

When he arrived for work on July 17, Boutwell was given just three clerical staff with whom to begin the work of interpreting and implementing the complex 20,000-word piece of Congressional legislation. For the next eight months, he worked seven days a week and late into the evening in a Treasury building that was still under construction and ringed with troops as the final fortress in Washington, should the Confederates invade the city.

In the spring of 1863, Boutwell resigned as Commissioner to take a seat in the US House of Representatives, having been elected from the 7th Massachusetts district encompassing the mill city of Lowell and much of Middlesex County. In those few short months, however, he had devised a well-functioning operation of more than 3,800 tax assessors and collectors that brought in more than $ 100 million in 1863. Soon after, they would collect more in domestic taxes than the import duties and tariffs traditionally used to fund the government. As noted by future Treasury Secretary Hugh McCulloch, Boutwell accomplished“ more hard and difficult work … in a single year in a single bureau … than was

done in the whole [ Treasury ] Department from the establishment of the Government up to 1861.”

Not surprisingly, plenty of controversy surrounded the implementation of the country’ s first-ever income tax. Many in Congress warned that“ an army of officials” spreading across the Union and disrupting the private lives of ordinary Americans— both private individuals and businessmen— would provoke a severe backlash. Boutwell was adamant, however, that the Union’ s financial stability was of paramount importance, declaring that“ defeats in the field we may recover from more easily than discredit on the exchange.” In the end, he and others in the government were pleased with how most citizens voluntarily paid their taxes as an expression of faith in American democracy.

When Boutwell resigned his position in March 1863, he volunteered to compile a comprehensive tax manual for future revenue commissioners and the American public that would ease the collection burden in the future. At more than 300 pages, A Manual of the Direct and Excise Tax Systems of the United States is readily available on the internet today. Some years later, Boutwell would find a copy of the manual in his law office in Boston, inscribed by a former colleague with the jest:“ DEDICATION: To the Memory of Caesar Augustus in whose reign there went forth the decree that all the world should be taxed.”

38 FINANCIAL HISTORY | Spring / Summer 2026 | www. MoAF. org