In the turbulent effort to restore the Union and ultimately eradicate slavery, the political leaders of the executive and legislative branches of the federal government struggled to establish coherent tax policies. As would be the case in the major wars of the twentieth century, crisis conditions strengthened the power of these leaders, and the tax systems that they implemented further enhanced their influence. Political leaders mobilized party government and administrative techniques, including professional expertise, to expand the capacity and productivity of the federal tax system. To be sure, there was always tension between executive and legislative leaders over tax policy, and both the president and Congress had to address the demands of local interests. But during the Civil War and the wars that followed in the twentieth century, the common partisan loyalties and shared social values of the nation's political leaders largely overcame the pressures that tended to fragment American government.
By 1861 the modern fiscal state as it had developed in the United States rested on three legs: buoyant demand for imported goods that kept revenues from low tariffs strong; a rich domain of public lands held in trust by the federal government for the American people; and a vibrant partnership among federal, state, and local governments. The prospect of war, and the war itself, threatened all three legs. First, the war disrupted international trade and threatened the national unity that had played a crucial role in generating tax revenues and, even more important, in making the nation powerful within the Atlantic trading world. Second, the breakup of the Union put at risk the ownership and management of the nation's rich landed domain. Third, the pro-slavery and states-right goals of the Confederacy, along with the threats to the public lands, clouded the future of state and federal fiscal relations. It was in the context of these threats that the Union government constructed a new tax regime.
The new regime employed all the taxes that Alexander Hamilton had contemplated and added others that the framers of the Constitution had not visualized. As republican leaders forged the modern American nation-state during the war, they greatly enhanced the scale and scope of public finance. In the postwar era, the core of their wartime system of finance became an expression of national strength and power.