
The issue of pensions for Civil War veterans had been discussed since shortly after the war began. In 1862, a basic system was established which granted pensions to soldiers who could provide proof of time spent in the military and a disability incurred while in service. Under this system, pension money could be collected from the date of discharge if claims were filed within one year of that date. Then in 1879, the Arrears of Pension Act was passed. It allowed all Union veterans to reapply for pension and receive back payments to the date of their discharge, regardless of when they may have previously applied. This legislation did not change the requirement that disabilities be service-related. But it was nevertheless a very expensive bill. Veterans became eligible to receive large sums of money for several years of retroactive pension payments. This resulted in a flood of applications and a large increase in pension expenditures for the federal government.
The Arrears Act gave new life to the Grand Army of the Republic (the "GAR"), an organization consisting mostly of Union veterans. With the political assistance from the Republican Party, the GAR became much more active in lobbying for liberal pension legislation following passage of the Arrears Act. The first comprehensive pension disability bill was put before Congress in 1887. This bill, almost identical to the bill that was later signed by Harrison, granted pensions to all Union veterans suffering from a disability, regardless of its origin. It awarded all eligible veterans a pension of $12 per month. (The Dependent and Disability Act gave pensions worth between $6 and $12 depending on the severity of the disability in question). It also required applicants to prove that they were financially dependent on another source, a requirement that was not included in the final version of the bill passed in 1890.
When the first bill was passed, Grover Cleveland vetoed the bill on February 11, 1887, infuriating the GAR and setting the stage to make pensions a central issue in the 1888 election. Cleveland objected to the bill because it was extremely costly, and because he believed that it would be too difficult to determine the extent to which applicants were dependent on others. He also felt that the system would be abused by fraud. The bill returned to the House but did not garner enough votes to override the President’s veto.
The GAR proved to be very influential in the 1888 election. The Republican Party nominated Civil War veteran Benjamin Harrison to run against the incumbent Cleveland, promising to push for more extensive pensions. Cleveland won the popular vote but Harrison won the crucial swing states of Indiana and New York, which contained 38,000 and 45,000 veterans receiving pensions respectively. The Republican Party’s position on the pension issue allowed Harrison to narrowly win these two states, just 2,300 and 13,000 votes respectively.
Following his inauguration, Harrison reorganized the Pension Bureau and appointed James Tanner as the new commissioner of pensions. Harrison pushed for a disability bill, which ultimately passed without a single vote from a Southern congressman. Under the final form of the law, any disabled Union veteran who had served at least ninety days was eligible to receive a pension, regardless of whether or not his disability was incurred in service. The final version of the act also allowed for the collection of pensions by widows of veterans and for children under the age of 16.
The Disability and Dependent Pension Act was resulted in an enormous spike in federal expenditures on pensions. In 1890, just 537,944 veterans were receiving pensions. By 1893, that number had almost doubled to 966,012. In 1889, the federal government spent $89,000,000 on these pensions, a figure that jumped to $159,000,000 by 1893. By 1894, 37% of the government budget was set aside for pension payments.
The problem was made worse by the people that Harrison put in charge of the Pension Bureau. An investigation into the Pension Bureau too place. The investigation found evidence of lavish and illegal handouts under James Tanner. Although there was no evidence of theft on the part of Tanner, it was discovered that he had a tendency to, in his words, "treat the boys liberally" and loosen rules so that veterans could more easily qualify for pensions.
As a result of the investigation, Harrison realized that appointing Tanner had been a mistake, due to his apparent loose management style and his tendency to brag about his generosity with government money. Harrison asked Tanner to resign and replaced him with Green B. Raum. Raum was also a problem, as he was accused of accepting loan payments in return for expediting pension cases. Congress split on its investigation into Raum and Harrison accepted the dissenting Congressional Republican investigation report that exonerated Raum. He kept Raum in office for the rest of his administration.

Cleveland ran against Harrison in the election of 1892 and this time Cleveland won the re-match. Harrison's administration had dissipated much of surplus that Cleveland had left in the treasury at the end of his presidency, much of it spent on the pension payouts. Cleveland won the election by 277 electoral votes to Harrison's 145, and also won the popular vote by 5,556,918 to 5,176,108. It was the most decisive presidential election in 20 years.