Liberals, conservatives, and other members of the
governing establishment continue to debate fair and effective tax policy. As
they battle, the 100th anniversary of the 16th Amendment
is about to pass the nation by with little comment.
This amendment, the first since Reconstruction, overturned
the United States Supreme Court case Polloch
v. Farmers’ Loan and Trust Co. (1895).
In this case, the justices decided that income taxes were a form of
direct taxation prohibited by the Constitution.
Only by changing the Constitution could an income tax be levied.
Congress and the infant Progressive movement had
found a Pierian Spring in income taxes and they longed to drink deep. An income tax could fund the domestic
programs that Progressives craved and the naval buildup championed by Theodore
Roosevelt. Although they had no Gallup
Polls at the turn of the 20th Century, most understood that many voters
opposed the income tax.
According to Cato Institute’s Charlotte Twight,
government spending was used increasingly to bribe anti-income tax states.
Between 1909, the year of the amendment’s introduction, and its passage in
1913, 75 percent of War Department spending ended up in the 17 states opposed to
the income tax amendment. Additionally
many tax backers, such as Senator Norris Brown of Nebraska, implied that the
amendment would result in no new taxes. It only gave the government the emergency
power to do so if needed.
By October, Senator Brown was made a liar. On the 13th, Congress passed the
Revenue Act imposing a tax on incomes.
Still, the income tax remained unpopular. Many had supported it as a tax on the rich,
designed to siphon from the great personal incomes earned from the explosion of
American industry. By the 1940s it had
expanded into a tax on every working American, as Franklin Roosevelt’s Treasury
Secretary Henry Morganthau described it “a people’s tax.” Future president Ronald Reagan started to
rethink his personal liberalism when over 90 percent of his hard earned income
went to tax payments.
It may have been a “people’s tax” but as the burdens
shot upward, the people tried to bow out.
The U.S. government in the 1940s even commissioned a cartoon featuring
Donald Duck. The pantsless Disney character implored people to pay their taxes
as a patriotic privilege. By 1943, income
taxes were collected through withholding.
But who benefits from the “people’s tax” and other
burdens imposed by he federal government?
The answer “big business” may surprise a casual reader. According to The Big Ripoff: How Big Business and Big Government Steal Your Money,
by National Journalism Center alum Tim Carney, many big businesses over the
decades have supported tax increases.
They do so because they anticipate a payoff, understand that they can
afford the hikes more than competitors, or do not want to run afoul of
politicians in power.
The upcoming 100th anniversary of the
income tax amendment is nothing to celebrate.
Free market advocates, however, can seize upon this milestone to reopen
the conversation about the damage done by high taxes. France’s current crisis of impending
bankruptcy and flight of business brains and capital is a prime case
example. Americans understand that tax
hikes have dire consequences. We need to
remind the national policy establishment of that simple fact.