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  • A Taxing 100th Anniversary Coming Up On February 3rd

    1/29/2013 3:08:02 PM Posted by Stephen Smoot

    Liberals, conservatives, and other members of the governing establishment continue to debate fair and effective tax policy. As they battle, the 100th Monopoly Guy  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.




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