Tax Analysts Blog

The Income Tax, as American as Apple Pie

Posted on Jul 5, 2010

In a debate over carbon taxes, Steve Everley, policy director for Newt Gingrich's American Solutions, makes a dubious historical observation:

    The last time we imposed a tax regime of this scale was when the Progressives convinced us we needed an income tax. Four years after the 16th Amendment, Congress raised the top rate from 7 percent to 67 percent, partially to pay for cost overruns in administering the tax itself. Would you have us believe that Congress will not use this new energy tax system to dramatically increase taxes and redistribute wealth over time as Congress does frequently with the income tax?
There are two things wrong with this statement, one head-smackingly obvious and the other more insidious.

First, as Kevin Drum has pointed out, the rise in tax rates between 1913 and 1917 had precious little to do with “cost overruns in administering the tax itself.”
    The legislation that raised the top rate to 67% was called the “War Revenue Act.” Anyone want to take a guess about just how big a factor “cost overruns in administering the tax itself” was to this measure?
Blaming tax administration for rising tax rates in 1917 is like blaming a heavy dew for the flooding of New Orleans in 2005.

Worse, though, is Everley’s attempt to blame “Progressives” for the advent and expansion of the income tax. Sure, the income tax was a product of the Progressive movement. But given the unmentioned “war to end all wars,” can we really link the tax’s rapid maturation to those same reformers?

After all, both the House of Representatives and the Senate passed the final version of the 1917 war revenue act without a dissenting voice. None. Not one.

That’s not to say there wasn’t opposition to some of the law’s provisions. But there was no serious debate over the necessity of expanding the income tax dramatically. And when push came to shove, Democrats and Republicans lined up together to support the law.

The transformation of the income tax, in other words, was a bipartisan decision, not a “Progressive” imposition. Like it or not, America came by the tax honestly, in all it's redistributive glory.

Read Comments (1)

Joseph J. ThorndikeJul 5, 2010

First, thanks for taking the time to respond. Always makes for a more interesting post.

Your comments did, indeed, indicate that cost overruns were only partially responsible for the run up in wartime rates. But mentioning a minor cause while ignoring an overwhelming one is still misleading. It seems to me that you were simply looking to take a gratuitous swipe at income taxes by suggesting that they are unwieldy and inefficient. Which might even be true. But it muddies the history to omit the principal cause of the rate hikes.

As for your broader point ... well sure. Give Congress the power to tax and Congress will tax. But the real issue is whether the specific tax was a good one. After all, absent the 16th Amendment, the United States would certainly have still entered the war. But lawmakers would then been forced to use other taxes to pay for it (assuming that the 16th amendment was actually even necessary; many observers at the time believed that Congress already had the power to levy an income tax and that the Supreme Court would eventually agree).

Would these alternate taxes have been better than the income tax? Were they even capable of paying for a major war? When faced with pretty much the same question, Civil War lawmakers in the Union government concluded they couldn't make ends meet with the usual taxes -- at least not fairly. They too used an income tax to pay the tab.

So I think the question is not whether a carbon tax would be used -- both to curb global warming and to fund other elements of government. I think you're correct in assuming that it would. But the real issue is whether the carbon tax would be a better way to pay for that government than its alternatives.

Bottom line, I think it's important to separate arguments over the size of government from arguments over how to pay for that government, whatever its size. Limiting tax revenue doesn't reduce spending. It may even boost it. By extension, limiting tax tools won't curb the size of government, either. If you want to tame the leviathan, you have to win the argument on its own terms. Starving the beast -- or limiting its menu selection -- won't get the job done.

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