By Howard Gleckman
THE GREAT TAX WARS
Lincoln to Wilson--The Fierce Battles
over Money and Power That
Transformed the Nation
By Steven R. Weisman
Simon & Schuster -- 419pp -- $27
Income tax is "the most odious, vexatious, inquisitorial, and unequal of all our taxes." Or, alternatively, it is "the most just and equitable tax levied by the United States." You can hear either view most days on the floor of the House of Representatives. But these particular comments were made 133 years ago.
And the argument has never been settled. In The Great Tax Wars: Lincoln to Wilson--The Fierce Battles over Money and Power That Transformed the Nation, Steven R. Weisman offers a narrative history of the income tax in the U.S. The author, an editorial writer at The New York Times, tells us how the debate over the levy was at the core of national politics for that crucial period from 1860 to 1920, and how, in many ways, the tax changed government itself. But as Weisman notes, the levy did even more than that: It mirrored the growing tensions between Big Business, on one hand, and farmers and urban workers, on the other.
What is most striking, however, is that the tax battles of the 19th century seem so familiar today. Should the U.S. tax income or consumption? Should there be a flat tax or progressive rates that require the rich to finance a relatively greater share of government than the middle class? How should the nation tax capital? How should it tax labor?
Weisman also reminds us of another long-standing national debate: Who should pay for wars? In the past, military operations meant new taxes. The war on terrorism, however, is unprecedented in the history of the U.S. In early 2002, Washington cut taxes. This decision, to shift the burden of paying for the anti-terror campaign to future generations, would have stunned Abraham Lincoln, who argued so eloquently for shared sacrifice in time of war.
Since Lincoln established America's first federal income tax, to finance the Civil War, the debate over taxes has been about more than the mechanics of raising money. The way nations answer the question "Who pays for government?" says a lot about how they view government and its role in society.
Americans have always been profoundly ambivalent about this. They love what Washington does for them, whether it's funding their health care, subsidizing their businesses, or fighting terrorists. But they hate paying the taxes needed to finance Big Government. Former Senate Finance Committee Chairman Russell Long (D-La.) used a wonderful image for the public's view of taxes. "Don't tax me. Don't tax thee," he used to say. "Tax that fella behind the tree."
In the mid-19th century, a small federal government was financed almost exclusively with excise taxes and tariffs--levies on imported goods such as iron ore, steel, paper, and lumber. Politicians and U.S. business owners loved such tariffs since they made U.S. goods more price-competitive and appeared, at least at first glance, to hit foreign competitors. But taxes on imports are actually levied on consumption, since they are passed on to those who buy those goods. Thus, by the 1860s, Americans were paying levies of 30% to 40% on products made from those raw materials.
Hardest hit were farmers and the rising urban working class--people who had to spend a large share of their income on the necessities of daily life, many of which were imported. By contrast, the rich, who consumed only a small fraction of what they earned, were less bothered by tariffs.
But the biggest problem was that import taxes could not generate enough to finance the Union's Civil War effort. So in 1862, Congress imposed a tax on incomes of $600 or more. In 1864, it hiked the rate to 10%, but only for those few making $10,000 or more.
That 1864 debate would be familiar to us. Some lawmakers demanded a progressive rate system, so the wealthy would pay their "fair share," while business insisted that such a structure would be confiscatory and backed a flat tax. That same class-warfare argument defines today's tax debates.
The income tax ebbed and flowed through the 19th and early 20th centuries. After the Civil War, it was rolled back and eventually repealed in 1872, restored with the rise of progressivism in 1894, and declared unconstitutional by the U.S. Supreme Court in 1895. Democrats and GOP progressives such as Theodore Roosevelt pushed hard for a constitutional amendment permitting the income tax. The amendment was approved by the states in 1913, and the tax itself was reinstated just eight months later. The nation has been fighting about it ever since.
Weisman gives us a narrative worthy of this tale. And he does a good job of putting the tax debate in the broader context of the massive changes in the U.S. between 1860 and 1920. But he does not try to do much more than that. For instance, he includes no real economic analysis. And I wish he had dug more deeply into some of the more profound social questions raised by the income tax. For example, what impact did the tax have on the rise of the urban middle-class that eventually became the backbone of the U.S. society and its economy? Weisman touches on these issues, but leaves many questions unanswered.
Still, The Great Tax Wars is a valuable look at the first 60 years of the income tax. And that history provides an important context for anyone seeking to understand today's tax debates.
Gleckman has been covering tax policy from Washington for more than two decades.