Friday, August 8, 2014

A True Fable of Political Folly

This week 153 years ago – August 5, 1861 - was sort of a landmark date in American history, although not a milestone most of us want to celebrate.

Congress passed a bill levying the first income tax. It was short-lived, but began a rocky history leading to the enactment of what has become an annual national ritual.

Conservatives are not usually recognized for supporting change. Their mantra is something along the lines of stick with the status quo. If it ain’t broke, or if it is sort of broke but not broke enough to affect us personally, don’t change anything.

Yet in the case of the income tax, conservative politicians ushered in profound societal change.

That was not their intent. Their motivation was exactly the opposite – to permanently halt a proposed innovation that would inflict ruin on our nation (so they alleged) and which they staunchly opposed - the income tax.

Their clandestine tactics failed dismally.

The 16th amendment to the Constitution, permitting the government to impose income taxes, marked the end of the gilded age of outrageous spending by the wealthy barons of America.

The income tax obliged the wealthiest Americans, like everyone else, to fork over part of their hard-earned cash to Uncle Sam. Cash that previously poured into Newport summer cottages mansions, over-the-top dinner parties, servants, expensive furnishings, fancy balls…

The American equivalent of a Downton Abbey lifestyle. The income tax was not the only reason the lavish lifestyle ended, but was one important reason.

Some tax background…

Politicians during the Civil War advanced the outrageous concept that wars should be paid for immediately, or as quickly as possible. In that spirit Congress passed the Revenue Act of 1861, which included a 3% tax on incomes over $800 (just over $21,000 in 2014 dollars).

The tax was never implemented. An 1862 law imposed a 3% tax on incomes between $600 and $10,000, and 5% on higher incomes. Congress repealed the law ten years later. The U.S. Supreme Court declared income taxes unconstitutional because the taxes were not allocated among the states based on state populations (as they should be according to Article I, Section 2 of the Constitution).

By the way, people living in the Confederacy did not avoid taxes. The Confederacy imposed a graduated income tax to fill their war chest.

Throughout the decades following the Civil War a variety of political and social groups backed a graduated income tax as a means of financing the U.S. government. Historically most government funding came from tariffs – taxes on imports.

Conservative Republicans campaigned against the income tax.

Democrats introduced an income tax bill in 1909. Republican conservatives decided to kill the idea once and for all. Republicans, severely divided between moderates and conservatives (sound familiar?), created a ploy sure to destroy the bill.

They agreed to support an income tax only if a Constitutional amendment allowing the tax passed.

A constitutional amendment required ratification by three-quarters of the states before becoming law. Republicans were confident the states would never approve the amendment.

They badly miscalculated. The states ratified the 16th amendment and it became the law of the land in February 1913.

The long, tangled list of deductions and exemptions taxpayers deal with today began with the imposition of the tax in 1913, when only about 1% of Americans actually paid any income tax.

It is notable that anti-tax, anti-change conservatives, the philosophical ancestors of today’s uncompromising conservatives, were drivers of social change.

Over the past century the income tax became imbedded in America’s psyche, a yearly rite ridiculed, hated and avoided, one that probably causes divorces or at least major marital upheavals, fueling the economy with thousands of bookkeeper, accountant, lawyer, and related jobs.

Conservatives want to limit taxes nowadays, especially taxes levied on the wealthiest amongst us, but it was their forebear's folly that instituted them in the first place.

Love the irony!

The moral of this fractured fable?

Be very, very careful what you say you want (you might get it).

And politically, Do not support something you really don’t want, because in spite of careful preparation and backroom maneuvering, plans can backfire.

FYI - the 16th amendment to the Constitution:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

4 comments:

  1. Oh what a tangles web we weave...

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  2. I didn't know it was a constitutional amendment that caused us to pay income taxes. Very interesting! I don't pay them any more, since I'm a social security recipient and don't make enough. :-)

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  3. I read this twice to make sure I followed you account. The Civil War marks the end of the Republic as we knew it an issues in the age of big government paid for with federal taxes. The expansion of government became necessary as the Repubican party ( which was divided...read Team of Rivals) fought to end slavery and preserve what they saw as a Union. The gilded Age ...if it existed.. Begins at this time. I spent the last semester of my recently acquired advanced degree in history studying this topic, and could write ad nauseum on it, but won't.

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