The Income Tax And How It Grew

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Important innovations included withholding at the source, the sliding scale of rates, and the publication of the names of taxpayers. During a debate on the principle of escalation a representative from Illinois suggested that the tax should go up to a 5 per cent on incomes above sixty thousand dollars, which moved Justin S. Morrill of Vermont, chairman of the Ways and Means Committee, to declare that such a requisition could “only be defended on the same ground that the highwayman defends his acts.” The Vermont Republican accepted the tax law as a wartime necessity, including its authority to pry, but sensed trouble ahead for the publicity provision, observing drily that “Americans, like people elsewhere, though not averse to a knowledge of the secrets of others, are quite unwilling to disclose their own.” James A. Garfield, then a member of Congress, joined in denouncing the publicity feature of the tax as “very odious” and indeed considered the whole bill unjust and unconstitutional.

Schuyler Colfax, on the contrary, declared that he could not go back to Indiana and say he had voted for a bill that would excuse the millionaire from assuming his proportional share of the tax burden while the small farmer paid his. Roscoe Conkling of New York spoke in the same vein, and Charles Sumner quoted Adam Smith and the French economists in defending the principle of graduation. Those opposed seldom argued against the justice of the tax. But they bore down heavily on the points that it was a war tax, hateful in peacetime, inquisitorial in nature, and likely to turn Americans into a nation of liars. After the war ended, when patriotic fervor had subsided, cordial feelings toward the income tax evaporated. There was a broad consensus that succeeding generations should assume as much of the war debt as possible. The public recalled with embarrassment that the tax had a socialistic tendency, and the New York Times , said Randolph Paul, “made the less than startling discovery that the tax had never been popular with persons with high incomes.” The rates were rapidly scaled down. In the spring of 1872 Congress jettisoned the levy. It had plainly become a political liability to the Cirant administration, though it was, the historian Allan Nevins has written, “the fairest single element in the revenue system. …”

The individual income tax scarcely figured in the fiscal arrangements of the Confederate States of America. The Richmond government, hampered by the States’-rights tradition and an unrealistic belief in a short war, followed the primrose path, finding it less painful to borrow or issue printing-press money than to tax incomes. George Cary Eggleston, who had fought under Colonel J. E. B. Stuart, General FitzHugh Lee, and General James Longstreet, described in his History of the Confederate War the approach of the government to finance as having “all the flavor of the Princess Scheherezade’s romances, with the additional merit of being historically true.” By the time the Confederate Congress passed its first adequate tax act, the Treasury was in a state of collapse, the Lost Cause was lost, and with it the social structure of the South.

With the postwar industrialization the Republican Party became the guardian of the interests of banking, industry, the railroads, and the export trade. No income or inheritance taxes were collected. The central government looked to tobacco, alcoholic beverages, and the protective tariff to provide the money for running the government. Business boomed on easy credit until speculation got out of hand in the Panic of 1873. There followed six years of distress with industrial warfare in the cities, drought and crop failures on the western plains. When wheat fell below fifty cents a bushel and corn was worth more as fuel than as feed, thousands of neopioneers backtracked eastward with legends of defeat lettered on their covered wagons, such as the bitter “Going back to our wife’s folks.”

 

The six-year depression, the increasing drift toward plutocracy in a race for wealth that appeared to be fixed, and in the West the enduring memory of “The Crime of ’73” (dropping the silver dollar from the monetary standard) all helped to keep the income-tax issue alive. Congressmen with agrarian constituencies regularly introduced bills favoring railroad regulation, cheap money, free silver, trust-busting, and income and inheritance taxes. All were referred to the Committee on Ways and Means, where they had a persistent tendency to disappear. The public debate on the tax question was accompanied by mordant denunciation and bloodletting adjectives. All the elements—farmers, trade unionists, small businessmen, and Greenbackers—that were soon to coalesce into the Populist Party lined up against the official leadership in the House of Representatives, which continued to prefer financing the government out of taxes on consumption.