The Hidden Progressive History of Income Tax
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Imagine a United States with enormous and growing levels of income inequality. An America with long-term unemployment and people giving up hope for the future. An America where corporations buy politicians and ignore the desires of everyday people. An America where a lack of regulation leads to a boom-and-bust economy that allows the 1% to get even more wealthy while throwing millions of Americans out of work.
That I could be talking about today or the Gilded Age is telling. The end of the 19th century saw corporations at their height of influence and power, with plutocrats literally buying off legislatures to elect their men to the U.S. Senate and individuals like John D. Rockefeller and J.P. Morgan having more money than the entire federal government.
Americans fixed a lot of these problems in the 20th century. The mid-20th century was a period when more Americans had a larger share of the pie, with a growing middle-class, high rates of unionization, an expanding consumer economy leading to home ownership, working-class people going to college without much debt, and a better life for all, even if too often minorities were denied inclusion in this society.
This America is slipping from us daily. The Romney campaign has committed itself to serving the interests of the rich. Paul Ryan’s economic plan will eviscerate Medicare and Medicaid, a Romney presidency would overturn environmental regulations and continue the war on unions that threatens the survival of the American middle-class.
In order to fight this, we have to understand the ways our ancestors fought to even the playing field. How did they take power from the rich in the early 20th century, a time when the plutocrats had even more power than the present? After much debate, they settled on a solution that went a long way toward making the United States a more fair country.
Today, we are supposed to hate paying taxes. They are our “tax burden.” We vote for politicians who will reduce our taxes, even if that means destroying the welfare state. Conservatives’ century-long war against taxes has paid off by convincing everyday Americans to think taxes are a horrible thing that pays for government waste.
Our ancestors knew this was not true. The income tax was the most popular economic justice movement of the late 19th and early 20th century. This truly grassroots movement forced politicians to act in order to stay in office, leading to the 16th Amendment to the Constitution in 1913. That’s right, the income tax was so popular that the nation passed a constitutional amendment so that the right-wing Supreme Court couldn’t overturn it.
Income and Tax Inequality in the Late 19th Century
Everyday Americans hated the tax system of the Gilded Age. The federal government gathered taxes in two ways. First, it placed high tariff rates on imports. These import taxes protected American industries from competition. This allowed companies to charge high prices on products that the working class needed to survive while also protecting the monopolies that controlled their everyday lives. Second, the government had high excise taxes on tobacco and alcohol, two products used heavily by the American working class.
These forms of indirect taxes meant that almost the entirety of federal tax revenue came from the poor while the rich paid virtually nothing. This spawned enormous outrage. The poor had a model in creating an income tax—President Abraham Lincoln, who instituted the nation’s first income tax to pay for the Civil War. Lincoln’s Revenue Act of 1861 created a graduated tax on everyone who made at least $800 a year, allowing him to pay for the war. Although a grand success, Republicans pulled away from it as they backed off of racial equality in the late 1860s and it was overturned in 1872.