Americans love anniversaries and this year marks some pretty remarkable ones, most notably the sesquicentennial of the battle of Gettysburg and the fall of Vicksburg, two events that dealt a crippling blow to the Confederacy in the summer of 1863, and the 50th anniversary of the JFK assassination. But 2013 also marks the centennial of another crucial event, the enactment of the infamous income tax.
Pushed by Liberals for decades in the late 19th and early 20th centuries, the income tax was supposed to be the “great leveling,” a policy that would correct the long-festering problem of wealth inequality. However, there was one problem – the Constitution specifically prohibited the government from taxing the American people directly.
From 1789 to 1913, much to the surprise of the average person, the nation operated without an income tax, except the years Lincoln authorized it to wage his war on the South. But that was a war revenue measure that contained a sunset provision, dying without a fight in 1872, seven years after the war ended.
Twenty-two years later, in 1894, Congress passed the first peacetime income tax in American history, all for the purpose of redistributing wealth. The era was, as Mark Twain so labeled it, the Gilded Age, or as academic historians call it, the age of the “robber baron.” The nation’s wealth exploded but much of it, Liberals charged, fell into the hands of the evil one percent.
Their solution, despite constitutional restrictions, was the income tax of 1894, which established a rate of just 2 percent on incomes of $4,000 or more, and would also apply to corporations without any exemptions. Its proponents claimed that it would effectively exempt over 99 percent of the population. Only the very rich would be affected. Sound familiar?
With more than 12 million households across the nation, the tax would touch just the 85,000 that had incomes of $4,000 or more. This made the 1894 income tax much different in scope than its 1862 wartime predecessor, which touched almost everyone. “For the first time in American history,” writes economic historian John Steele Gordon, “a tax was seemingly proposed on a particular class of citizens, a class defined by economic success.”
Critics used this fact to attack the tax proposal as “socialism.” New York Senator David B. Hill blamed the tax on what he called “little squads of anarchists, communists and socialists” from Europe infecting America with foreign ideas. Conservative newspapers warned that it would eventually burden the entire population.
Like today, the Left used economic studies to argue in favor of the income tax. One political economist contended that just 70 persons owned a combined wealth of $2.7 billion. Just 50,000 families owned half the nation’s wealth, while four-fifths of the people earned less than $500 a year. The tax burden, he noted, was disproportionally placed upon the poor, who paid taxes equivalent to 75 to 80 percent of their savings while corporations and the wealthy paid only 8 to 10 percent. Again, we’ve heard all this recently, haven’t we? Liberals never change.
But this was a time when the Supreme Court actually looked out for the Constitution and would not allow the income tax to remain in place, striking it down the following year in Pollock v. Farmers’ Loan & Trust Co by a 5 to 4 vote.
In his concurring opinion, Justice Stephen J. Field prophesied about the future days of class warfare. He saw the real danger in such a tax. “The present assault on capital is but the beginning,” he wrote. “It will be but the stepping-stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich; a war constantly growing in intensity and bitterness.” Does that not accurately describe the 2012 presidential campaign?
To get around the pesky old Constitution, progressives kept fighting for the right to impose a tax on income. They finally succeeded in convincing enough people that income inequality was growing and to support the Sixteenth Amendment, which was finally ratified on February 3, 1913. Liberals in Congress wasted little time. After convening on March 4, 1913, the House passed the Revenue Act of 1913 on May 8. The Senate approved it on September 9 and President Woodrow Wilson signed the bill on October 3.
Like it’s 1894 predecessor, the now permanent income tax was only supposed to affect the top wealth earners – a 1 percent tax was levied beginning at $3,000 in annual income for single filers (about $70,000 in 2013 dollars) and remained at 1 percent up to $20,000 ($470,000 today). The top rate was just 7 percent on incomes over half a million a year (about $12 million).
But within five years of its passage, the tax rate had soared. By 1918, and the end of World War One, the income tax touched everyone, with a top rate of 77 percent. It would eventually reach as high as 90 percent and has never fallen below 25 percent, under Coolidge in the 1920s. Today it’s at 40 percent, which many in Washington deem acceptable. Wealth, though, has not been redistributed to the lower and middle classes, only a new avenue from the taxpayers to the federal government. That was its main purpose.
Our Founding Fathers envisioned a country of limited government that did not reach into the pockets of its people for any reason, let alone to close a manufactured “income gap.” Jefferson believed in “a wise and frugal Government” that would leave men “free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.” This, he said, “is the sum of good government.” An income tax is the very antithesis of the government created by the founders.
Perhaps, though, things will change in the future. The silver lining of Obama’s IRS scandal is that now the abuse and corruption is out in the open for all to see, and more and more people now deem the agency, and the tax, dangerous to liberty. This should make it much easier for conservatives to rein the tax in or outright destroy it. We can only hope for the good of the country.