Happy Birthday to the Income Tax!

A hearty Happy 100th Birthday to the graduated income tax, one of the greatest laws in American history. The 16th Amendment was ratified on February 3, 1913. I wrote about the history of the graduated income tax in detail here.

Also, it’s worth noting that in a lot of debates about presidents, people credit Woodrow Wilson with this because it happened in 1913. But Wilson had nothing to do with it–he hadn’t even taken office yet when it was ratified. Moreover, even if presidents had taken office on January 20 like today, he still would have had absolutely nothing to do with it. If you want to credit a president for the 16th Amendment, it has to be Taft.

43 comments on this post.
  1. oldster:

    so this celebration calls for the fatted taft?

  2. Erik Loomis:

    Boo!!!!!!!!

  3. The Dark Avenger:

    So stick around
    You’re gonna hear electric music

    Solid walls of sound

    Say, Manju and J Otto, have you seen them yet
    But they’re so spaced out, B-B-B-Bennie and the Jets
    Oh but they’re weird and they’re wonderful
    Oh Bennie she’s really keen
    She’s got electric boots a mohair suit
    You know I read it in a magazine
    B-B-B-Bennie and the Jets

    Because it’s my birthday, and I’ll parody if I want to.

  4. matthew frederick:

    Impossible! Howard Taft wasn’t in the Democrat Party!

  5. NonyNony:

    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.

    You know, even knowing a bit of the history of that Gilded Age era of our politics, the bluntness of this fact hit me square between the eyes when I read it the way you phrased it. Thanks for the article – it’s an interesting read.

  6. McKingford:

    I think credit goes to the prohibitionists, who needed to provide a revenue source to replace the excise tax on alcohol in order to keep government running once prohibition took effect.

  7. John:

    People give Wilson credit for the income tax not because they are idiots who don’t know when presidents are inaugurated, but because the Underwood Act which created the income tax was, in fact, passed under Wilson.

  8. joe from Lowell:

    Why would Howard Taft belong to a Thai political party?

  9. Scott Lemieux:

    Which still makes very little sense, because if you can pass a constitutional amendment authorizing something, getting legislation passed in the immediate aftermath isn’t exactly a heavy lift. There’s no reason to believe that similar legislation wouldn’t have passed under Taft. (While the ACA certainly wouldn’t have passed under McCain.)

  10. wengler:

    I’m sure that if you only had one stat to go by, that stat being the success of the state in collecting income tax, you could easily discern the most modern and decent-living for the average person countries in the world.

    Of course that doesn’t mean that it also enables the funding of horrible things like massive militaries. But on balance the ability of anybody to work for a living being somewhat prosperous depends on it.

  11. Hogan:

    I think there were more people trying to eliminate the tariff as a revenue source than the excise tax on alcohol.

  12. Joe:

    The 16A eased the way to a graduated income tax though income taxes were still allowed beforehand, apportionment required in certain cases. For instance, corporate income taxes were not barred by Pollock as a general rule even w/o apportionment.

    But, the 16A itself didn’t authorize a certain type of income tax, graduated or otherwise. So, I’m unsure if today is really the 100th anniversary of the “graduated” income tax as such.

  13. Patrick:

    I’ve always heard the story that the amendment was going to limit income taxes to some small amount (say, 10%), but that the limitation was left out as the writers thought that people wouldn’t pass it if they thought that they might have to pay 10% of their income in taxes. Is there any truth to that story? A quick google/wikipedia/snopes perusal finds none, but that’s one of those “really need to search with the right terms” things.

  14. Joe:

    I don’t know how picky I am being but there is an understanding by some that income taxes were barred or something before the amendment as compared to some sorts of income taxes perhaps functionally hard to come by.

    Even there, a ruling involving rent and land (Pollock) did not cover let’s say the “indirect” tax on the right to incorporate, a corporate income tax, which covers a lot of revenue there alone. Ditto on some tax based on licenses, which is another way to tax the income of those who make a lot of money. Rhetoric aside, Pollock wasn’t based on so-called wealth discrimination.

  15. DrDick:

    Hippo birdies! Mine was yesterday (three score and one).

  16. Uncle Ebeneezer:

    A friend of mine posted something on Facebook supporting a 23% Federal Sales Tax, in lieu of income taxes. I’m skeptical as Sales Taxes are typically regressive, but I also read a Krugman article about VAT’s where he pointed out that more emphasis on sales taxes vs. income taxes is often present in countries with healthy welfare states (Scandinavia). Curious as to what others here think, or if you have any good links you’d recommend about the 23% Sales Tax idea. My instinct is that it is something designed to favor the wealthy.

  17. John:

    Perhaps, although certainly the very serious tariff revisions of the Underwood Act would have been unlikely under a Republican president, which might have meant a less ambitious income tax.

  18. The Dark Avenger:

    5.4 decades here in Tulare County, CA

  19. cpinva:

    your instinct would be correct.

    “My instinct is that it is something designed to favor the wealthy.”

    as you note, sales taxes are regressive, affecting lower income groups far more than higher income ones, the inverse of our present system. the same goes for the so-called “flat tax” which, amazingly enough, also hits the lower castes more so than the higher ones.

    when a member of the 1% comes up with an alternative to the current, progressive income tax, you can be 100% certain that it isn’t designed to extract more tax revenue from the 1%.

  20. commie atheist:

    Let’s look at one of the laboratories of Democracy, Louisiana, and see what Bobby Jindal’s proposal would do:

    Broadening the sales tax base is a mixed bag. On one hand, taxing more goods and services helps to limit the tax’s distortions across consumption and also allows for a lower tax rate, all else equal. But base broadening can also push more of the burden to low-income households. Louisiana currently excludes groceries and utilities from taxation; taxing them would be especially difficult for families with limited resources.

    In fact, even without base broadening, the proposal would dramatically shift more of the burden of Louisiana’s taxes onto lower-income individuals. Since low-income households devote a higher share of their income to consumption, they end up paying higher effective tax rates than higher-income households which tend to spend less and save more. This concern is particularly stark in Louisiana, which was recently ranked as the sixth most unequal state in the country by one measure of inequality…

    Maintaining current revenues with Jindal’s plan would require that sales tax revenues more than double, which means that, absent a significant broadening of the tax base, the tax rate would also have to rise substantially. For households that don’t pay income taxes and save little or no income, this amounts to close to a 4 percentage point drop in after-tax income—about the same magnitude of tax pain for these households as going off the fiscal cliff.

    Not just designed to favor the wealthy, but to punish the poor. Win-win for the GOP.

  21. bradP:

    As a reaction to horrible government policy – the implosion of absurdly subsidized railroads and the loss of substantial tax revenues due to the implementation of prohibition – perhaps it was a good thing.

    But since it has grown from falling on the richest couple percent to falling on the shoulders of 80% of the nation. It was also supplemented by withholding, which shifted the balance of compliance squarely on to labor.

  22. bradP:

    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.

    This was the same set of judges who ruled segregation constitutional in the case of Plessy v. Ferguson

    And way to go on this one. Three short pages and two shots at opponents to the income tax as being racist. That’s pretty good.

  23. NonyNony:

    But since it has grown from falling on the richest couple percent to falling on the shoulders of 80% of the nation.

    If you, brad, of all people on this blog are going to make the argument that the income tax is bad now because everyone has to pay it while in its original vision it was okay because only the richest of the rich were expected to pay, I am going to do nothing but laugh at any libertarian argument you present from now on.

    I mean, I was already laughing at most of them. But this is the kind of stupid crap “argument” that made me realize libertarianism was a bankrupt philosophy only interested in grasping at any straw available to not have to pay any taxes back when I was a libertarian idiot myself. So it’ll make me laugh harder.

  24. bradP:

    That point was directed more towards the question of “Why is the income tax not popular anymore.”

    It was originally a popular response to the horrible tax policies of the day, who were not only hardly taxed, but generally profitted from the taxes.

    It has morphed into a fee for living under the US government, due to its wide net and withholding. And when you consider that the government suffers from an image that it is a servant to the connected and wealthy, it seems only natural that the public would view the income tax very much the same way people viewed the taxes that it replaced a century ago.

    And yes, it is far better that the wealthy pay a greater proportion in taxes, because they necessarily have a much higher proportion of benefit from government spending.

  25. bradP:

    It was originally a popular response to the horrible tax policies of the day, and the rich who were not only hardly taxed, but generally profitted from the taxes.

  26. Malaclypse:

    It has morphed into a fee for living under the US government

    Which differs from the tariffs and excise taxes that preceded it how, except for being less regressive?

  27. Scott Lemieux:

    And yes, it is far better that the wealthy pay a greater proportion in taxes, because they necessarily have a much higher proportion of benefit from government spending.

    Well, replacing the graduated income taxes with regressive flat taxes sure would solve that problem!

  28. Eli Rabett:

    You guys have had way too much to drink. Eli is calling an income taxi to haul you home.

  29. bradP:

    Well, replacing the graduated income taxes with regressive flat taxes sure would solve that problem!

    I don’t support flat taxes, although many who share the designation I choose do.

  30. bradP:

    I’m not saying we should go back. Just pointing out that the income tax has lost a lot of its luster because the last 100 years have seen it morphed into something similar to what it replaced:

    A tax by which the poor and middle-class are often forced into supporting the rich.

    I’m not denying that our income tax is more progressive. In fact, its among the most progressive in the world. Expenditures are still very regressive, and the income tax went a long way to pay for a far greater level of regressive expenditure.

  31. DrDick:

    First, all taxes are a fee you pay to live under a government (aka living in a civilized society). The government is the mechanism we use to deal with collective action. If you do not like that idea, go live on a desert island without any of the benefits of civilization, which costs money.

    Second, the US tax system is not the most progressive in the world, far from it. While the nominal rates look progressive, the effective rates are far from it. This is owing to the vast array of deductions and special deals (especially the capital gains and inheritance taxes) given the wealthy.

    Finally, you imagined libertarian paradise would be far more regressive, as all benefits in society would go only to the wealthy.

  32. The Nation and People of Sweden:

    In fact, its among the most progressive in the world.

    Well fuck us like walruses.

  33. bradP:

    http://themonkeycage.org/blog/2012/02/16/the-facts-about-tax-progressivity/

    And note, in that article, where he says that “redistribution in the US is low, due mainly to the relatively small size of the US government”, I would argue that it is not the relative size of the US government, but just how hard it is to get the government to spend massive amounts of money on anything besides corporate welfare, military spending, and law enforcement. Furthermore, where the US is spending tons of money on social causes, like health care, it is doing so very inefficiently.

    We would likely argue whether this is a problem of evil republicans or the system completely failing, however.

  34. Malaclypse:

    So, in a discussion of income taxes, you cite:

    The top figure shows those taxes that are paid directly by individuals: income, wealth, property and employee social security contributions, while the bottom figure shows measures (albeit for a smaller set of countries) that incorporate the sales tax burden based on the individual household expenditure data.

    Apples, meet oranges.

  35. bradP:

    Also note: that was written by a woman, Lucy Barnes. My gender bias was on display with that “he” I threw in there.

  36. DrDick:

    where the US is spending tons of money on social causes, like health care, it is doing so very inefficiently.

    Evidence please. In fact, the government provides these services far more efficiently than the private sector (see Medicare and Medicaid compared to private insurance).

  37. bradP:

    Evidence please. In fact, the government provides these services far more efficiently than the private sector (see Medicare and Medicaid compared to private insurance).

    http://www.slate.com/blogs/moneybox/2013/01/23/chart_us_government_spends_more_on_health_care_than_the_canadian_government.html

  38. DrDick:

    That does not compare costs between public sector and private sector. If anything it shows that the much more socialized Canadian system is more efficient than the partially free market US system. Much of that difference reflects out of control healthcare costs, driven by private sector. If you compare costs in the us between government and private provides, guess who wins here? You are not helping your cause at all.

  39. bradP:

    That does not compare costs between public sector and private sector. If anything it shows that the much more socialized Canadian system is more efficient than the partially free market US system. Much of that difference reflects out of control healthcare costs, driven by private sector. If you compare costs in the us between government and private provides, guess who wins here? You are not helping your cause at all.

    I’m not trying to compare the private and public sector. They are both horribly screwed up IMO.

    My point is that the US government, when compared to other nations, is very inefficient on alot of its social spending, healthcare being the glaring example.

  40. DrDick:

    My point is that the US government, when compared to other nations, is very inefficient on alot of its social spending, healthcare being the glaring example.

    I would not disagree with this at all, but the cause of that is your beloved “markets”. Other developed countries have much more regulation which lowers costs. Their systems are also more efficient as they do not spend nearly as much time and effort trying to deny people benefits (a product of conservative hatred of social spending). Again, none of this supports your libertarian arguments, but rather the reverse.

  41. UserGoogol:

    The “23% Federal Sales Tax” is presumably a reference to the FairTax, which I’m moderately intrigued by because it’s paired with giving every household a check for how they’d pay in taxes if they spend at the poverty level, to try to make it more progressive. I like that since it might make it easier to gradually phase in a basic income guarantee, which I think is the best idea ever.

  42. Substance McGravitas:

    Dislike. A VAT makes more sense after a guaranteed and survivable income floor, I guess, but think of the vast amount of Americans who can’t (or don’t) get their shit together enough to file taxes. No cheque for them.

  43. Scott Lemieux:

    Well, then what the hell are we arguing about? “Income taxes are the worst taxes except for all the others.” I concede the point!

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