By Robin Einhorn
It’s tax time again in the United States. The AHA will not be advising you about home offices or the deductibility of book purchases. Given the April 18 deadline, it’s too late for that anyway. But some of us actually write about the history of taxation around the world and, in my case, in the United States.
American tax politics is usually treated as a clash of ideologies about the role of government in a democracy. Should taxes be increased to finance more and better public services? Should they be cut so that people can keep more of their earnings? Should taxes redistribute income through the use of progressive tax rates? Or should they be designed to protect capital accumulation in order to encourage investment?
It is tempting to read these questions backward into American history, as many historians have, particularly the one about redistributing income through a progressive income tax. In this story, the modern federal income tax—adopted in 1913, soon after the ratification of the Sixteenth Amendment—gets cast as the triumph of Populist and then Progressive demands for a government that could discipline the robber baron elites and protect the nation’s workers and farmers. This story of class struggle and democratic triumph is the one told in Sidney Ratner’s classic American Taxation: Its History as a Social Force in Democracy (1942) and retold more recently in Steven R. Weisman’s The Great Tax Wars, Lincoln to Wilson: The Fierce Battles over Money and Power That Transformed the Nation (2002). It also appears, in abbreviated forms, in most standard treatments of Populism and Progressivism.
But what if this story is wrong, or at least seriously misleading? What if class struggle was not really the central story of the income tax? My research is suggesting as much. In fact, the best way to understand the history of the income tax may well be geographical—or “sectional” in the traditional American sense.
The income tax inaugurated an epochal shift in the geographical distribution of federal tax burdens. In the 19th century, the federal government relied mainly on the tariffs it levied on imported goods. The only federal tax between the War of 1812 and the Civil War, the tariff continued to be a major source of federal tax revenue, raising about half of the total in the late 19th century. The key to tariff politics, however, was the policy’s double function. The tariff worked simultaneously as a tax and as an industrial development policy that “protected” American businesses against foreign competition by increasing the prices of imported goods. Tariff politics was always sharply sectional, mainly because the United States did not import anything that competed with the major southern products such as cotton. Protection made manufactured goods more expensive by raising the prices of imports and, in particular, by allowing domestic (chiefly northern) firms to sell their products at higher prices. As a result, the tariff generally subsidized the things that northerners sold by taxing the things that southerners bought. The political economy of protectionism was a little more complicated than this, of course, not least because of the role of the West, but the crucial point is that, in the age of the tariff, the federal tax system took from the South and gave to the North.
It was not an accident that the income taxes Congress adopted in 1894 (voided by the Supreme Court the following year) and 1913 were framed as clauses in tariff laws: the Wilson-Gorman Tariff of 1894 and the Underwood Tariff of 1913. They were adopted in debates that spent much more time hashing out the tariff rates to be levied on particular imported commodities than on the details of the income taxes they were creating. When we read those debates today, we know that the income tax would have a very big future. It is, after all, the tax that we have to file this week. The historical actors in 1894 and 1913, however, would have known their past rather than their future—for them, the tariff was the real story. These first income taxes were intended as small revenue supplements that might help balance the pro-North sectional tilt of the tariff. They were intended, in other words, to be pro-South taxes.
The accompanying cartoon makes the point. It is from Judge, the Republican counterpart of the more famous Democratic humor magazine Puck. Entitled “The Democratic Richelieu,” it appeared on June 16, 1894. The caption labels the central figure as a Democratic Senator and ex-Confederate brigadier—with his hatband labeled CSA (Confederate States of America) and the ribbons on his sword marked Rebellion and Secession. The dying woman is the North, stabbed by a pen identified as legislation, specifically meaning the income tax. In the caption, our brigadier proclaims: “Take away the sword. States can be ruined without it. Bring me the pen. The pen is mightier than the sword!” The income tax, Judge argued, was the revenge of the Southern Confederacy.
This revenge was a success. In 1916, the first year the Internal Revenue Bureau published the distribution of income tax payments by state, New York paid a full 45 percent of the total. The tax imposed an average of $6.97 per capita in New York, $3.34 in Rhode Island, and $2.76 in Massachusetts. The southern figures were very different: 6 cents in South Carolina, 9 cents in Alabama, and then 10 in Arkansas, 13 in Mississippi, and 15 in Georgia. The income tax was originally framed to be levied only on the rich—and they did not live in the South.
During World War II, the income tax would be transformed from a class tax levied only on the rich into the mass tax on most people that it remains today. The Midwest and West caught up with the Northeast at this juncture, paying roughly similar amounts of income tax. The South, however, lagged behind the rest of the country until about 1980, at which point, of course, many white Southerners enlisted in the Tax Revolt that continues to shape American tax politics today.
Observers such as Thomas Piketty have urged Americans to reclaim our leadership in using the income tax to reduce economic inequality. As we debate about whether and how to do this today, it may be sobering to recognize that one reason this strategy worked in the past was an overlap between class and geography that no longer exists in the United States. In a political system that still privileges territorial boundaries—through devices such as statewide winner-take-all elections for the Senate and Electoral College—translating democratic demands into national policies may be an even heavier lift than it was a century ago.
Robin Einhorn is the Preston Hotchkis Professor in the History of the United States at the University of California, Berkeley. She is the author of Property Rules (1991) and American Taxation, American Slavery (2006) and is currently writing a general history of US taxation.