-Caveat Lector-
an excerpt from:
The Maximum Wage
by Sam Pizzigati
The Apex Press (C) 1992
777 United Nations Plaza
New York, NY 10017
212/953-6920
ISBN 0-945257-45-7
-----
A very intersting and well researched book. I found it to be very informative.
Om
K
-----
pp. 37-59
2. The Wars Against Wealth-cont.-
-----
Enter the Modern Era
By the turn of the century, conservatives had crushed the income tax and the
Populist reformers who had championed it. But the dizzying concentration of
wealth that had so outraged reformers was still spiraling out of control-and
wreaking social havoc. The more sensitive conservatives now saw a socialist
movement taking shape, a political movement, as Teddy Roosevelt put it, "far
more ominous than any Populist or similar movement of the past." As President,
Theodore Roosevelt began fulminating, first softly, then louder, against the
malefactors of great wealth. In 1906, Roosevelt called for a "progressive tax
on all fortunes beyond a certain amount either given in life or devised or
bequested upon death to any individual." Later that same year, he cautiously
promoted the idea of an income tax. "The man, of great wealth," said
Roosevelt, "owes a peculiar obligation to the state because he derives special
advantages from the mere existence of government." By 1907, Roosevelt was
advocating new taxes on income and wealth because "most great civilized
countries have an income tax and an inheritance tax."(59)
Roosevelt was playing to the public sentiment, growing once again, that
great wealth ought to be checked. He wasn't particularly perceptive. By the
1909 inauguration of William Howard Taft, almost all leading politicos had
realized that overt opposition to taxing the rich would be suicidal. In the
1909 congressional session, after Democrats attached an income tax amendment
to a tariff bill, GOP leaders quickly came up with an income tax proposal of
their own. President Taft and Senate Finance Committee Chairman Nelson Aldrich
proposed, as an alternative to the Democratic legislation, a constitutional
amendment that would expressly allow Congress to levy an income tax. The GOP
duo also backed an excise tax on corporations, the first tax on corporate
profits since the Civil War.
"By supporting the corporation tax and the constitutional amendment,"
writes historian Sidney Ratner, the GOP old guard leaders "could pose in the
1910 election campaigns as spokesmen for the common people."(60) Taft's
proposal to add an income tax amendment to the Constitution passed the Senate
77-O and the House 318-14. But his careful plan then started to unravel. State
legislatures actually started ratifying the proposed constitutional amendment
enacted by Congress, instead of letting the amendment die the quiet death that
the GOP old guard had expected. John D. Rockefeller was aghast. The
unthinkable-an income tax on the rich-could become reality. Rockefeller rushed
to mobilize opposition to the income tax ratification drive. "When a man has
accumulated a sum of money within the law, that it to say, in the legally
correct way," pronounced Rockefeller, "the people no longer have any right to
share in the earnings resulting from the accumulation."(61)
By 1913, enough states had ignored Rockefeller to make the income tax the
l3th amendment to the Constitution. Woodrow Wilson, meanwhile, had been
elected President in 1912, and the stage was set for the passage of income tax
legislation that would take advantage of the new constitutional taxing
authority. In 1913, an income tax finally passed Congress.
The new income tax fell solely on the nation's wealthiest 2 percent of the
population, but not very hard. The slightly graduated rates in the 1913
legislation ranged from 1 percent on income between $4,000 and $20,000 to 7
percent on income above $500,000.(62) The same Congress that enacted the
modest 1913 income tax defeated a more ambitious proposal from Senator George
Norris that would have placed a 75 percent tax on inheritances.(63)
Inequality in America, little changed since the robber baron days that so
angered the Populist generation, was safe. Researchers reported that 44
American families were pulling in more than $50 million a year just before
World War I-at the same time the majority of adult workers were earning
between $10 and $20 a week.(64)
This gaping inequality, U.S. Industrial Relations Commission Research
Director Basil M. Manly told Congress in 1915, was a major cause of the unrest
then shaking American industry.(65) Manly asked Congress to limit inheritances
from any estate to $1 million,(66) and, in 1916, Congress did enact the
nation's first permanent estate tax.(67) But the impetus for the legislation
was the war in Europe, not any outrage over inequality. The federal income
tax, meanwhile, remained "little more than a nuisance to the well-off,"(68)
even after 1916 legislation raised the maximum "surtax" on large incomes from
6 to 13 percent.(69)
America's actual entrance into the war in 1917 changed everything. Once
again, war's insatiable thirst for revenue drove lawmakers to contemplate tax
rates on the wealthy that would have been unthinkable in peace-time.
Congressman Keating of Chicago, for instance, proposed a tax bill amendment
that would have imposed a 96 percent "surtax on incomes over $150,000, on top
of a 4 percent normal tax.(70)
"The effect of the new section will be to tax all incomes above $150,000 100
percent," Keating explained on the floor of Congress. "A man who had an income
of $150,000 would be taxed 33 1/3 percent and he would have left a net income
of $l00,000, but no one in the Republic would have an income in excess of
$100,000."
This income limit, Keating added, would raise between $1.6 and $1.7 billion
"without oppressing any man, without laying an unreasonable burden upon any
industry.(71) To arguments that his income cap would discourage millionaires
from making investments, Keating was unapologetic.
"Well, my friend, if you pass my amendment, we will take the millionaire's
money, we will take his excess profits, and we will invest it." argued
Congressman Keating. "Uncle Sam is not going to put this money in a strong box
and permit it to remain there. Uncle Sam will take it and invest it in those
things necessary in order to maintain an army in the field. If you adopt my
amendment, it will not be necessary for you to enact further bond bills or to
appeal to millionaires to purchase bonds. The object of this amendment is to
take the excess profits and the excess incomes from the rich of this country
and use that money to pay the running expenses of the Government."(72)
Keating was no isolated crackpot. In 1917, an American Committee on War
Finance was busily and somewhat successfully beating the bushes mobilizing
public support for a "conscription of wealth.' The committee called for a 98
percent surtax on incomes over $100,000, which, when added to the 2 percent
normal tax enacted in 1916, would have taxed away all incomes over
$100,000.(73) Committee heavyweights ranged from millionaire Amos Pinchot, who
testified on the committee's behalf before Congress, to newspaper magnate E.
W. Scripps, who wired President Wilson his support for taxing all incomes
above $50,000 "for the support of the Government."(74)
The American Committee on War Finance took ads in major newspapers to
advocate its income cap proposal and claimed endorsements from organizations
representing millions of Americans. These organizations, Amos Pinchot noted in
his Senate testimony, "have expressed the belief that the war can not be
either justly or efficiently carried on unless people who do not fight but
have plenty of money are made to realize their responsibility and forced to
give to the Government the use of their wealth, at least to the extent of a
heavy tax on large incomes."(75)
The income limits advanced by Pinchot's committee and Congressman Keating
didn't pass, but they did help create a climate of opinion that encouraged
Congress to escalate the top tax rates on America's richest taxpayers. The
1917 War Revenue Act placed a 50 percent surtax on incomes over 1 million.(76)
In 1917, Congress also raised the top estate tax rates up to 25 percent(77)
and enacted the nation's first excess profits tax on corporations.(78) A year
later, the 1918 Revenue Act upped the total maximum tax rate on high incomes
to 77 percent.(79)
Few wealthy Americans actually ended up paying taxes at that substantial
rate, but the high tax rates of the World War I era definitely did have bite.
Between 1917 and 1919, less than 1 percent of the tax returns Americans filed
reported incomes over $20,000. Yet this elite group paid 70 percent of the
nation's total income tax revenues.(80)
In war time, with conscripted Americans sacrificing their lives, wealthy
Americans felt they had no choice but to grin and bear the indignity of high
taxes. But once the war ended in Europe, the wealthy opened a new battlefront
in the United States, against high taxes. Their champion was Andrew Mellon,
the multi-millionaire who became the Secretary of the Treasury for the newly
elected President, Warren G. Harding.
Mellon, treasury secretary throughout the 1920s, guided one tax cut after
another into law. Between 1918 and 1926, the top tax rate on high incomes fell
from 77 to 25 percent.(81) Once again, as had happened after the Civil War,
the dismantling of a wartime tax structure set the stage for a vast new
concentration of wealth in the hands of America's most fortunate few. By 1929,
wealth was more unevenly distributed than at any time in recorded American
history.
But the nation's economic bubble burst the very same year, and, as the
country sank into depression, reformers counterattacked. From Louisiana, Huey
Long began his march into national prominence. But the outrage Long
articulated wasn't limited to any one section of the country. Reformers of
every stripe made inequality the key culprit for "the depression."
"The whole thing has collapsed." noted New York Congressman Fiorello
LaGuardia in 1932, "and there will be nothing left unless we provide an
economic readjustment, a better distribution, and that we can do by breaking
up those fortunes."(82)
The Revenue Act of 1932 started the work of undoing the damage wrought by
the 1920s giveaway to the wealthy. The legislation upped the maximum surtax on
high incomes to 55 percent, making the combined top rate on high incomes 63
percent.(83) But many members of Congress felt that the legislation didn't go
nearly far enough.
"It is a crime to have millions of people starving and hungry while a few
others, who neither toil nor do they spin, are living in luxury," charged the
Republican progressive, Senator George Norris of Nebraska.(84)
America could only fight its way out of the Depression, others argued, if
the wealthy
subsidized relief programs for the impoverished majority. Senator Lafollette
of Wisconsin promised in 1933 "to fight for increased inheritance and income
taxes-the likes of which we have never heard of-so that those huge incomes
will have to cough up to help pay for [the federal relief] program.(85)
On the House of Representatives side, Congressman Wesley Lloyd of
Washington State introduced a resolution that called for a constitutional
amendment that would empower Congress to limit annual incomes to $1 million.
"There is no thinking man in our Nation but who knows that the only reason
there is widespread poverty is that wealth and the ownership of wealth has
become centralized-the only reason men are too poor is because a few men are
too rich," Lloyd told his congressional colleagues. "I propose in the main to
bring up the poor and bring down the rich into the class of the average man,
where all may find real happiness and where we may know a widespread national
prosperity." (86)
Lloyd acknowledged that his maximum income proposal would be an
unprecedented step to take.
"I am not insensible[sic] to the fact that this portends a radical departure
from preconceived
concepts of the rights of property," the Tacoma congressman noted, "but I
recognize that a condition has grown upon us that the founders of this
Government could not have foreseen." Concluded Lloyd: "Unusual times may
demand unusual measures."(87)
By 1935, the height of Huey Long's Share-Our-Wealth movement, tax-the-rich
sentiment was everywhere. "It did not require much deep thinking for the
average person to deduct that there must be something drastically wrong when
people are starving in the midst of plenty." noted Minnesota Governor Floyd B.
Olson(88) "If these fortunes are not broken up by law," a distraught Senator
Norris confided in a private letter, "the time will come when they will be
broken up by the mob.(89)
President Franklin D. Roosevelt, who paid scant attention to tax questions
in the early New Deal years, finally had to move. The popular uproar-and the
crying need for revenue to finance New Deal programs-had simply become too
overwhelming, In his 1935 tax message, the President acknowledged that revenue
laws had operated to the "unfair advantage of the few" and "done little to
prevent an unjust concentration of wealth and economic power.(90)
"The transmission from generation to generation of vast fortunes by will,
inheritance, or gift," said Roosevelt, "is not consistent with the ideals of
the American people."(91)
The tax act that finally emerged from Congress in 1935 upped the top rate to
75 percent on incomes over $500,000.(92) But congressional progressives
considered that boost a major disappointment. "As finally passed," many felt,
"the Wealth Tax Act of 1935 did little either to redistribute wealth or to
raise revenue."(93)
The nation's top cheerleader for taxing the wealthy, in the meantime, could
do nothing to mobilize the public for more exacting measures. On September 8,
1935, Huey Long was assassinated in Baton Rouge, one day after he boasted that
"the passage of [Share-Our-Wealth] laws is the only way they can keep me from
being President- unless I die."(94) Long's sudden death, notes one historian,
"destroyed the Share-Our-Wealth movement's chances of sweeping northward in
1936."(95)
After Long's assassination, no politically serious popular attempt to up
taxes on the wealthy surfaced for the rest of the 1930s. It took a new war, as
the decade ended, to force the nation to confront the appalling inequality of
wealth and income that Depression-era politics had failed to address.
How deep was that failure? One study of national incomes in mid-Depression
found that 41 percent of America's families annually earned less than $1,000
and 87 percent less than $2,500. At the other end of the scale, only 0.97
percent of America's families-270,000 households-took in more than $10,000.
Figures from later in the Depression, 1939, demonstrated that families earning
under $500-a median income of $346-were paying 22 percent of their income in
local, state, and national taxes while families making over $20,000-mean
income: $47,000-were paying total taxes at a 37.8 percent rate.(96) Despite a
decade of tumult, the Depression 1930s ended as they had begun, with vast
disparities of wealth and income. The wealthy, under fierce rhetorical attack
throughout the 1930s, had essentially lost very little ground.
The Rise and Fall of Taxes in the Wealthy
World War II gave New Dealers another chance to make good on their
redistributive rhetoric.
In the heat of war, the Roosevelt Administration Seemed to relish the
opportunity.
"Not a single war millionaire will be created in this country as a result of
the war disaster, "FDR flatly pledged, in 1940,(97) and that pledge was soon
followed by a series of tax proposals unmatched in American history.
Roosevelt's Secretary of the Treasury, Henry Morgenthau, Jr., dropped
the first bombshell by advocating "that all corporate profits over 6 per-cent
on invested capital be taxed away by the government for the period of the
emergency"(98)
Morgenthau may have picked up that idea from a 1936 article on war financing
published by the American Academy of Political and Social Science. The author,
John T. Flynn, had urged an excess profits tax at 6 percent, just what
Morgenthau proposed Flynn's article also proposed new income tax rates that
would not permit "the topmost tax-free incomes to exceed $10,000.(99)
This proposal for an income ceiling also became part and parcel of Roosevelt
Administration policy. In April 1942, the President announced "that in time of
this grave national danger, when all excess income should go to win the war,
no American citizen ought to have a net income, after he has paid his taxes,
of more than $25,000 a year."(100)
The Treasury Department subsequently fleshed out FDR's proposal in testimony
before the House Ways and Means Committee. If FDR's "100 percent war supertax"
were enacted, single persons whose before-tax income was $40,000 would be left
with $25,000 after the standard tax rates had been applied. Any dollar of
income above the $40,000 would be taxed away. For married couples, the 100
percent supertax would kick in on all income over $110,000.(101)
Roosevelt's call for an income ceiling came, predictably, under immediate
attack. The New York Herald Tribune quickly labeled the $25,000 limit "a
blatant piece of demagoguery,"(102) and the House Ways and Means Committee
never gave the 100 percent supertax any serious attention. On the House floor,
Roosevelt supporters did try to resurrect the maximum income concept. Rep.
Adolph Sabath of Illinois proposed a $50,000 individual annual income limit,
but Sabath's cap went nowhere.(103)
Roosevelt was not to be deterred. Shortly after Labor Day, FDR repeated his
call for $25,000
maximum income, "the only practical way of preventing the incomes and profits
of individuals and corporations from getting too high."(104) Congress once
again ignored the President's 100 percent supertax, but the Revenue Act of
1942 enacted by Congress did raise the rates on America's wealthiest taxpayers
to all-time record levels. The top surtax rate, which had been raised to 77
percent in 1941, jumped to 82 percent. High incomes were also subject to a 6
percent normal tax and a new 5 percent "Victory Tax," which produced a 'total
marginal rate of 93 percent" on all income over $200,000.(105)
The Victory Tax applied to all Americans with gross incomes over $624,(106)
a move that made the income tax a mass tax for the first time in American
history. All Americans earning over $12 a week now had income tax withheld
from their paychecks,(107) and the proportion of Americans paying federal
income taxes soared from 7.1 percent at the start of the war to 64.1 percent
by the end.(108)
. . .
-----
Notes
1. Carleton Beals
The Story of Huey P. Long (Westport: Greenwood Press, 1935,1971), p. 247.
2. Ibid, p. 244.
3. Ibid, p. 26.
4. Ibid, p. 245.
5. Forrest Davis
Huey Long: A Candid Biography (New York: Dodge Publishing Company, 1935), p.
150.
6. Ibid., p.155.
7. Huey P. Long
Every Man a King: The Autobiography of Huey P. Long (New Orleans: National
Book Co. Inc., 1933), p. 295.
8. Beals, op.cit., p. 230.
9. Long, Every Man a King, op.cit., p. 294.
10. Davis, op.cit., p. 299.
11. Long, EveryMan a King, op.cit., p. 316.
12. Davis, op.cit., p. 174.
13. Long, Every Man a King. op.cit., pp.
338-9.
14. David H. Bennett
Demagogues in the Depression (New Jersey, Rutgers University Press,
1969),pp. 120-1.
15. Huey P. Long
Share Our Wealth: Every Man a King(Washington, D.C.,1935), p.7.
16. Davis, op. cit., p. 41.
17. Beals, op. cit., p. 292
18. Bennett, op.cit., p. 125.
19. Ibid., p. 127.
20. Huey Pierce Long
My First Days in the White House (Harrisburg: The Telegraph Press, 1935), p.
143.
21. Davis, op.cit., p. 7l.
22. Lawrence Goodwyn
Democratic Promise: The Populist Moment in America (New York: Oxford
University Press, 1976), p. 337.
23. Sidney Ratner
American Taxation: Its History as a Social
Force in Democracy (New York: W.W. Norton & Company, Inc., 1942), p. 35.
24. John F. Witte
The Politics and Development of the
Federal Income Taw (Madison: The University of Wisconsin Press, 1985), p. 68.
25. Ratner, op.cit., p. 67.
26. Ibid., p. 68.
27. Ibid., pp. 73-74.
28. Randolph E. Paul
Taxation in the United States (Boston:
Little, Brown and Company, 1954), p. 10.
29. Ratner, op.cit., p. 85.
30. Ibid., pp. 97-98.
31. Ibid., p. 121.
32. Ibid., pp. 112-13. 33. Ibid. pp. 124-25.
34. Ibid., p. 1•7.
35. Paul, op.cit., p. 27.
36. Ratner, op.cit., p. 123.
37. Ibid., p. 143.
38. Jeffrey G. Williamson and Peter H. Linden American Inequality: A
Macroeconomic
History (New York: Academic Press, 1980), p. 33.
39. Ratner, op.cit., p. 220.
40. Ibid., p. 221.
41. Joseph J. Thorndike,Jr.
The Very Rich: A History of Wealth (New
York: American Heritage/Bananya Books, 1976), p. 53.
42. Paul, op.cit., p. 30.
43. Ibid., p. 30.
44. Ratner, op.cit., p. 151.
45. Ibid., p. 153.
46. Daniel Aaron
Men of Good Hope: A Story of American
Progressives (New York: Oxford University Press, 1951), p. 88.
47. Ratner, op.cit., p. 162.
48. Jerold L. Walman
Political Origins of the U.S. Income Tax
(Jackson: University Press of Mississippi 1985), p. 4.
49. Ratner, op.cit., p. 186.
50. Witte, op.cit., p. 71.
51. Paul, op.cit., p. 35.
59. Ibid., pp. 88-9.
60. Ratner, p. 298.
61. Ibid., p. 304.
62. Witte, op.cit., pp. 76-78.
63. Paul, op.cit., p. 103.
64. Ibid., p. 108.
65. Alan A. Tait
The Taxation of Personal Wealth (Urbana: University of Illinois Press, 1967),
p. 11.
66. Ratner, op. cit., p. 355.
67. Ibid., p. 356.
68. Waltman, op.cit., p. 78.
69. Paul, op.cit., pp. 107-08.
70. Congressional Record, May 16,1917, p. 2403.
71. Ibid.
72. Ibid.
73. Waltman, op.cit., p. 45.
74. Congressional Record, May 16, 1917, p.
2404.
75. Ibid.
76. Witte, op.cit., p. 84.
77. Paul, op.cit., p. 120.
78. Ratner, op.cit., p. 364.
79. Witte, op.cit., p. 85.
80. Ibid., p.86.
81. Paul, op.cit., p. 165.
82- Ibid. p. 153.
83. Witte, op.cit., p. 97.
84. Ronald A. Mulder, The Insurgent
Progressives in the United States Senate and the New Deal, 1933-1939 (New
York: Garland Publishing, Inc., 1979), p. 67.
85. Ibid.
86. Congressional Record, May 9, 1933,p. 1100.
87. Ibid.
88. Howard Zinn, editor, New Deal Thought (Indianapolis: Bobbs-Merrill,1986),
p. 394.
89. Mulder, op.cit., pp. 116-17.
90. Paul, op.cit., pp. 183-84.
91. Ibid., p. 184.
92. Witte, op.cit., p. 101.
93. Mulder, op.cit., p. 122.
94. Davis, op.cit., p. 253.
95. Bennett, op.cit., p. 128.
96. Ratner, op.cit., pp. 512-13.
97. Ibid., p. 495.
98. Ibid., p. 508.
99. Ibid., p. 562.
100. Paul, op.cit., p. 301.
101. Ibid., p. 302.
102. Ibid., p. 301.
103. Ibid., p. 306.
104. Ibid., p. 313.
105. Witte, op.cit., pp. 116-18.
106. Ibid., p. 117.
107. Paul, op.cit., p.319.
108. Witte, op.cit., p. 175.
-fini-
-----
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris
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