STEINBERG: ‘Happy birthday to you, income tax!’
April 14, 2013 8:40PM
Photo illustration | Rich Hein~Sun-Times
Updated: May 16, 2013 6:32AM
Monday is April 15; Tax Day, the day that Americans must render unto Uncle Sam the portion of their incomes that the Internal Revenue Service says belongs to the federal government.
So let’s talk about taxes.
The federal income tax is exactly 100 years old. In a society gone mad for anniversaries, where every cookie and cracker sees its demi-sesquicentennial ballyhooed in the news, it seems odd that the big dates leading up to such an important and debated aspect of American life are being mostly overlooked.
In February 1913, the 16th Amendment was ratified. It allowed the federal government “the power to collect taxes on incomes.” (Odd, but those feverishly rhapsodizing other Constitutional amendments, such as, oh, let’s pick one at random — the 2nd amendment — never get around to similarly genuflecting before the 16th. Why is that?)
And just last week, April 8, saw the centennial of an extraordinary visit by Woodrow Wilson to Congress, the first time in 112 years that a president had called together the House and the Senate to address them. The previous president to do so had been John Adams. It was Wilson’s maiden speech to Congress — he had been in office a month — and set the precedent of personally delivered State of the Union addresses, though Wilson spoke about only one subject: tariffs.
“It is clear to the whole country that the tariff duties must be altered,” he said, after a few formalities. “They must be changed to meet the radical alteration in the conditions of our economic life which the country has witnessed within the last generation.”
Up to that point, most of the federal government’s operations were paid for by excise taxes — taxes on liquor and such — and by tariffs on imports. But under pressure from industry lobbyists (nothing changes), tariffs had grown from a way to pay government expenses to a way to protect American industries from foreign competition.
“For a long time — a time so long that the men now active in public policy hardly remember the conditions that preceded it,” Wilson said, “we have sought in our tariff schedules to give each group of manufacturers or producers what they themselves thought that they needed in order to maintain a practically exclusive market as against the rest of the world.”
Thus American business — freed from meaningful foreign competition — had succeeded despite its inefficiency and waste.
“Consciously or unconsciously we have built up a set of privileges and exemptions from competition behind which it was easy by any, even the crudest forms of combination, to organize monopoly,” Wilson said. “Until at last nothing is normal, nothing is obliged to stand the tests of efficiency and economy in our world of big business, but everything thrives by concerted arrangement.”
He called upon Congress to “abolish everything that bears even the semblance of privilege or of any kind of artificial advantage.”
“We must build up trade,” he said. “Especially foreign trade.”
Congress listened. And it worked, allowing America to finally compete in the world markets. In slashing tariffs, however, revenues had to be found elsewhere, and that was a tax on incomes. It was an afterthought, so much so that Wilson never even mentioned income tax in his 9-minute address to Congress. The tax was very modest at first — 1 percent on incomes over $4,000 (a lot, the year before Henry Ford shocked the world by offering workers a princely $5 a day) and 2 percent on incomes over $20,000 a year, going up to 6 percent on the truly wealthy: tycoons earning $500,000 a year or more.
The Underwood Tariff Act — Rep. Oscar Underwood (D-Alabama) was a Wilson ally — was signed into law Oct. 3, 1913. Mark your calendars; order your special cakes early.
World War I broke out the next year, and in 1917 America entered the fight. Rather than borrow to pay for the war (a lesson, sadly, lost to future presidents), Wilson instead persuaded Congress to up the tax further, including an “excess-profits” tax on the rich.
I’m as attracted to money and the idea of holding on to what I earn as the next guy. But I also love my country, and see that it — like every other nation on earth — needs cash to function. The Reaganite curse and folly — the notion that government is bad and thus any money paid to it is wrong — is a wholly dangerous near-treason and a failed idea whose time has come and gone. If you look at every other industrialized nation on earth — and we never do, preferring to pretend we exist alone on an empty planet — our taxes lag behind. The top tax rate, if you combine state and federal income taxes, in the U.S. is 47.6 percent, below most developed countries. In Britain, it’s 50 percent, same for Austria. Denmark tops out over 60 percent.
We’ve got it good and don’t even know it. So quit complaining and pay your share.