The Nonprogressive Federal Income Tax

Robert Stanley’s engaging book is a revisionist history of federal tax policy from the federal income tax statute of the Civil War Era until the ratification of the Sixteenth Amendment. That amendment, which effectively ended any struggle over the constitutionality of a graduated federal income tax, gave Congress the power to lay taxes, including an income tax, without apportioning it among the several states.

In an argument somewhat reminiscent of Gabriel Kolko’s The Triumph of Conservatism (1964). Stanley argues that the progressive historical account of the income tax, first developed by Sidney Ratner and Arnold Paul, ¹ greatly exaggerates the “Progressive” element in the income tax, and thus misrepresents the controversies that resulted as great battles between old conservative and the new liberals emerging into power during the Gilded Age. Rather, he argues, from its inception in the Civil War all the way through the controversy surrounding the Supreme Court’s Pollock decision, which struck down the tax, and then through the subsequent passage of the Sixteenth Amendment, the federal income tax was in fact an important part of the agenda of the political center.

Stanley finds the following propositions, all of which are relatively noncontroversial, to be inconsistent with the progressive historiography of federal income tax policy and Supreme Court interpretation: (1) early federal income tax statutes, including the one struck down by the Supreme Court in Pollock, ² were nonprogressive in the extreme, certainly by any post-World War II standard; (2) for most of the period, federal income tax statutes enjoyed broad support from the moderate center — a fact that Stanley demonstrates forcefully with numerous demographic analyses of congressional votes on the various income tax bills of the period; (3) conservatives, even Social Darwinists such as William Graham Sumner, generally supported a federal income tax; (4) nineteenth-century federal income taxes never produced significant revenue in comparison with the tariff; (5) no nineteenth-century federal income tax statute ever threatened substantially to redistribute American wealth. Finally, and perhaps most importantly, the federal income tax was supported most enthusiastically by protectionists — representatives of the entrepreneurial classes who also favored high and generally regressive tariffs. For example, Senator John Sherman from Ohio was an enthusiastic supporter of both the federal income tax and high tariffs. This latter point indicates that the federal income tax was not generally seen as an alternative and more progressive way of raising federal revenues; rather, it was intended to defuse opposition to the tariff by throwing a very small bone to its victims — namely consumers of high cost foreign inputs.

Mainly, Stanley argues, the federal income tax served a rhetorical function. None of the tax statutes of this period produced more than a relatively small percentage of the federal government’s revenues. The federal income tax was an assurance to the lower classes that the State was hearing their needs, and was subjecting even the very wealthy to the rule of law. At the same time, however, the tax rate was so low and the exempt class so large that for most of those who had to pay it the tax obligation was little more than a minor annoyance. For most of the nineteenth century, Stanley notes, the federal income tax contained such a high exemption that it reached only a minuscule section of the population. During 1866, its broadest year of coverage, 1.3 percent of Americans paid the Civil War income tax. In no other year did as many as one percent pay it. During the same period the revenues from the federal tariff were roughly five times as great as those from the federal income tax.

Stanley concludes: “To the centrist lawmakers whose creation it was, income taxation represented not an expression of real economic democracy through a reduced burden on the poor and middle classes, but a rejection of the far more fundamental institutional change advocated by intellectuals and street dissidents of both left...