Spread your own wealth around, take 2

Christian Science Monitor opinion editor Josh Burek edited my post on the tax gospel according to Obama into a column that appears in today’s Monitor. The column is “Obama, Joe the plumber, and the gospel of envy.” I’m grateful to Burek for the careful edit he performed and for the opportunity to put my argument before the Monitor’s readership.

UPDATE: Financial historian John Steele Gordon writes to expand on some of the history I relate and to provide historical context supporting the good intentions behind the income tax:

A few points.

1) The traditional taxes of the federal government, the tariff and excise taxes, are inescapably regressive. Being consumption taxes they fall more heavily on the poor than the rich, since the rich spend a lower percentage of their incomes. The income tax was an attempt to redress the fact that the rich at that time paid a lower percentage of their incomes in federal taxes than did the less rich. Perhaps the income tax was not the proper solution, but its goal was a worthy and proper one. The fact that many on the left hoped it would prove the nose of a redistributionist camel under the tent does not change that fact.

2) The 1894 income tax was a tax only on the rich. Only 85,000 families in the US had incomes over $4000 in 1894.

3) The Supreme Court’s decision overturning the tax (Pollock v. Farmers Loan and Trust) was one of the more curious in its history. The original decision on whether a general income tax on personal and corporate incomes was direct or indirect (and, if direct, unconstitutional under Article I, Section 9) was decided 4-4, thus upholding the law. Absent from the decision was Justice Howell Jackson, who was ill (in fact he was dying–he died three months later) and he was known to vigorously favor the income tax. It was decided to rehear that portion of the case and Justice Jackson rose from his sick bed to attend. Jackson did indeed think the tax constitutional but one of the four justices who had originally voted to uphold it (it’s not known for certain who) now switched sides so that the law was overturned 5-4.

4) During Taft’s presidency a decade later, pressure to tax the incomes of the rich increased and many wanted to repass the 1894 income tax law and dare the Court to overturn it a second time. Taft–who revered the Court and would later serve as Chief Justice–was horrified and suggested a very lawyerly alternative: an excise tax, measured in income, on the privilege of doing business as a corporation. In other words, an income tax on corporations in all but name. Since stockholders at that time were overwhelmingly well off, this was, effectively, a tax on the incomes of the rich. Meanwhile, an amendment to allow personal and corporate income taxes began making its way through Congress and then the state legislatures.

5) When the 16th Amendment was ratified in 1913, a personal income tax was promptly passed by Congress. Unfortunately it was not merged with the existing corporate income tax into a single, unified income tax system. Thus we have had two income taxes, one on persons and one on the law-created persons called corporations, ever since. These two parallel, completely uncoordinated income tax systems have been the greatest engine driving the ever-increasing complexity of the income tax ever since. It has been the complexity of the income tax code that has provided so ample a refuge for scoundrels and such a comfortable stable for redistributionist camels.

Mr. Gordon is the author, most recently, of Empire of Wealth: The Epic History of American Economic Power. His columns on the current financial crisis include “A short banking history of the United States” and “Greed, stupidity, delusion — and some more greed.”

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