In defense of the income tax, a history

It took a natural disaster and a financial panic to get income taxes written into the U.S. Constitution. That was 1907. And even those who like public programs are still struggling to defend taxes.

"It began with an earthquake," writes Jill Lepore in this week's New Yorker.

That's not a metaphor. In 1906, an earthquake struck San Francisco, and started a massive fire that nearly burned the city down. As Lepore writes, it was one of the worst natural disasters in American history. Economic panic followed. The New York Stock Exchange almost shut down.  The government desperately needed revenue.

The solution? The income tax. By 1913, Congress ratified the 16th amendment to the Constitution, approving a levy on personal income. At the time, Lepore writes, it wasn't that controversial. But that doesn't mean we've ever liked it.

"Opposition to taxation has been very effectively sold. There hasn't been a very well organized defense of it," says Lepore.

She quotes Oliver Wendell Holmes: "Taxes are what we pay for civilized society."

But, says Lepore, "Nobody has really said that better than Oliver Wendell Holmes -- and that was nearly a century ago."

Even proponents of the New Deal avoided linking taxes to popular social programs.

"Liberal policymakers very deliberately refused to defend what they were doing as a kind of progressive income tax that would be for the good of all. To defend it that way would be to open themselves up to further political attack by these well-organized political forces that opposed income taxes at all. And so they were never defended as the fruit of an income tax," Lepore says.

Lepore offers a possible defense of her own.

"Taxes protect private property and protect the environment. Without taxes business is impossible. You can make a business-based argument to defend progress income taxation. But one way not to do it is to engage in the rhetoric of marketing."

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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One cannot discuss tax and wage issues without framing them in the context of the declining middle-class. The reason that more people are voicing criticism of taxes is the same as the reason the working class pushes by exploited workers to get at sales.....it is a natural progression that the rich are exploiting and public media promotes by not calling it.

The 1950s-1970s saw some of the heaviest taxation periods of the country's history and people did not complain because they had enough disposable income to satisfy need. Now the middle-class has been gutted by Clinton's free-market globalization policies and people now are in a position of needing less taxation to supplement wages. That is what Clinton's Third Way corporate/wealth caucus has worked towards. So, when you hear Obama or Harry Reid decry a rise of taxes on the middle-class without hearing them decry the historic low of wages for their constituents, you see pols working for wealth and corporations over the people who vote for them.

I suggest the book "For Good and Evil: The Impact of Taxes on the Course of Civilization" for clarity.

Taxes to support services is one thing.

Giving the government access to your finances means you are not truly free.

They decide how much you can keep from the fruits of your labor, so let's call it what it is.

We haven't been truly free for quite some time.

I enjoyed this story, however, as a CPA, I feel it fell short of offering substantive information. I do agree taxes are a necessity in a civilized society, however, the current taxation and economic policies we live under go far beyond the traditional taxation role of providing the infrastructure for our civilization, along with a safety net for the poor. What we live under now has produced a system where the Federal Government spends more than it takes in, to the tune of over a trillion dollars per year, while at the same time, promising benefits that when viewed from an actuarial basis over the next 30 years, produces a per capita liability of over $1 million.

Translated into common terms, that is $1 million per tax payer that must be taxed from us to pay for this debt and legislated benefits.

Just to fund our current deficit, for example, would require taxing all incomes over $250,000 per year at 90% or greater. To fund all of the current unfunded liabilities legislated into law, such as Medicare, will require tax rates to increase substantially on those making less than $250,000 annually.

The fallacy of redistribution of wealth requires that the people actually believe that the government can do a fair and equitable job of redistributing this wealth without fraud, without political bias, and that it is morally and ethically right to forcefully take wealth from one group of people and then give it to another group of people.

The amount promised to be given out actually exceeds what is available. View the website USDebtClock.org and it might just shock you to learn how upside down we really are.

Several years ago, Barbara Ehrenreich wrote a book called “Nickel and Dimed” about the lives of low-wage earners. Many in the middle-class feel “Nickel and Dimed” by all the various taxes and fees that didn’t exist in Justice Holmes’ day – back when we were more civilized in some ways than we are now.

Money can’t buy civilization. (Look at Donald Trump.)

I want to second the comments by Libertarian777.

Also, when the income tax was enacted it only applied to very tippy top of wage earners, and it was less than 10%. They were supposedly going to cap it at 10% by law, but then they were afraid that this might give them as excuse to set it that high (10%). I'd be happy if it was the low today.

The other thing so insidious about income taxes of the modern era is the idea of withholding. They can't actually wait until the end of the year to get the money. I think they realize that if the money is taken before they see it, people will be less likely to protest because it's less obvious that they're actually paying something.

I must agree this article/podcast was just a brief opinion piece without any substantiation (except for the lead-in about the contributor having done some brief history on the 16th amendment).

I completely disagree with the notion that income taxes are necessary for 'things people want', nor is it the 'price' of a 'civilised society'.

Most people are not against taxes per se. What people are up in arms against are FEDERAL INCOME taxes. The difference is stark.

We already pay over 40c per gallon in gasoline tax to fund roads. Why is there any mention ever that we pay federal income tax for roads then?
For people who use interstate highways there should be a toll, those who use it must pay for the privilege.

We pay state and local taxes, and California just passed prop 30 for 'education funding'. Why then do we need a (federal) department of education? Why do we need to pay federal income taxes for 'education'?

I pay for water, electricity, sewage, gas and garbage, as I use these.

And (income) taxes are necessary for a business to exist? I've never heard such a proposterous proposition in my life. Why then are low / no tax states and countries experiencing an influx of companies? Were income taxes necessary for the cell phone to exist? Did income taxes invent the iPad?

The sole things federal taxes should fund are the department of defense (not the department of war/offense/world police), borders/immigration and interstate commerce (i.e. when there are disputes between states, not a central federal mandate that all states are mandated to subscribe to). Even with the bloated DoD budget, corporate income taxes can cover these limited powers the constitution gives to the federal government.

As far as Medicare/Medicaid/Social Security goes, I'm paying taxes for those things that I neither need nor want. I already pay (partly through my employer) for medical premiums, and save for my retirement. The Social security fund has no assets, only government liabilities (if SS was truly fully funded, lets stop all contributions to it, let all existing contributors opt out of any further benefits, do not put any further money in it and see how long it lasts).

The USA is a constitutional republic, each state is still sovereign unto itself, hence each state having a constitution, a governing body, a governor and local representatives (including a senate).

Seriously? some of the lowest taxes in history and you people are unwilling to pay your fair share.. come on, pull some out of the bahamas and pony up. I am the sole breadwinner and make 50K/year and I am willing to pay more. So should you billionaires...

lowest MARGINAL rates in history.

But lets see I pay 28% average federal income tax, 9% CA state tax, 6.2% SS, 1.45% medicare tax = 44.65%

Plus almost anything I purchase is an additional 8+% state tax. Say I spend 50% of my take home pay = (100-44.65)*8%*50% = 2.2%
total = 46.9%, and you want to tell me I'm not paying enough?

So I work 110 days a year for the government and 124 days a year for myself.

Do I earn 'billions'? NO
or 'millions'? NO
or even hundreds of thousands? NO

I am very disappointed in Marketplace for this piece. Kai did not ask obvious questions to gain an understanding of the underlying assumptions and made his own leaps of imagination when asking if the recent elections were an indication of a change in America's view of taxation. Really? The percentage difference between the presidential candidates hardly speaks to a mandate and the number of other issues make it difficult to believe this was the deciding factor.
The guest referred to "fair" taxation without any attempt to define how this moral measure was being applied. I would think there could be some lively debate about just what is fair and again Kai let it pass without question.
If your show is going to move away from objective journalism then just announce it as a piece of entertainment like the opinion shows on Fox and MSNBC.


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