The Income Tax and the Progressive Era

John D. Buenker

Chapter IX from the book:
Income Tax & The Progressive Era (1985)

The federal income tax, George Howry has suggested, was "perhaps the most profound reform passed in the course of recent American history." The modern social service state "(as well as the modem day defense establishment), he argues, "probably rests upon the income tax more than upon any other single legislative act," while the absence of a federal income tax "must also have meant the almost complete frustration of any government seeking to redistribute income in any orderly fashion."[1] While not every historian would agree with such a sweeping conclusion, few would deny that the adoption of the tax was one the major achievements of the Progressive Era and that no compilation of the periods' accomplishments could ever pretend to completeness without including it.

There can be little doubt that its inauguration modernized and rationalized the nation's tax structure by providing a revenue source that was more flexible, productive, and predictable than any politically viable alternative. Nor is there much skepticism that the graduated income tax is, potentially at least, the most equitable means yet devised for placing the financial burdens of government upon those who are proportionally best able to bear them.

While there has always been considerable disagreement as to whether the income tax should be or has been an instrument for the redistribution of wealth, there is again little debate that the tax, if drawn to the necessary specifications, could be adapted to that purpose far better than any other mechanism currently available. In contrast to the case with many of the Progressive Era's other reformers, the significance of the income tax as a permanent feature of the national landscape has tended to increase over time.

Moreover, the adoption of the federal income tax between 1909 and 1913 was the culmination of nearly a half century of struggle to reach the vast amounts of wealth generated by the rapid and massive industrialization of the United States, to shift the tax burden from real property and consumption onto financial and industrial assets and the benefits derived from their ownership and employment, and to supply the revenue necessary to operate government of the scope appropriate to an urban, industrial world power. The income tax was also one of the few truly nationwide reforms, one that was subject to intense debate and division in Congress and in the legislatures of every single state during a relatively compact four year period. As such, it dramatized as well any other single issue, the validity of the division between "the people" and "the interests" that permeated so much of the rhetoric of the day. Moreover, the income tax issue played a significant, if secondary role, in the major political upheaval of the Era, the temporary disintegration of Regular Republican hegemony and the corresponding resurgence of the Democrats as a "progressive majority. "[2]

In conjunction with the Payne-Aldrich Tariff, the income tax formed the key symbolic socioeconomic issue that triggered that transformation, one that stigmatized the G.O.P. as a protector of special privilege and as the author of a high cost of living. For all these reasons, an intensive study of the adoption of the federal income tax provides many valuable insights into the nature of the reformist process during the Progressive Era.

Probably the most obvious and valid generalization concerning the process that produced the federal income tax is that it was not the product of the efforts of a single political party, geographical region, socioeconomic class, or reformist organization or movement. Certainly the Democrats took the lead in advocating the measure from the early 1890s, enacted it virtually unaided in 1894, and kept the idea politically alive in the decade after the Pollock Decision. The party's endorsement of a constitutional amendment in 1908 guaranteed its continuation as a topic of national debate, pushed Taft to consider the income tax as a revenue supplement, and forced the issue upon the Sixty-First Congress.

During the special session of 1909, Congressional Democrats provided much of the leadership and the lion's share of the votes that convinced Taft and the Regular Republicans to propose the corporation excise tax and the constitutional amendment in order to stave off the enactment of an immediate income tax. During the ratification process, the amendment was endorsed and sponsored by the Democratic parties of nearly every single state, while that party's legislators generally gave it their overwhelming support, except in a handful of southern states. Even there, with the exception of Virginia and Florida, the majority of Democratic lawmakers still voted for ratification.

The amendment's triumph in several key northeastern urban, industrial states also owed itself primarily to the temporary capture of those legislatures by resurgent Democrats in 1910 and 1912. Finally, the enactment of the nation's permanent income tax system came at the behest of a Democratic president marshalling the unanimous support of a solidly Democratic Congressional majority through the strict discipline of the party caucus.

Yet, for all that, the income tax was clearly not just a "Democratic" achievement. The Insurgent Republicans provided much of the critical pressure and crucial votes to force Aldrich to accept the proposal of the amendment. They also worked hard to promote ratification in their home states, where Democrats exerted very little influence. The Taft Administration was also highly instrumental in forcing the amendment on the hostile Regulars and exerted its influence on Republican legislators in several states on behalf of ratification. Insurgent demands for higher rates in 1913 strengthened the hand of "radical" Democrats and helped force the majority to accept a more steeply graduated rate schedule.

The nascent Progressive Party also materially aided the cause of the tax by endorsing ratification in 1912, by backing it in those legislatures where it established a presence in 1913, and by cooperating with the Insurgents and Radical Democrats in that same year. Over the course of nearly three decades, the income tax was also urged by a variety of minor parties, such as the Populist, Socialist, Socialist Labor, Anti-Monopoly, and Union Labor, who pressed the Democrats to come to grips with the issue. Moreover, appeals to partisanship were not sufficient to compel many state Democratic legislators to vote for ratification, especially in the South. Clearly the triumph of the income tax was not a partisan victory, despite the significant contribution made by the Democrats.

Nor was the income tax primarily a sectional issue, despite the generally overwhelming support that it consistently enjoyed in both the West and the South and regardless of the persistent efforts made by the measure's opponents to label it a sectional plot by which those two regions planned to despoil the Iron Rectangle. Western and southern representatives introduced all of the income tax bills and resolutions introduced in Congress right up through 1913, and their regional colleagues generally provided the bulk of the support for those measures.

During the ratification process, eighteen out of the possible nineteen western states and twelve out of the possible thirteen southern ones lent their support. In 1913, representatives of the two regions again gave their overwhelming backing but the two sections were by no means unanimous in their enthusiasm.

The amendment was rejected by Utah, Virginia, and Florida, and encountered significant resistance in Kansas, Wyoming, Georgia, Kentucky, West Virginia, Arkansas, and Louisiana. Moreover, the support of the South and West, however powerful, would have been ineffectual without the backing of sizeable segments of the population in the urban, industrial Northeast.

The endorsement of prominent academics and tax experts was crucial in erasing the reputation of the income tax as a nostrum of radicals and disturbers of the peace. The support of urban political organizations with their roots in working and middle class neighborhoods provided much of the impetus to achieve ratification in key northeastern states. In the end, thirteen of the possible sixteen northeastern states ratified the measure, a far higher percentage than either proponents or opponents predicted in 1909. In 1913, the representatives of those same ''machines" were virtually unanimous in their support. Clearly sectionalism failed as both an explanation of support and as a rationale for opposition to the income tax. Nor did the success of the income tax owe itself primarily to the efforts of a single socioeconomic class. It is very difficult to establish class divisions with any accuracy, but they are rooted in the intersection between income level and occupational status. Moreover, the widespread belief in social mobility, ethno-cultural and geographical divisions, and other factors generally inhibited the development of class consciousness. If anything, the great majority of Americans have usually regarded themselves as part of a large, amorphous, middle class that embraces nearly everyone who is self-supporting, save for the very wealthy.

Since the income tax, by definition, was designed to reach the upper two to three per cent of income receivers, there is little reason to doubt that the vast majority of the rest of society realized its stake in the measure's enactment. Because the tax exempted everyone who made under $3000 a year in an age when $827 was the average household income, it was certainly a cause around which nearly every income and occupational group could rally. Naturally the emerging "new class" of technicians, intellectuals, bureaucrats, managers, and "tax experts” took the lead in promoting and publicizing the tax because that was their social function and orientation.

Yearley especially stresses their contribution to the "revolution in taxation" in the northeastern states and correctly observes that the members of the National Tax Association were largely people of respectable, native, Protestant, "middle class"' backgrounds who argued the need for a rational, modern tax system. The N.T.A. was peopled largely by the same types of individuals who graced the good government associations, the Progressive Party, the National Child labor Committee, the American Association for Labor Legislation, the National Consumers Union, and a myriad of other activist groups during the Progressive Era. Yearley states flatly that tax reform in the states of the Iron Rectangle "owed surprisingly little to the inspiration or practical consequences of working-class movements, populism, socialism or radicalism despite some vocal champions in all of these camps."[3] Yet, without denying the critical role played by the articulate and activist new middle class, it is clear that they did not affect either the state level "revolution in taxation" or the adoption of the federal income tax without considerable aid from agrarian organizations, organized labor, and politicians representing essentially working and lower middle class constituencies.

As demonstrated in Chapter VI, the tax reforms in New York that were adopted at the behest of the N.T.A. were enacted in a legislature dominated by Tammany Democrats, the supposed antithesis and favorite bete moire of most "government by expert" intellectuals and activists. Nor would the income tax amendment have been ratified in New York and the other northeastern states without the organizational skills and the votes of Tammany-like Democrats. In all these states, too, the measure enjoyed the almost universal support of organized labor and of leftist radicals urging its adoption much more on the grounds of equity or redistribution.

In the West and South, the urban middle class generally had to work in concert with the representatives of agrarian movements to effect ratification. These were generally the longest standing and most consistent supporters of the tax and there is no evidence that their enthusiasm was in any way diminished by 1909, even if their influence had been somewhat eroded in those states that were becoming more urban and commercial-industrial. Although charges that the income tax was an agrarian-radical plot were patently false and often contrived, their frequency accurately reflected the critical role that agrarian America played in its adoption. Even Yearley, for all his emphasis on the centrality of the articulate new middle class in the "revolution in taxation" in the northeastern states, acknowledges that "in part the federal income tax could be considered the "popular" measure of Southern and Western farm spokesmen.[4] Clearly the federal income tax did not flow primarily from the efforts of the new middle class, agrarians, the urban working class, or any other single socio-economic segment, however vaguely one might choose to define that term to make it sufficiently inclusive.

Nor can the adoption of the tax be explained sufficiently by reference to any of the conceptual frameworks or syntheses that historians have devised over the years to interpret the Progressive Era, although nearly all of these provide a partial explanation. The earliest interpretations of the Era's reformist activity viewed it as a continuation of Populism, to agrarian radical ism that had grown up, shaved off its whiskers, and moved to the city, as William Allen White phrased it. That view was first popularized by former Populist Mary Ellen Lease who exulted that "the Progressive party has adopted our platform, clause by clause, plank by plank" and given its fullest scholarly expression by John D. Hicks over fifty years ago when he insisted that "many of the reforms that the Populist demanded, while despised and rejected for a season, won triumphantly in the end." As recently as the mid-1960s, Wayne Fuller still argued that "the majority of those who did become reform leaders came from the farms and small towns of rural America" and that "in thought and feeling the majority of them belonged to rural America where they had their roots."

It is certainly true that the income tax was a favorite cause of the Populists and other agrarian radicals, that rural based representatives from the South and West were the measure's chief advocates during its least popular period, and that they provided an almost solid phalanx of support between 1909 and 1913. But during the last critical period, the tax received much of its most crucial backing from areas that had been traditionally hostile to agrarian radicalism and to its lineal descendant, William Jennings Bryan. Many of the tax's most dedicated and influential advocates were city born and bred and some of them had even been born outside of the United States.

Much of the pressure for the revolution in taxation," as Yearley has effectively demonstrated, arose out of municipal fiscal crises and the burgeoning demands of urban, industrial life. As with everything else that the Populists had proposed, the income tax's enactment awaited the cooperation of more urban-oriented forces.[5] Nor can the adoption of the income tax be attributed primarily to the efforts of any of the urban middle class groups about whose origins and motives historians of the Progressive Era have debated so furiously for the past three decades.

There is no disputing the contention that most reform movements of any era are generally led by an articulate urban elite situated in strategic positions that enable them to recruit and motivate large numbers of people, especially those who are actively literate and who share many of the same values. Nor is it particularly surprising that the members of such elites in the early twentieth century United States tended to be of old American stock, well-fixed financially, and "touched by the long religious hand of New England," to quote Howry. But the same can generally be said of those organizations and groups committed to resisting reform, as numerous scholars have demonstrated. For several years, historians debated the assertion of Mowry and Richard Hofstadter, that progressivism, in short, was to a very considerable extent led by men who suffered from the events of their time not through a shrinkage in their means but through the changed pattern in the distribution of deference to power."

In 1967, however, Robert Wiebe shifted the focus from old elites responding to a revolution in status to "a dynamic and optimistic new middle class, deliberately attempting to substitute an entirely new set of values for traditional, but outmoded, American beliefs." This new middle class consisted of managers, bureaucrats, technicians, intellectuals, and professionals whose values reflected "the regulative, hierarchical needs of urban, industrial life,” and included such desiderata as "continuity and regularity, functionality and rationality, administration and management." The “Progressive movement," according to the widely accepted view, "was the triumph of this new middle class with bureaucratic mentality."[6] More specifically, Yearley has assigned the crucial role in the revolution in taxation to the "new strategic elites "of urban experts, middle class academics, businessmen, politicians and administrators. Reflecting the values of the new middle class they sought to fashion a tax structure that was efficient, predictable, productive, and flexible, by separating state and local revenues, equalizing rates, and exacting income, inheritance, and corporate levies. Such leadership was clearly visible in the enactment of the federal income tax, as such organizations as the National Tax Association and the American Economic Association and such individuals as Seligman, MacVeagh, Kenner, and Kinsman played critical roles. Arguments endorsing the tax as a highly lucrative and flexible fiscal instrument were common both in the press and in legislative halls. But such arguments were relatively rare compared to those urging the income tax or, the grounds of equity, and they hardly stirred up the same kinds of passion among politicians and their constituents. Moreover, the tax was also supported by farmers, small businessmen, urban political machines, humanitarians, and southerners, people who were generally resisting the forces of modernization and bureaucratization with all the power that they could muster. The arguments of the experts provided these other groups with the aura of respectability and plausibility that they needed to press for the income tax, but the utterances of their own representatives reflect little confluence of basic values. For these other groups, the issue was "justice" or an urge to punish the rich, not the erection of an efficient, modernized, rationalized tax structure.[7]

Nor can the success of the income tax be explained primarily in terms of "urban liberalism," the upward thrust of the urban, ethnic working and lower middle class operating through “urban political machines."

Prior to the publication of J. Joseph Huthmacher's article "Urban Liberalism and the Age of Reform," most interpretations of the Progressive Era generally dismissed the urban lower class as part of "the potent mass that limited the range and achievements of American progressives." Indeed, Yearley assigns them such a role in the "revolution in taxation," limiting their participation to making clamorous demands upon urban politicians for increased public services and expenditures. "Incapable of being a constructive force," Yearly argues, "they were both a corrupting and a reformist force." It is certainly true that the urban masses did not make the same type of contribution to the income tax coalition that political economists and members of the National Tax Association did, but their votes sustained the "urban political machines" whose representatives played such a crucial role in the ratification process in the major industrial states of the Northeast. They were among the most avid readers of the mass circulation newspapers, such as those of Hearst and Pulitzer, that consistently advocated the tax, and numerous studies have demonstrated that the urban lower classes demanded and responded favorably to organization sponsored candidates who advocated, at least for public consumption, the augmentation of urban lower class political power, and a determined opposition to legislated morality. In the area of taxation, that involved shifting the burden off laborers, small businessmen, and consumers onto the financial and industrial elite, insofar as possible.[8]

As already noted Democratic machine politicians were the most consistent supporters of ratification in key northeastern states, and the major Republican backers were generally those with urban lower and lower middle class constituencies. In New York in 1911, over half the favorable votes were cast by Tammany-dominated Democrats of Irish, Jewish, or German extraction who represented inner city districts in New York or Buffalo.

In New Jersey, thirty of the forty-nine favorable votes were cast by Irish, German, and Slavic-Americans from similar constituencies in highly industrialized north Jersey, while ratification in Massachusetts owed itself to the cooperation of Irish-American Democrats and Republican "labor legislators," both of whom represented heavily Irish, Italian, Jewish, Slavic, and French Canadian constituencies in Boston and in the industrial cities and mill towns of the state. In Rhode Island and Connecticut, urban, working class Democrats were the only identifiable political force advocating ratification.

In most northeastern states, the ratification contest closely approximated Huthmacher's observation that "effective social reform of the Progressive Era and in later periods seems thus to have depended upon constructive collaboration, on specific issues, between reformers from both the urban lower class and the middle class (with the further cooperation, at times, of organized labor)." Yet, for all that, such an explanation has almost no relevance for the situation in most states of the South and West where the critical elements of urban liberalism were generally lacking. It also cannot account for the overwhelming support of the tax in Congress by hundreds of representatives from rural, agrarian backgrounds and constituencies.[9]

But if the various agrarian, urban middle class, and urban lower class interpretations provide, at best, only a partial explanation for the enactment of the federal income tax, the perspective that the Progressive-Era was essentially a "triumph of conservatism" seems to be totally at odds with the circumstances of the measure's adoption. Relying largely upon an examination of the process that produced federal regulation of big business through such agencies as the Federal Trade Commission, Gabriel Kolko called for a complete reinterpretation of the period "labeled the 'progressive’ era by virtually all historians” -- as "an era of conservatism" brought about not by "any impersonal mechanistic necessity" but by "the conscious needs and decisions of specific men and institutions." In virtually every case involving government and the economy, Kolko charged, national political leaders "chose those solutions to problems advocated by the representatives of concerned business and financial interests."

Such proposals, he continued, "were usually motivated by the needs of the interested businesses and political intervention in the economy was frequently merely a response to the demands of particular businessmen." Overall, Kolko concluded, "conservative solutions to the emerging problems of an industrial society were almost universally applied" between 1910 and 1916.

Modifying that view somewhat, James Weinstein conceded that reform proposals often originated with "those suffering under intolerable conditions,” but that "success in the sense of legislation enacted, followed upon the adoption of particular reform programs by big business leaders."[10] Whatever the validity of such interpretations when applied to other socioeconomic issues of the period, they are clearly contradicted by the case of the federal income tax. Seldom has any measure enjoyed such almost universal and categorical opposition from big business. Newspapers and periodicals sympathetic to that viewpoint consistently denounced the tax as the first step in the confiscation of property with a passion that often burdened on hysteria. Nearly all of the overt opposition to the measure in Congress and in the halls of the state legislatures was led by politicians and party organizations with long standing and openly acknowledged ties to the business community. Nearly all of the lobbying and the testimony in committees against the tax came from the representatives of big business.

When the Regulars yielded to political realities in 1909 and accepted the corporation tax and the amendment proposal at Taft's hand, they freely admitted that they did so only "to beat the income tax." Even at that, business spokesmen and publications almost universally denounced the corporation tax and many businesses participated in an organized nationwide campaign of litigation in order to have the tax invalidated. The Regular's steadfast resistance to having the amendment considered by popular convention was a tacit, but eloquent, admission both of the income tax's overwhelming popularity and of the power that their business-oriented allies wielded in key state legislatures.

By 1913, business leaders were powerless to prevent the enactment of the income tax by the Democrat-Insurgent controlled Congress, but they labored feverishly to minimize its impact through lowering the exemption, keeping the rates moderate, and by seeking special exemptions for their lines of endeavor. Once the law had been enacted, as Wiebe noted in the first chapter, it was denounced by businessmen and their publication outlets as the most destructive act in the nation's history. As late as 1924, Jules Bache, president of the National Association of Manufacturers, still denounced the enactment of the tax as the work of "special sections of our people, numerically strong." Who, "through unequal and unwise taxation, in a spirit of envy," imposed "an unfair burden upon those more fortunate than themselves. "[11]

Looking backward a half century later and being conscious of the recent history of the income tax, especially of the various "loopholes" for tax avoidance by the wealthy that have been devised, it would be easy to conclude that the tax was a conservative plot designed to dupe middle and working class taxpayers into thinking that the rich were paying their fair share. If one assumed that the major purpose of the tax was the redistribution of wealth, then it would also be tempting to judge it to be a conservative palliative since most available data provides little evidence that significant redistribution has occurred in the past half century. Kolko, in Wealth and Power in America, argues that "the impact of Federal income taxes on the actual distribution of wealth has been, minimal, if not negligible." To begin with, the original income tax, as we have already seen, was not designed to redistribute wealth or income and only a handful of Insurgents and "radical" Democrats advanced the argument that it ought to be so constructed. Whatever reputation the tax acquired between 1909 and 1913 as a redistributive mechanism came largely from the charges of opponents who were trying to discredit the treasure. Moreover, the [readable] of 1909-1913 tried, within the constraints imposed by legislative politics, to construct a tax that rested almost exclusively or the affluent, that contained a minimum of exemptions and deductions, and that was simple to administer. Some of them even tried to tax income from stocks, bonds, and securities at a higher rate than that from salaries and wages.

Whatever the tax may have become later, it was clearly designed by people who wanted to tax income "from whatever source derived" according to the "ability to pay" of the recipients, and to do it with a minimum of bureaucratic obfuscation. That is what they meant by tax equity -- that each should contribute according to his or her capacity as measured by income. As Hillje has demonstrated, this concern for equity in taxation was still sufficiently viable to enable "progressive, farmer, organized labor, and low income groups" to prevail upon Congress to rely largely upon the income tax to finance the war effort between 1916 and 1919.

Even though the exemption was lowered to $1000 for single persons and $2000 for married couples in 1917, the tax still only affected an estimated seven per cent of the population while levies on individual and corporate income and on excess profits yielded anywhere from forty to seventy-five percent of government revenues during the war. Indeed, Kolko argues that the tax was not extended to middle and lower income receivers until World War II and that most of the present methods of tax avoidance flowed from a response to the theoretically high rates of the "soak-the-rich" tax structure instituted by the Roosevelt Administration. Whatever later developments, the original income tax was designed to promote tax equity and to produce additional revenue to allow for tariff reduction, not to redistribute wealth or income. Those motives were sufficiently powerful and widely shared to sustain the original concept of the tax system at least through World War I.[13]

The most striking observation about the enactment of the federal income tax is that it was the product of disparate groups acting from compatible, but by no means identical, perspectives. Acting independently, at least initially, each came to regard the tax as a partial solution to the economic problems that plagued the nation in general and themselves in particular. Although none of those socioeconomic groups or sections was a monolith with regard to the income tax or to any other issue of the era, their members generally shared a reasonably common outlook on questions of taxation that set them apart from people who were not of their occupational, income, and geographical characteristics. Farmers, for example, were acutely aware that they were generally failing to keep pace on several fronts in a rapidly industrializing and urbanizing country. Agricultural assets had risen only about one-fifth as much as had intangible ones during the last four decades of the nineteenth century and, by 1913, farm income was but seventy-five per cent that of non-farm intake. The farmer's share of national income dropped nearly fifty per cent in the first decade of the new century. Only one-fourth of the nation's farmers were touched by the 1913 tax and they accounted for but three percent of the nation's taxpayers. Moreover, farmers generally saw great advantage in shifting the burden off real property and onto intangible wealth since their assets were mostly in land, buildings, and implements, items virtually impossible to conceal from the assessor. Their money income, on the other hand, was difficult to calculate and far easier to underestimate.

The country's impressive wealth was largely in "machinery, credits, securities, mortgages, savings, exchange values, 'going concerns,' and personal possessions," affects that most farmers had very little of and that could be reached most effectively by income and inheritance taxes. In addition, federal customs duties and excise taxes fell upon "farmers as consumers" without supplying "farmers as producers" with any real protection from foreign competition. These considerations combined to convince most farmers that tax revision, and a federal income tax in particular, was both just and in their own best interests.

Generalizing about the urban middle class is obviously much more hazardous. In terms of occupation their ranks included businessmen, managers, professionals, intellectuals, bureaucrats, clerks, and technicians, people whose incomes derived largely or entirely from salaries, professional fees, or business receipts as opposed to interest, dividends, and rent.

In terms of income, most fell somewhere between the $827 a year average family income and the $3000-$4000 a year minimum for income tax liability. As already noted, seventy-nine per cent of bankers, eighty-one per cent of lawyers, eighty-two per cent of mine owners, eight-nine per cent of engineers, ninety per cent of manufacturers, ninety-five per cent of realtors and merchants, ninety-six per cent of teachers, and ninety-eight per cent of saloon keepers fell below the minimum. Beyond their incomes, their resources generally consisted of real and personal property that bore most of the burden of state and local taxation. Their own desires for better municipal services in education, transportation, and recreation contributed significantly to escalating urban budgets and they were among the major- consumers of those products whose prices were increased by customs duties and excise taxes. They were the major readers of the muckraking novels and journals that exposed the machinations of wealthy industrialists and fin.ancers.[15]

As Yearley and other have observed, many urban, middle class Americans saw themselves as the victims of "two predatory constituencies," the one consisting of "vulgar hordes of working men and immigrants with no stake in society" and the other of the "corporate rich and their 'unproductive’ retinues." Many middle class people blamed these two constituencies for increasing government expenditures through welfare demands and graft, conveniently ignoring the fact that their own escalating demands for social services contributed to the same condition. Many saw themselves, as Yearley demonstrates, as financing "both the revels of the new wealth and the bread and circuses of the new democracy." Although middle class people partly sought the remedy for this situation in retrenchment, most realized that costs would continue to rise and that the answer lay in constructing a system that would produce adequate and predictable revenue and shift the burden upward. On the state and local level of government, this generally translated into tax equalization, more accurate accounting systems, and a reliance upon income and inheritance taxes with "tolerable rates and generous exemptions." On the federal level, it meant a disposition in favor of tariff revision and income and inheritance taxes.[16]

The perspective of the blue-collar wage-earner was different from that of farmers or middle class Americans, but it was equally favorable to income taxation. Only one-half of one per cent of the nation's income tax payers in 1913 were wage earners. For the most part, blue collar workers owned little real property but, to the extent that landlords passed the property tax onto renters, they were adversely affected by the rising rates. Since they spent a higher proportion of their income on the necessities of life, wage earners were injured by the rising cost of living even more than were middle class persons and they paid out a correspondingly greater share of their intake on customs and excise taxes. As a rule, they were ever, more dependent upon social services than were more affluent Americans, although the nature of those services was often significantly different. To the middle class, these were the "vulgar hordes of working men and immigrants with no stake in society” who raised the costs of government by demands for "bread and circuses." Although their comprehension of the complexities of federal tax policy may not have been too sophisticated, they had little difficulty in apprehending claims that present federal tax policies promoted inflation, placed the burden on them as ultimate consumers. They also realized that they would not have to pay a federal income tax.[17]

Professional politicians had yet another perspective on tax reform, one that was an amalgam of those of the new middle class and of the urban wage earner. Yearley painstakingly delineates that perspective and stresses that the urban professional politician was part of the "new strategic elite" of managers, bureaucrats, technicians, intellectuals, and experts.

In reality, however, the politico functioned as a broker, a conduit, or a mediator between that world and the universe of the urban, usually immigrant stock, working and lower' middle classes. While the new middle class expert typically proceeded out of native-stock, Protestant, middle class origins and earned his position through education or training, the professional politician was much more likely to have his roots in the ethnic, non-Protestant, working and lower middle class. Harold Zink, for example, found that of twenty prominent urban bosses of the early twentieth century, five were immigrants and ten were second generation Americans and that "there seems to be some relationship between the racial stock of municipal bosses and the dominant racial stock of foreign origin in their cities." A similar study of Chicago precinct captains revealed that over eighty per cent were "from the second generation foreign stocks in the city, while an analysis of party organizations in Providence revealed that Irish Americans held over eighty percent of Democratic positions in 1910, with Italians, French Canadians, and eastern Europeans pushing from below. Most of these had working or lower middle class backgrounds, ties to organized labor, and had risen through the organization ranks largely through experience.

The typical professional politician was a "marginal man," who stood with one foot in the neighborhoods and precincts and the other in the urban, industrial mainstream, trying to explain and represent the one to the other and to harmonize their often conflicting demands in a manner that would redound to his own continuation in. power.

On some matters, such as business regulation and welfare legislation, that was a relatively simple task. On others, such as structural political reform or legislated morality, it strained the powers of even the most accommodating politician. For the most part, the income tax fell into the former category.[18] Party organizations, as Yearley has demonstrated insightfully, had developed their own informal system of tax collection that included assessments of office holders, kickbacks from beneficiaries of government contractors and franchises, and "protection" paid by proprietors of illegal enterprises. Although widely attacked, especially by the new middle class, for its undeniable graft and corruption, this informal system actually reached accumulated wealth much more effectively than did the official structure and provided much more of the revenue needed to meet escalating demands for services. But these increasing demands were matched' by an insistence upon honesty, efficiency, and economy in government, especially from the urban middle class.

Caught between these conflicting pressures and trying to protect their own instrumental positions, many professional politicians recognized the need to alter the official tax structure in order to meet the needs previously served by the unofficial levies that were now under such heavy fire by "reformers." "The parties' assessment of jobholders and political candidates, the political levies against corporations and certain criminal business on the basis of their ability to pay." Yearley has concluded, "in effect, have been formally incorporated into state income taxes or into a variety of special taxes." Ironically, this ultimately constituted another major step in making government responsive and accessible primarily to organized and sophisticated interest groups and to reducing the effectiveness of the party organization as a conduit to the disorganized and powerless. Although the wealthy constituents of most political organizations undoubtedly put pressure upon them to oppose an income tax, the politicians themselves were generally more responsive to two other imperatives, the need to remain in power by acceding to the demands of the working and middle class for tax equity and the requirement to guarantee more productive and predictable revenue sources.[19]

Different geographical sections also viewed the federal income tax differently, but largely compatibly. People in the West and the South frequently saw the issue in sectional terms and identified their target as the entire population of the northeast. Such expressions generally alienated the middle and working classes of that region and enabled the affluent residents of those states to obfuscate the issue by portraying the tax as a sectional plot to despoil everyone in the area. Such tactics were apparently successful in 1895, but had lost much of their impact by 1909. Income tax advocates in all three regions successfully cast the argument in non-sectional terms, identified the same targets of taxation, and easily refuted appeals to sectional solidarity and states rights.

The three sections also viewed the relationship of tariff revision to income taxation in somewhat different, though not necessarily antagonistic, terms. The South was theoretically committed to a tariff for revenue only, whatever the reality, that made the tax a desirable revenue supplement. Westerners generally sought less drastic tariff reduction, making the revenue argument for the income tax less compelling. Insurgent contentions along this line often seemed strained and contrived, compared to their insistence upon equity or redistribution. The residents of the northeastern states were more divided along socioeconomic and partisan lines over the relationship between the tariff and the income tax, with most manufacturers and Regular Republicans ardently opposed to both lowering rates and enacting a revenue supplement. But the majority of people in those states eventually subscribed to the notion that tariff reduction was the best cure for inflation and that the income tax was the ideal substitute, for reasons of both productivity and equity. Even the traditional rationales of full employment and an expanding market for foodstuffs failed to prevent laborers and farmers from joining the revolt and the success of the Democrats in linking the two issues to the high cost of living made inroads into normally Republican voting patterns.

The details of which rates to lower and of how much revenue needed to be raised by the income tax caused many strains, both within and between sections, but the consensus that an income tax was necessary, whatever the outcome of tariff revision captured a majority in all three sections.[20]

Finally, the three regions differed in their perception of the relationship between income tax revenues and increased federal expenditures.

The West clearly had the greatest expectations of increased federal expenditures on internal improvements, as their success in acquiring federal aid, both before and after the enactment of the tax, demonstrated. Such sentiments were much slower to develop in the South because of the region's historical resistance to intervention by the federal government in nearly every aspect of life. Advocates of the tax rarely argued that the South would benefit in any special fashion beyond tariff reduction and tax equity and concentrated or the almost negligible impact that the tax would have on residents of their states. Opponents of the tax generally conjured up visions of money being extracted from the South to be spent elsewhere and these contentions apparently carried weight in several states.

In the northeastern states, advocates of the income tax made no claims that increased federal expenditures would result there. In fact, the measure's opponents insisted that the additional revenue would be spent west of the Mississippi, re-enforcing their portrayal of the income tax as a western plot to despoil the northeast. That which was a major pro-income tax argument in the West was a liability in the northeast and little better than that in the South.[21]

Between 1895 and 1909, a broad-based national income tax consensus emerged out of these differing, but compatible, socioeconomic and sectional perspectives. Although those differences persisted, and surfaced at every stage of the process between 1909 and 1913, they were temporarily subsumed by general agreement on several interrelated premises. One was the belief that the rising cost of living was due primarily to the protective tariff system that added substantially to the cost of most items of consumption and fostered trusts that extracted inordinate profits. The second was that the existing federal tax structure of customs duties and excise taxes, as well as the state and local tax system of real and personal property taxes, placed the burden squarely upon the productive working and middle classes and allowed the very wealthy to avoid paying their fair share of the costs of government. The third was that the rising costs of government, and the fall-off in revenue that followed the Panic of 1907, mandated a need for new revenue sources and that any new taxes ought to meet the tests of productivity and equity, both of which dictated the taxation of the wealthy.

These three perceptions, whatever their validity as an explanation of reality, dovetailed into an operating consensus that a federal income tax would fall exclusively upon those with the "ability to pay" and that it would tap sources of wealth that had heretofore escaped taxation.[22] This consensus was nurtured in the growing anti-special privilege atmosphere that characterized the onset of the Progressive Era. Muckraking journalists and novelists set much of the tore by their exposes of financial and political corruption, of the contrast between the idle rich and the suffering poor, and of shoddy products sold at high prices. The mood was intensified by the frequent rhetorical tongue lashings given to the "malefactors of great wealth" by Theodore Roosevelt and his imitators. According to Richard L. McCormick, it reached its zenith right after the "crisis of 1905-06" with the simultaneous "discovery that business corrupts politics" in nearly every state. During those two years investigatory commissions in dozens of states revealed, in sensational detail, the corrupt alliances between various enterprises and party organizations.

In 1906, reform candidates promising to end business control of politics were elected in dozens of states and called for a myriad of remedial measures, including the regulation of lobbyists, the banning of free railroad passes for legislators, the abolition of campaign contributions by corporations, and primary elections. Most typically, they called for the creation or expansion of commissions to regulate railroads, public utilities, and other businesses. Between 1905 and 1909 alone, accordingly to McCormick, fifteen states created railroad commissions and the powers of at least that many others were significantly expanded. "What had hitherto been scattered and isolated movements for state reform," he concludes, "became a nationwide crusade." As already noted, such widespread public indignation at what David Theler, has called "corporate arrogance" persisted throughout the elections of 1910 and 1912, contributing mightily to the downfall of the Regular Republicans and to another spate of reform legislation in 1911 and 1913.

The main bone of contention between Roosevelt's New Nationalism and Wilson's New Freedom was the issue of how to deal with the "trusts." Since these were generally owned and operated by the very people who were to be the targets of the federal income tax, the latter could hardly have failed to benefit from this attack on corporate privilege and corruption. [23]

This emerging consensus sustained the formation of a pro-income tax coalition that embraced most socioeconomic groups, except for the well-to-do, and claimed a majority in each of the three geographic regions. Even Yearley acknowledges that "there was some coalescence of previously hostile forces; if there had not been, of course, the final establishment of state and federal income taxation on a broader scale and as a permanent feature of the money machines of the country during the Progressive Era would have been highly improbable."

Despite the leadership exercised by intellectual elites, Yearley continues, fiscal reform's constituency was "democratic because of the pluralism of the total situation; over time each of the many minorities through arguments and appeals which reached every significant element of the populace, urban and rural, managed to gain something." Yearley exempts only the very rich and the very poor from participation in this process, but, as previously mentioned, adds that the latter contributed "wittlessly" by demanding increased social services.[24]

Pressure for the tax was applied partly through the efforts of a variety of interest groups that proliferated during the Progressive Era, because they believed that it squared with the other measures that they were advocating to advance their members' self-interest while serving the "public interest." The American Federation of Labor endorsed the income tax in 1906, along with proposals to permit collective bargaining and picketing, to regulate health and safety in factories, and to curtail child and female labor.

The National Farmers Union backed the tax along with demands for parcels post, postal savings banks, federally-secured farm loans, and agricultural extension programs. The National Tax Association pushed the measure along with a myriad of other proposals to rationalize and modernize the tax structure, such as tax equalization, state commissions, inheritance levies, the separation of state and local funds, and the freeing of municipal tax rate schedules from restrictive state charters. The National Municipal League also favored the tax as part of its program to improve the quality of life in American cities. Some of these organizations were primarily what David P. Theler. has designated as "producer-oriented" interest groups primarily concerned with advancing measures of benefit to their own members, whether farmers, laborers, businessmen, or professionals. Others were more reflective of what Theler has described as a "new citizenship", a growing awareness on the part of millions of Americans that their common roles as consumers, taxpayers, and citizens transcended their narrower ethnic, socioeconomic, and geographical identifications and united them against corrupt alliances of big businessmen and politicians. Many of these organizations served both purposes to a greater or lesser degree and most Americans felt themselves pushed and pulled back and forth between both sets of consciousness, depending on the nature of the issue being raised.[25]

There can be little doubt that the national debate over tariff revision and the income tax heightened most people's sense of their roles as consumers and taxpayers, but it is problematical whether that recognition involved a corresponding decline in their sense of identification with others of the same socioeconomic, ethno-cultural, or geographical backgrounds.

The coalition that produced the income tax arose largely out of the internal logic of the issues that the measure raised and purported to resolve. The matter, by its very nature, divided society along income lines, pitting those who made over a certain amount against those who did not, regardless of occupational, ethno-cultural, or geographical backgrounds. Few, if any, other measures broached during the era divided people along those same lines. Even tariff revision, a question inextricably intertwined with the income tax in 1909 and 1913, produced a somewhat different alignment, both within and without Congress. Farmers generally favored an income tax but opposed putting raw materials on the free list. Importers generally favored downward rate revision but opposed an income tax if they would be reached by it. Many working class people who favored an income tax continued to believe that a protective tariff insured full employment. Pro-income tax Democrats frequently voted with Regular Republicans in 1909, if the products of their state or region were involved. The Insurgents generally voted with the Regulars against their income tax allies on the Underwood-Simmons Tariff.

The income tax coalition was similar to those that produced other reforms raising related socioeconomics issues and it clearly benefited from its popular association with other measures aimed at eliminating special privilege and business-government collusion. It also, according to Hillje, sustained itself through the debates over financing World War I, maintaining the principle of "ability to pay." But it was, in no sense, a "movement" with a relatively stable membership and a reasonably well defined program that produced a variety of reform efforts.[26]

The National Tax Association and the other organizations that advocated the income tax were typical of the many emerging interest groups of the Progressive Era in that they usually endorsed individual candidates, regardless of party affiliation, if they espoused desired legislation. If they were able to get a political party committed to such legislation, they might endorse its entire slate of candidates, but such partisan behavior alienated office holders of the opposite party and jeopardized the interest group's primary purpose -- to enact legislation favorable to its members' interests and ideology. Similarly, they generally followed a non-partisan approach in lobbying legislators in the various state houses and in Congress. Even the American Federation of Labor attempted to be non-partisan before Republican intransigence and Democratic receptivity mandated their endorsement of the latter party.

As interest groups organizations proliferated and escalated their activities, they found that political parties, by their nature, were beholden to many constituencies and viewed their function as that of broker among competing demands. As a result, interest group organizations rarely were satisfied with the Jesuits of their attempts to secure party backing and many resolved to change the rules of the game in order to weaken the power of the professional politicians and to facilitate interest group access to government. Accordingly, they sponsored a series of political reforms, such as the secret ballot printed by the state, direct primaries, initiative, referendum, and recall, at-large, non-partisan elections, the separation of local elections from state and national ones, civil service, and the short ballot.[27]

Wherever many of these reforms were adopted, they tended to create a new politics that was non-partisan, issue-oriented, and candidate-centered and that gradually shifted the locus of power from professional politicians to organized interest groups and "political action committees." Historians strongly debate the ultimate effect of this "new politics," with one school contending that it transferred power from the businessman-professional politician alliance to consumers, taxpayers, and citizens and shifted the focus from irrational, irrelevant ethno-cultural issues to rational, relevant, socioeconomic ones. The other school contends that the ultimate gainers were the most powerful interest groups, generally big business, and that the new politics led to a "class-oriented skewing of participation" with a heavy curtailment of the leverage previously exercised in the political arena by the class-ethnic infrastructure and its representatives," according to Walter Dean Burnham. In any evert, the new politics resulted in a dramatic decline in voter turnout during the Progressive Era that has generally continued to the present day.[28]

There is little evidence that these alterations in the political process had much effect on the enactment of the federal income tax. Most of these changes had their initial impact on municipal politics and gradually worked their way upward through the system. They also seemed to have more effect upon electoral than upon legislative politics during the Progressive Era. Party organizations generally remained too powerful to ignore or bypass. Interest group organizations that favored the income tax apparently took a bipartisan, rather than non-partisan, approach, working through whichever party structure would pledge its support. Those organizations opposed to the tax relied heavily upon the Regular Republican organizations in Congress and in the northeastern states and upon Bourbon Democratic factions in the southern states. The great mass of unorganized supporters of the tax had little choice but to depend upon what Burnham has characterized as "the only devices thus far invented by the wit of western man which with some effectiveness car generate collective countervailing power or, behalf of the many individually powerless against the relative few who are individually or organizationally powerful." These unorganized masses generally had to express whatever preference they had for an income tax through the medium of one of the two major parties or by supporting the Socialist or Progressive parties in 1912.[29]

Since American political parties have always been essentially pluralistic coalitions of diverse socioeconomic, ethno-cultural, and geographical groups "without program and without discipline," to Quote Morton Grodzins, it is not surprising that votes on the income tax were rarely along strict partisan lines. The remarkable thing is that, everywhere outside of a few southern states, the Democrats were able to maintain an almost solid front. Even during the convoluted course of events in 1909, they exhibited a remarkable degree of voting cohesion. In 1913, the disagreements over rates and other details between the "radicals" and the administration Democrats were thrashed out in caucus and supported with virtual unanimity on the floor. By contrast, the income tax issue wreaked havoc upon any semblance of Republican solidarity. Large numbers of Insurgents deserted the Congressional ranks in both 1909 and 1913, and there were numerous defections to the income tax forces, especially among urban Republicans, in most northeastern legislatures. In most midwestern and western states, where Insurgent forces generally dominated the party, Republican legislators and leaders supported ratification in impressive numbers.

By all indications, the federal income tax resulted from interplay between traditional partisan politics and the emerging issue-oriented, interest group "new politics," with the former being more important inside the various legislative chambers and the latter instrumental primarily in mobilizing popular support.[30] In the legislative arena, the enactment of the tax resulted from the politics of coalition, compromise, and consensus at every stage of its evolution. During the special session of 1909, the Derrocrat-Irsurgent coalition forced the issue upon the Regulars and frightened them into accepting President Taft's compromise proposal of a corporation excise tax and a constitutional amendment. Presidential intervention forced all three groups to compromise their positions, with the Regulars generally moving to a position of grudgingly accepting the lesser of two evils and the Insurgents and Democrats reluctantly concluding that a partial loaf was the only bread that they could salvage.

The Regulars' indignation was modified by a determination to invalidate the corporation tax and to prevent ratification, while the frustration of the Insurgents and Democrats was tempered by a corresponding determination to secure ratification. Even Taft had to accept modifications in the provisions of the corporation tax and worked for the adoption of an amendment whose authority he planned to use only in an emergency. There was no room for compromise in the ratification process, but, except in one party states, coalition politics was the order of the day. In single party states, cooperation between two or more distinct factions was usually necessary to effect ratification. In 1913, a similar Democrat-Insurgent coalition, this time constituting an overwhelming majority of both houses, easily carried the day, but not without conflict and compromise. The demands of the Insurgents for higher rates and fewer exemptions and deductions emboldened a faction of "radical" Democrats who challenged their party leadership on the same grounds. The Regular Republicans were reduced to pushing for smaller rates, a lower starting point, and exemptions and deductions for special interest groups. The resultant compromise produced a tax that was less than the Insurgents and radical Democrats desired, but more drastic than the administration Democrats originally envisioned.

Given the limitations imposed by the structure and values of American Society, the adoption of the federal income tax constituted the best effort that the people of the Progressive Era were able to muster in dealing with the critical dilemma posed by economist Irving Fisher in 1919:

Our society will always remain an unstable and explosive compound as long as political power is vested in the masses and economic power in the classes. In the end one of these powers will rule. Either the plutocracy will buy up the democracy or the democracy will vote away the plutocracy.[31]

NOTE: Footnotes not reproduced.