The La Follettes,
Feudal Lords of Wisconsin

J. Craig Ralston

[Reprinted from Land and Freedom, May-June 1938]

Like our forefathers, we will use every power of government to open the frontier of this age. We will build stockades and forts to protect industrious producers from raiding squads we will use its might to cut through the modern underbrush of worn out debts. We will use without hesitation its authority to suppress the modern counterpart of the savages those stupid people who deny others access to materials that they themselves do not know how rightly to use."

In these brave words, Gov. Philip F. La Follette of Wisconsin, proclaimed the goal to which he and his brother Robert, the Senator, will lead the National Progressives of the La Follettes' new political party. He has not said what road they will take. The La Follettes, however, are not new-comers. They have traveled a long trail. It is possible to sight along the milestones that mark their course, and determine how near they will come to the point they set out to reach. So let's look at the milestones.

The La Follettes are income taxers. They believe in taxing the rich taxation based on "ability to pay," as they understand the phrase.

Long years ago the elder Senator La Follette purchased the well known 60-acre Maple Bluff farm, on the outskirts of Madison, for $30.000. With Madison's growth, the farm became urban residential property, and grew up to grass and unearned increment. After the old Senator's estate was settled, some of the choice sites were sold. They yielded more than $50,000. The remaining acreage is assessed around $90,000, but it will probably go on the market for more provided pump-priming gets values back to where they were. The unearned profits of that land do not shock the La Follettes. Were a utility stock boomed to five times its original worth, it might intrigue them, and even become a campaign issue, but not the five-fold increase in the farm. Their attitude is that of the typical business-minded American landlord, the land has "increased in value" which is of course a good thing for the owners.

To the country generally, the La Follettes are best known for zeal in politics and reform. The milestones which thickly stud this field point to the well established La Follette faith in regulation, socialization and benign government.

La Follette taxes, and La Folette tax relief, must be analyzed together.

*Cheap land values and lower taxes made America more prosperous than Europe. The La Follettes have reversed this formula with higher prices for land and higher taxes. Mr. Ralston shows how it works. Besides this, and as a consequence, Wisconsin government is a maze of bureaucracies. This is the kind of society to which the La Follette party is heading.

The show piece of the drive to wipe out property taxes and replace them with other revenues, is the income tax. It applies to both corporations and individuals. Who really -pays the corporate tax is a matter of some contention, on which the state tax commission has not hazarded extensive opinion. Under a Supreme Court ruling, utilities charge their taxes up to operating costs. This is merely partial recognition of the fact that the public eventually pays all tax bills in the form of a consumers' price payment.

The up-and-coming Wisconsin youth who gets his first job pays on all income he makes in excess of $15.38 per week. When he weds, he pays on all over $23.27. These have always been Wisconsin income tax levels. In recent years, Senator La Follette has sought to embody them in Federal schedules. The income tax commands the greater share of public applause, but it does not yield as much replacement revenues as other taxes not based on "ability to pay."

Pre-depression 1929 State revenues amounted to $47,400,000. Of this sum, income taxes produced $21,500,000. Other large items were gasoline tax (two cents per gallon), $8,000,000; motor vehicle licences, $12,000,000; railroads, $7,000,000. After four depression years, the State, in 1935, raised $46,800,000. Income taxes yielded $9,000,000. Other important revenues were gasoline taxes (increased to four cents per gallon), $15,000,000; motor vehicle licences, $10,000,000; railroads, $4,500,000. In both years transportation paid more than incomes.

Income tax enthusiasts hope to improve the showing. Prof. Harold M. Groves, University of Wisconsin economist and La Follette braintruster, shares the hopeful outlook of other addicts to the income tax.

"Its proponents," to quote Prof. Groves, "say that as administration improves and other states adopt income tax statutes, the income tax will replace the property tax as the major source of State and local revenues. They point to European countries to show that this can be done."

Without question, the Wisconsin law is the most successful state income tax so far enacted. In its first experimental year, the income tax yielded $1,631,000. Through changes in the law and increased industrial earnings, it rose to the 1929 $21,500,000 peak. Under stress of hard times, incomes stopped and so did revenues. Bolstered by our sur-tax levies, it attained the 1935 $9,000,000 level except for reinforcements it would have dropped to $7,000,000. As a depression tax, it is somewhat of a failure.

The La Follettes have probably surpassed other statesmen in the "relief of real estate." They have created a "tax free state" a state supported by special and indirect taxes. Wisconsin real estate taxes are levied only by city, county, and local boards.

The State's shift to income and other special taxes is reflected in a comparison of Wisconsin's general property levy with similar levies in neighbor states. The Wisconsin general property tax is lower per capita than in Illinois, Indiana, Michigan, Minnesota, New York or Ohio. If all taxation be taken into account, however, Wisconsin taxation is higher per capita than in any of these states except New York. The difference goes into the "relief of real estate."

Real estate includes both buildings and land. W T hen buildings are "relieved," they will not respond in a speculative way. Land will. Its privileged tax position will produce an accession of "unearned increment."

Sales taxes afford a clear illustration of "tax relief for real estate." In Arkansas, the share cropper pays a sales tax. This exempts the property of his landlord. The landlord's land absorbs the exemption benefit. It becomes more valuable, and the share cropper will eventually pay a higher rental for the use of more valuable property. To the share cropper is therefore shifted two new burdens the sales tax, and higher rent.

A trifle more indirectly, the Wisconsin tax system produced like results or, if it was not wholly responsible for their production, it did not prevent them. For a third of a century throughout the whole La Follette era farm land values, farm mortgages and farm tenancy have steadily increased.

In 1900 Wisconsin had 169,795 farms, comprising 19,862,727 acres, the land (exclusive of the improvements) valued at $530,542,690. The mortgage debt was $55,304,696. Of the farms, 77,490 were mortgage free; 65,589 mortgaged.

In 1930, the State had 181,707 farms, comprising 21,874,155 acres, the land alone valued at $985,549,246. The mortgage debt was $355,029,993. Of the farms, 55,509 were mortgage free, 86,680 mortgaged. The total mortgage debt had increased more than six fold.

In 1900, 55 farmers out of 100 owned mortgage free farms, 45 had mortgages. Of 100 farmers in 1930, 41 were mortgage free, 59 mortgaged. Between 1900 and 1935, farm tenancy advanced from 13.5 to 20.6 per cent.

The La Follettes are ambitious to do more.

"When the schools are financed mainly by the income tax, and the roads mainly by a gasoline tax, very little property tax problems will remain," says a current platform. There have been hints that the La Follettes would like to harness their public ownership and tax programs tandem to "relief for real estate" and trot along more rapidly.

The Progressive, the La Follettes' political weekly, extols public ownership cities which charge enough for light, water or power to pay the cost of government. This, says The Progressive, demonstrates "the soundness of the principle of public ownership from the standpoint of the public welfare." Public ownership will be thus utilized to shift tax loads to consumers, and its benefits will be transferred to our landed gentry.

The La Follettes proceed with tax and tax relief programmes on the hypothesis that these instrumentalities will promote the more equitable distribution of wealth or that they will open doors of opportunity to people who are on the hunt for the doors. There is nothing in the picture to indicate a successful climax for either aim.

Mr. Otto Cullman, chairman of the Manufacturers and Merchants' Federal Tax League of Chicago, says the great American landlord now possesses unearned increment amounting to $180,000,000,000, whence he derive a daily income of $20,000,000. Mr. Emil Jorgensen Mr. Cullman's associate, estimated recently that 10 per cent of the people of the United States are most of the landlords they own 90 per cent of the $180,000,000,000 Forty per cent own 10 per cent of it, and the remaining 50 per cent own none. On the basis of these figures the crusade to "relieve real estate" will succor a relatively small and wealthy portion of the population. Its effect will be to sweeten the $180,000,000,000 jackpot. It will exempt from taxation monopolists who control iron, coal copper, and other raw materials and their sources, and enable them to tighten their clutch. It will also enhance the value of the La Follettes' real estate. It is doubtful if the La Follettes are even dimly aware of this fact They probably believe that rising land values reflect newly created wealth to which possessors of the lane hold the best title.

Sighting down the milestones that mark La Follette economic theory, one cannot see that they point the way for the National Progressives' new crusade.

The La Follettes are governmentalists. A survey of recent La Follette platforms yields these remedies for the public's ills.

Government will establish a "planned economy" to guide the nation's life; it will see that every man and woman has a job "at a wage which the full productive capacity of society can afford;" it will finance public works; it will acquire and operate the railroads; it will own and operate utilities; it will own and operate water powers it will manufacture war munitions; it will operate a government bank to lend the people money; it will provide social security in the form of varied types of pension benefits; it will classify lands and set some aside for farmers and some for forests; it will guarantee farmer; and home owners against loss of farms and homes; it will control farm prices by means of publicity or co-operatively-owned exchanges where farm prices will be made; it will refinance farm mortgages at low interest rates; it will manufacture and sell farm machinery; it will regulate live stock and grain exchanges; it will make the distribution of milk a public utility, and regulate it it will guarantee the farmer cost of production; it will rise new ways to shift taxes from "real estate" to incomes and inheritances.

If the La Follettes pursue the line of march fixed by these programmes they will come to grips with no raiding squads, no out-worn debts, no "stupid people who deny others access to materials that they themselves do not know how rightly to use." Marauders of industry and "modern counterparts of the savages" will be safe for a long while.