A History Of The Income Tax

NPR's Melissa Block speaks to author Steven Weisman of the Peterson Institute for International Economics about the history of income tax. Weisman is also the author of The Great Tax Wars: Lincoln to Wilson.

MELISSA BLOCK, host:

With all the talk of tax cuts, we were wondering when it became so toxic to talk about raising taxes - or has it always been that way? In 1988, the first President Bush quite famously made this promise.

(Soundbite of archived audio)

President GEORGE H.W. BUSH: Read my lips.

(Soundbite of cheering)

Pres. BUSH: No new taxes.

BLOCK: Then he broke that promise, a decision that helped make him a one-term president. President Bush called that tax hike a mistake during presidential debates in 1992.

(Soundbite of archived audio)

Pres. BUSH: Let me remind you it was a Democratic tax increase, and I didn't want to do it and I went along with it. And I said I make a mistake. If I make a mistake, I admit it.

BLOCK: For more on the history of the income tax and how Americans feel about it, we're joined by Steven Weisman. He's the author of a book called "The Great Tax Wars." Welcome to the program.

Mr. STEVEN WEISMAN (Author, "The Great Tax Wars"): Thank you for having me.

BLOCK: Let's go back to the very earliest days of the federal income tax. Tell us about that.

Mr. WEISMAN: The first income tax was during the Civil War, and they were raised by that Republican president, Abraham Lincoln, to pay for the war.

BLOCK: And was it accepted that that was a necessary thing? That income tax was essential at that time?

Mr. WEISMAN: The income tax is never welcomed, but it's always accepted more at a time of war and sacrifice. The income tax was a perfect way to appeal to the egalitarian spirit and the spirit of sacrifice, and it only affected the top 3 or 4 or 5 percent of earners in the country.

BLOCK: Now, the Supreme Court got involved at the end of the 19th century saying the income tax was unconstitutional. How long did that last?

Mr. WEISMAN: Congress enacted an income tax at the depths of a recession called the Panic of 1893, but the Supreme Court declared it unconstitutional a year after it was enacted. And the only way to get an income tax enacted was through a constitutional amendment. It became the 16th Amendment, and it was enacted on the eve of World War I in 1913.

During World War I, went up to 70 percent, an astonishingly high rate. It was very unpopular. But, again, at a time of war, that tax was the patriotic duty of Americans.

BLOCK: You said that the top rate of 70 percent. Was that a marginal rate, a rate on income above a certain level?

Mr. WEISMAN: Correct. Not all taxpayers paid that but only those in the wealthiest brackets.

BLOCK: Paying that on the upper reaches of their income.

Mr. WEISMAN: On the upper reaches of their income.

BLOCK: Let's jump forward in time to the time of Franklin Roosevelt, and let's listen to his justification for taxes. This is from a fireside chat two days after the attack on Pearl Harbor in 1941.

(Soundbite of archived audio)

President FRANKLIN ROOSEVELT: It is not a sacrifice for the industrialist or the wage earner, the farmer or the shopkeeper, the train man or the doctor to pay more taxes, to buy more bonds, to forgo extra profits, to work longer or harder at the task for which he is best fitted, rather it is a privilege.

BLOCK: Steven Weisman, not a sacrifice to pay more taxes, a privilege, FDR is saying.

Mr. WEISMAN: I can think of very few words that would sound more foreign in today's environment.

BLOCK: Right.

(Soundbite of laughter)

Mr. WEISMAN: Can you imagine President George W. Bush saying those words after 9/11, at a time when people were ready to sacrifice, I think? Instead, they proceeded with tax cuts, and I think the divisiveness of the issue that we're facing today, and that President Obama is facing even as we speak, is rooted in that historic moment when for the first time in American history taxes were lowered at a time of war and not raised.

BLOCK: Never seen that before?

Mr. WEISMAN: Never seen that before.

BLOCK: What about the time in between? We're jumping from World War II to the present day. What happened in between, say, the '40s and now? What was the climate on taxes at the time?

Mr. WEISMAN: The tax revolt in American politics really didn't occur until the 1970s. But interestingly during the 1950s, as the Cold War was under way, President Eisenhower resisted lowering taxes. It wasn't until John F. Kennedy that the modern tax-cutting era began, and he lowered taxes on income and investments and that helped to spur the prosperity of the 1960s, which were followed by the war that produced inflation. And the 1970s, higher tax rates. And then the tax revolt which began in places like California and gave birth to the greatest tax-cutter of them all, Ronald Reagan.

BLOCK: A lot of people now hearken back to President Reagan, thinking about him as the archetype of the tax-cutter. Let's listen to President Reagan. This is from 1985.

(Soundbite of archived audio)

President RONALD REAGAN: I have my veto pen drawn and ready for any tax increase that Congress might even think of sending up. And I have only one thing to say to the tax increasers: Go ahead, make my day.

(Soundbite of laughter)

BLOCK: What about Ronald Reagan's record as a tax-cutter?

Mr. WEISMAN: Well, the Democrats and others did make his day a number of times. He of course cut taxes in 1981. But very quickly after those tax cuts were implemented, he faced the need to raise taxes again because the federal budget was - deficit was climbing. And so the new idea came in that a balanced budget was even more important than cutting taxes as a way of spurring economic growth.

That debate continues with us today, of course, but it should be remembered, although it isn't always, that President Reagan raised taxes quite a bit at several points in his presidency.

BLOCK: Steven Weisman, thanks for coming in.

Mr. WEISMAN: Thank you, again.

BLOCK: Steven Weisman is author of "The Great Tax Wars: How the Income Tax Transformed America." He's also editorial director and public policy fellow at the Peterson Institute for International Economics.

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