Yesterday I got an email for the President’s birthday inviting me to sign an e-card (and no doubt asking for contributions, too.) The subject line, “Big Birthday,” could have been about another landmark: Today, August 5, the Federal income tax turned 151 years old.
Now that’s a big birthday. Bring out the balloons and party hats.
I can hear people saying, “Is this guy crazy? Doesn’t he pay taxes? Who likes giving up a big chunk of money?”
Yes, I pay my taxes, and there are lots of other bills on the family table. Among other things I’m a small business owner, and our ongoing “invisible recession” has taken a toll on my income. Under the circumstances I can’t say I like paying taxes. Or, more precisely, I don’t enjoy the process. But then I think about what it would cost us, financially and otherwise, not to have the Federal income tax.
It could cost seniors $30,000, $40,000 or more to buy health insurance, for example – that is, if they could afford it at all. And what would it cost to use the public highways if they’d been built for profit – $500 per year? $5,000? Then there are those things the private sector wouldn’t bother with at all, like disease prevention. I’d guess we’d just get sick more often.
When I think about that I become downright grateful. So Happy 151st Birthday, Federal income tax! May you have many more to come.
Our Little Bundle of Joy
It’s a tax! President Abraham Lincoln and the Congress of the United States are pleased to announce the arrival of the Federal income tax. Name: The Revenue Act of 1861. Date of birth: August 5, 1861. Place of birth: Washington DC.
1861: The Civil War was straining the Federal government’s budget. There were fears that the Confederacy would capture major Atlantic seaports, depriving it of a major income source from import tariffs. Lincoln conferred with members of his famed “Team of Rivals” Cabinet about Constitutional approaches to taxation, and they agreed on a tax for high earners.
In those days that meant anyone earning more than $600, a figure which excluded most Americans of the time. The new tax was progressive even above the $600 mark: Earnings up to $10,000 were taxed at 3 percent, while those above that figure were tax at five percent.
The Lincoln tax had the virtue of simplicity, too. It applied to all income or profit “derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever.”
That’s it: No loopholes, even for financial speculators like today’s Bain Capitalists.
The 1861 tax wasn’t the first Federal tax of any kind, of course. As the Policy Almanac notes, “Congress levied excise taxes on distilled spirits, tobacco and snuff, refined sugar, carriages, property sold at auctions, and various legal documents” to pay the debts it had run up fighting the Revolutionary War.
The Almanac also notes that taxes were used from the very beginning as a tool for social policy. It cites a Pennsylvania excise tax on liquor that was partially intended to “restrain persons in low circumstances from an immoderate use thereof.”
The Wonder Years
Like many of us, the income tax had a troubled adolescence. It arose after the Panic of 1893, which occurred when speculators created a “Railroad Bubble” of overbuilding and over-investment. The resulting collapse left a few people very wealthy – and millions of others unemployed.
(Yes, history does repeat itself. There had even been railroad bubbles before then, like England’s “Railway Mania” of the 1840s. But there are always people who refuse to learn.)
Congress imposed an income tax in 1894, but the Supreme Court decided it didn’t have the authority to do so. So in 1909 a conservative Republican President, William Howard Taft, convened a special session of Congress to give it that authority. The 16th Amendment was finally ratified in 1913, when an income tax was signed into law by a Democratic President, Woodrow Wilson.
That tax,, like Lincoln’s, was targeted toward asking the wealthiest Americans to pay their fair share in return for all their nation had given them. Less than 1 percent of Americans paid the new tax. (Yes, it favored the 99 percent!) And like Lincoln’s, it distinguished between the well-to-do and the extremely wealthy, with the very highest earners paying seven times as much as the merely prosperous One Percenters.
The Federal income tax: From the start it’s been sensible, progressive, patriotic – and bipartisan.
What You See Is What You Get (or not)
As Mitt Romney struggles to avoiding disclosing his returns, it’s also worth noting that Lincoln’s income tax had a simple and highly effective enforcement tool: transparency. As historian Joe Thorndyke observed, “Your neighbor would see you driving around on a brand new plow (note: or an elevator for your cars?) and he’d say, ‘Wait a minute, I’m going to see how much he reported on his income tax.”
This year the President’s proposing to return the top rate to its pre-Bush tax cut level of 39.5 percent, with no increases even as earnings approach the billion-dollar mark. That displays a generosity of spirit toward billionaires – you might call it “leniency,” even “indulgence” – that’s almost unprecedented in the history of Federal taxation. But that’s not enough for the greedy few.
Because Romney won’t release tax information like his father did, the American people can’t determine how much he’s benefited personally from lobbyist loopholes – or how much more he’s likely to benefit from his own tax proposals, which would raise taxes on 95 percent of taxpayers while lowering them even more for ultra-high earners like himself.
That’s right: The rich will get even richer under the Romney/GOP plan, while the rest of us pick up their tab – again. Their plan’s an economy killer – who’ll buy anything anymore, except them? – which would starve the government of funds needed to do it’s job and repair their last mess.
How selfish. How reckless. How … un-American.
The 0.001 Percent Solution
The Far Right’s probably dying to jump in right now, to say they’d be happy to go back to 1913 taxation levels of 1 to 7 percent. But 100 years ago we were still a largely agrarian country. The Federal government had less to do. The functions it’s taken on over the last century have benefited all of us – the wealthy most of all.
It protects us from attacks by hostile nations and individuals, a far more complicated task than it was one hundred years ago. Unfortunately it also maintains a needless and harmful global presence and wildly overspends on national security; that also benefits the wealthy, since they’re the ones who profit from this overspending.
The government educates wealthy people’s employees and customers, builds and maintains the roads their products are carried on, protects their intellectual property, and aggressively defends their interests at home and abroad as they globalize their investments.
It also rescues their “too big to fail” institutions when those institutions succumb to their lawlessness, unscrupulousness, and unchecked greed.
And all the Federal government asks in return is a portion of their wealth – a far smaller portion than has been asked for many generations. Would the Right really want to give up all these protections and services, especially ones that provide such benefit for its wealthy patrons? Not likely.
I call it a bargain, the best I ever had
What would happen to the rest of us without the Federal income tax? To explore that question I referred to the latest “itemized taxpayer receipt” the White House began releasing under Obama, and entered a sample taxable income of $50,000 for a married person with one child. Here’s what it showed:
$100 goes to providing health care to poor people and children. Personally, I’m glad to do it – there but for fortune, as they old song goes.
Only 1.4 percent, about $13, goes to health research and food safety. I’d increase that right away, wouldn’t you? And less than 1 percent – $7.96 – goes to disease control and health services. Really? With all this talk about pandemics, drug-resistant infections and bird flu? C’mon, guys.
Same goes for the 3.6 percent of income ($35 in our example) for “Education and job training.” We small business owners need clients who can read and write. And when trained people get jobs, the whole economy prospers. So I’d invest a more in that too.
And I’m certainly not going to begrudge our veterans $44 for the services they need. Spending less than $20 to protect our environment and natural resources seems perilously low. And only $16 or so for “international Affairs,” in this dangerous and suffering world? That seems like the least I can do.
The biggest item on the “receipt,” national defense, is definitely bloated. Nearly 25 percent of it – $247, in this example – does things like maintain dozens of bases around the world and buying useless, overpriced missiles and high-tech weapons like Star Wars that’ll never work.
A Deal For All Ages
Then there’s the payroll tax. In our example, slightly more than five percent of earnings goes to Social Security and Medicare. In other years, when they’re not using it to provide a “tax holiday” for the middle class (there are much better ways to do that), that figure is 6.2 percent. (The percentages are lower for people earning more than the “payroll tax cap.”)
Wait: You mean I can have income security in my old age, or if I’m disabled, or for my dependents if I die during my working years? I can provide for other aging Americans too? And all for only 6.2 percent of my income? That’s an awesome deal.
What’s more, for that amount plus another $100 from general income tax, Mom and Dad’s medical needs are mostly paid for (at least until the so-called “centrists” of the Beltway Right get their hands on them). Mine will be, too, when I’m over 65. (Or is it 66? or 67? They keep moving the goalposts.)
That’s another incredible deal – one that will never be available from private insurers. I’d gladly increase this amount, stop paying runaway insurance premiums and copays, and get that Medicare right now.
These are outstanding bargains – for all generations. It’s true that Social Security benefits will need to be reduced by one-fourth in a couple of decades if something isn’t done – preferably something simple, like lifting the payroll tax cap. But even 75 percent of benefits is a good deal compared to what the private sector would offer. And everybody would do better if we left things just as they are, rather than adopt one of right-wing/pseudo-”centrist” plans supposedly designed to “save” it.
As for Medicare, sure, there are cost problems – terrible ones – but they won’t be solved by passing them on to seniors. They’ll be solved by controlling profit-driven medicine.
But Wait – There’s More!
The income tax has given us much, much more, too – more than we can list here. So’ll we just pick a couple:
Thanks, Federal government, for the funny circular scar on my arm from my childhood vaccination. It means that I, and a lot of other kids, didn’t get polio and wind up severely disabled or dead. Don’t think I don’t appreciate it.
And thanks for the Internet I’m using right now. And for those highways, those trains, all the great innovations … oh, but I better stop now. I’m getting all choked up.
But that’s me: I cry at birthdays. And you know what? If we didn’t have this one to celebrate, a lot of other people would be crying too.