Some thoughts about 1913
One of the things you learn on
Social Media is how impassioned some people are about ideas that are just plain
wrong. For example: Libertarians almost inevitably overlap with Tax Protestors,
and for both groups the year 1913 was when the promise if the USA came to an
end.
As that was more than a century
ago, no one speaking of it today can actually remember it. It was before any of
the most defining events of the last century, WWI, the Great Depressions, and WWII,
and those are distant enough in the past that there are few remaining living witnesses either, so 1913 must have been an alien place indeed.
In 1913 the USA was just
emerging as a World Power, and certainly was not yet the Super Power we became
after World War II, so to state that was when we lost our way then seems
seriously at odds with more conventional thinking, either Liberal or
Conservative, which generally sites the 1950s as the USA’s “Golden Age.”
In the eyes of Libertarians and Tax
Protestors, horrors of WWI (which would break out the next year) pale before the
horrors of 1913 specifically because of two acts of Congress, both supported by
then-President Woodrow Wilson.
On February 3, 1913, the Sixteenth Amendment of the
US Constitution was ratified, “The Congress shall have power to lay and
collect taxes on incomes, from whatever source derived, without
apportionment among the several States, and without regard to any census or enumeration."
It made Income Tax, an already periodically executed, but legally uncertain, power of the Federal Government, officially part of our system. The Sixteenth
Amendment was a reaction to the inefficiency of the existing Federal funding
mechanisms, mostly tariffs, which most economists agree are damaging to trade
and therefore the whole of the economy. The existence of a reliable Income Tax
would lead tariffs to be cut by almost 50% by the end of that year. The
Amendment was necessary because a previous Supreme Court case, Pollock v.
Farmers' Loan & Trust Co. (1865) decided that, as the Constitution was
then-written, any Federal Income tax was probably illegal. The Amendment assured
that there was reliable funding when extreme crisis hit, and it took 48 years
to make that Amendment happen. The Amendment had a torturous history and was
more the work of former-President William Taft, a Republican, than
then-President Wilson, a Democrat, but both supported it.
Then on December 23, 1913, Wilson signed the Federal
Reserve Act into law, which created the Federal Reserve Bank.
Somewhat-similar Central Banks had existed before, and in fact had a longer
history in the USA than any of the previous Federal Income Taxes, with Founding
Father Alexander Hamilton arguing in the 18th c. that a strong Central Bank was necessary for
guaranteeing responsible monetary policy and that assuring that the Nation had
a single, reliable, currency. But, like Federal
Income tax, these
Central Banks were only a periodically executed and were a legally uncertain
power of the Federal Government.
Libertarians and Tax Protestors often view the fact that
both of these things passing the same year as evidence of a vast conspiracy,
which is clod-headed. The more realistic assessment is that the Federal Reserve Act
was a reaction to the 16th Amendment; with Income Tax permanent,
there needed to be a permanent mechanism for the management of that revenue. Still, the Libertarians and Tax
Protestors all insist that this was the why, and the year, that the USA went
wrong. They talk about how these two things gave us nothing because the USA
already had a military, paved roads, public schools, public transportation,
public hospitals, and other stuff like that, before 1913.
My response, “Well, if you want
that world, you can have it, but I suggest you read up on it first.”
In 1913, the overwhelming majority of the work
force was either agricultural or unskilled, and frequently both.
The nation’s roads were overwhelmingly unpaved and under-maintained, covered wagons were still pretty common. But since America's first gas station opened that same year, the emerging car culture would
require that to change really fast.
The military was shockingly underfunded, leaving us unprepared
for the challenges of the conflicts of the 20th c, which was the number one
reason we instituted temporary Income Taxes prior to that point. I also want
you to note the ironic correlation between the timing of the Constitutional
Amendment and the outbreak of the World War I conflict which the USA struggled so hard to stay out of.
Regarding public schools, there
were not many of them, and they were all under-funded. The national literacy
rate was maybe half of what it is now. Very few went to college.
Regarding public transportation, the New York City subway was
near-bankrupt, and this required intervention by the government (in this case
the State government) because had the subways stopped completely, so would the whole
city, then the richest city in the world and the economic engine of much of the
rest of the Nation. The same was true of every other public transit system in
the country, though at the time very little of the country had public transit.
The interstate rail systems, more the Federal government’s concern, were similarly
buffeted by repeated crises, and again they couldn’t allow them to collapse
because so much of the rest of the economy was so dependent on them.
Life expectancy was a lot lower, the Public Health system barely
existed, and where it existed, it was under-funded.
That year featured several other heavy-handed interventions from the
Evil Federal Overlords, including the very first Federal law protecting
migratory birds, a reaction to how many species had been hunted into
extinction. Congress ratified another Constitutional Amendment, the
Seventeenth, securing the direct election of US Senators, thereby making the
Nation considerably more democratic in the mechanics of our Democracy. The USA wasn’t quite ready to ratify the
Eighteenth Amendment, guaranteeing Women’s Right to Vote, but they were getting
closer, and mostly the same people were involved in all three Amendments. All
of this was part of the then-on-going Progressive Era (1897 – 1920), a dynamic period born of the tireless work that stretched
across the Presidencies of William McKinney, Teddy Roosevelt, Taft, and Wilson,
and was an on-going project shared by both major political parties. Other
features of the Progressive Era were the close-to-annual strengthening of Federal
Labor and anti-Trust laws and the promise of achieving greater equality between
the races.
If you know your history, you know that last promise, Racial
Equality, was betrayed because Wilson, the fourth and final of the Progressive
Presidents, who was committed to so many Progressive ideals but was also a
notoriously vicious White Nationalist. But at the exact same time, important Supreme
Court decisions regarding Religious Equality made the State governments more bound
by the rules of the US Constitution (as originally envisioned, the US
Constitution’s limits on governmental power applied only to Feds; that
should’ve changed immediately after the Civil War, but the much of the real reform
took place during the later Progressive Era). Those victories regarding
Religion would lay important groundwork for the later Civil Rights Era’s victories
regarding Race.
So, no, 1913 was not the end of the promise of the USA, in some
ways, it was the beginning.
This post nicely summarizes the fundamental fallacy of most of Conservatism, the mis-remembering our tax-free past. It implies that before 1913 we had no income tax.
Actually, the first income tax was levied in 1812, and the first income tax you would recognize (permanent institution to manage day-to-day Government functions) doesn’t come until 1939.
The 1913 given was the ratification of the 16th Amendment:
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration” It’s an odd Amendment because it simply restates (though in fairness, also reinforces) article I Section 8 Clause 1 which specifies Congress's power to impose "Taxes, Duties, Imposts and Excises."
Amendments are hard sells, as they should be. Amendments passed frivolously are always bad ideas (remember Prohibition?). Most things that you want do, you should do with legislation because you may want to modify or reverse later if you’ve found you’ve done something wrong. So why would such an obviously unpopular Amendment pass? Because the Government was constantly running out of money, and needed to secure a reliable revenue stream. This, by the way, was before there was any significant system social welfare in the United States, and at the time that money was steered almost exclusively to the military, specifically the navy, because this is the era of Teddy Roosevelt, and the birth of the American Empire. If your going to be a world power, you must be able to fund the funtctionings of that power.
Back then, public schools, hospitals, and libraries were built and with private endowments, and vulnerable to the vagaries of the fortunes of the individual charitable giver, which are more dynamic than the nation as a whole. Moreover, they were not designed to be systems committed to coverage of all citizens within a given state, let alone all Americans from sea to shining sea. This was especially notable in NYC in the 1880s when the railroad bubble burst and unemployment, homeless, and child-abandonment reached levels unseen ever since. 30% of the city’s suddenly overburdened charities went bankrupt, and at the time, charity was the only system. Government funded social services would not become a significant part of our social contract until the next economic nightmare, the great depression.
Now for posts list of eveything we used to do without income tax:
Schools–Please compare the number of students who received a primary and secondary education 1913 vs 2012. Please compare the literacy rate 1913 vs 2012. Please consider the changing job market, and necessary job skills, the availability of factory and agriculture jobs 1913 vs 2012. Please consider the expected compensation for those jobs vs those that require at least a basic education (computers, accountancy, administrative assistant, pharmacist. Hell, cops are expected to have a college educations today, and college boy cops would’ve been laughed at in 1913).
Colleges–The same arguments above apply here. And we shouldn’t forget the tax-payer funded GI bill, which made a college education the norm in this country, not the exception. Though granted only to those who served in the military, it came at a time when “only” looked surprising similar to “all males about to enter the work force” and was tied to the early years of the Cold War when the DoD was financing (on the taxpayers nickle) civilian science education, which it doesn’t anymore. Without the special financing we’ve seen other countries excel far beyond us in science literacy. This was the “Greatest Generation,” I would argue that a significant part of their greatness was the postwar expansionism, which was as bold as heroic as their conduct in battle.
Roads—Before 1913? Not so much, and not reliably maintained. Moreover, the explosion of the American car culture would not emerge until after invention of leaded gas and Freon-based A/C in the 1920s (both the work of the should-be-legendary but unfortunately-forgotten Thomas Midgley, Jr) which increased fuel efficiency and power of cars and trucks, and allowed urban centers to flourish in hotter and more isolated places, creating vast networks of not only commerce, but dependancy. Horse-drawn local economies did not require road maintenance the way a fossil-fuel local economies do, and the more isolated that local economy is from food sources and ports of call, the more dependant they are on fossil fuel. The Federal Highway Bill (1956) built the America you see. It demands a great leap of imagination, and that imagination must be firmly grounded in historical literacy, to envision what it was like before. The highway expansion was in the era of the highest peace time taxation of the America’s top earners (adjusted for inflation, 90% for everything over $2.3 million dollars)
Vast Railroads–Rail is, long-term, cheaper to ship and maintain than roads (when you think of the cost of maintaining the whole of a road’s economy, you can’t just think of the tax-payer-paid road maintenance, but the privately-paid maintenance of ever single vehicle on it, and the total fuel costs of all those vehicles). Railroads are penny’s per mile, roads are dollars per mile. But it is an unthinkably huge up-front investment, literally impossible to do without massive public investment. But the Federal government didn’t have the cash to build the railroads, or even to engage in public-private partnerships towards their financing. But the government had something else, land. Huge land give-a-ways were the same things as pumping cash in. In the long-run, even more valuable. In the generations that followed, railroads became an indispensable part of our economic network, and huge amounts of economic activity became dependent on their reliable functioning, regardless if they themselves were profitable or not. This is the definition of “too big to fail.” Though freight railroads remain economially competitive with tractor trailers (as well as being far more environmentally beneficial than tractor trailers) passenger railroads have become a for-profit basket-case. No amount of government aide will change the fact that Amtrack can’t make ends meet even though they enjoyed record rider ship this year. But Amtrack is now, at least to a large degree, a commuter service, and as such, hundreds, if not thousands, of companies have bet their profitability on this system, as if it were a public service, like the roads, electricity, public schools, fire departments, and police. Which brings me too...
Subways–All of NYC’s subways were created by private, for-profit companies. All went bankrupt and were absorbed into the public/private partnership of the MTA. NYC literary runs on its subways. They can not stop. Lack of profitability can not be allowed to interfere with service, because the whole functioning of the most capitalistic of all of the cities under the umbrella of American capitalism would grind to a halt without public transportation. As we saw a month ago with Hurricane Sandy. And the disastrous consequences of that storm would not have been corrected (and in Staten Island, Breezy Point, etc, they are still not corrected) had it not been without the Army, Navy, Marines, and most of all FEMA who are all tax payer funded which brings me too...
Army, Navy, and Marines–All temporary institutions of income tax prior to 1939 were either overwhelming or exclusively for military spending either because of war or threat of war. The fore-mentioned “era of the highest peace time taxation of the America’s top earners (adjusted for inflation, 90% of everything over $2.3 million dollars)” which ran from 1946 to 1964 was paid for the Federal Highway System but was not initiated for it (it was still ten years in the future). It was to pay for the cold war. And the absolute highest in American history (adjusted for inflation 94% of everything above $2.54 million) which began in 1944 to pay for WWII because the 1941 and 1942 increases (81% of $76.3 million and 79% of 80 million) just weren’t doing the job. We really were choosing between taxes and Hitler. We chose taxes. Right now the US Navy is the single biggest consumer of fossil fuel in the entire world, and being so is the this countries single biggest obstacle to complete energy independence. The military is shifting its priorities to the Pacific Rim which will make the Navy more central to the military operations than it has ben in the last decade at least. And all of this costs money and the money comes from...
So Conservative fat, please grow up.
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