April 15 Disaster -- 1913: The Hull Floats!

Craig Goodrich
Rant Magazine
April 1998

Had enough yet? Has "doing your taxes" finally gotten you upset enough to think seriously about the whole tax system and the role of government in people's lives in this country?

Probably not. None of us likes the income tax; none of us ever has. But most people think about it as inevitable, some kind of annual Act of Nature like Alabama's usual winter ice storm. No use complaining, just shut up and do it; you can't change anything anyway. Mail off the forms and go have a beer.

Yeah, yeah, yeah. The US Tax Code is more than 9,000 pages long (plus hundreds of thousands of pages of IRS "interpretations"), Americans spend more than 5 billion man-hours each year "doing their taxes" -- more than it takes to build every car, truck, van, and airplane made in the United States -- and pay $30 billion annually to an army of tax accountants and lawyers to fend off the IRS' army of 120,000 auditors and agents. The IRS now has more personnel than the EPA, BATF, OSHA, FDA, FBI, and DEA combined. No wonder the average American is more terrified of the IRS than of any other government agency.

We need Tax Reform. Sure we do. In the last 40 years Congress has "reformed" the tax code 31 times. In 1980 Jimmy Carter called the tax code a "disgrace to the human race." (1980 was an election year.) He was absolutely right, of course, so since then we've had at least a half-dozen major "tax reforms." The 1997 "tax reform" alone added another 600 pages to the tax code. Tax Reform, yada, yada, yada.

And this entire atrocity pays for less than half of the Federal budget: the total take from all personal and corporate income taxes is only about $700 billion; the rest comes from excise taxes, duties, and user fees of various kinds. Economists estimate the deadweight cost to the economy of income-tax compliance at more than $200 billion, nearly a third as much as the tax raises in the first place. But forget it, have another beer, that's just the way it is, it's always been like this.

Well, no, actually it hasn't always been like this. Has the beer mellowed you out enough to tolerate a little history? Sure, it's boring, but if you pay attention you'll understand a little better how a democracy ostensibly run "by the people, for the people" wound up with a tax system hated by the quarter-billion of its citizens who aren't politicians, lawyers, accountants, or bureaucrats.

The first income tax in the US was levied -- as an "emergency measure" -- during the Civil War, and repealed in 1872, after the commissioner of Internal Revenue wrote to the chairman of the House Ways and Means Committee that the income tax was "the one of all others most obnoxious to the genius of our people, being inquisitorial in its nature, and dragging into public view an exposition of the most private pecuniary affairs of the citizen." (1872 was an election year, too.)

The bureaucracy continued to grow, however, and new civil service laws were passed regularly by outgoing administrations to keep their cronies from being fired by the incoming administrations. The "Progressive" ideology of government activism was also growing, and what with one thing and another an income tax law was finally passed again in 1894.

It was called "An act to reduce taxation, to provide revenue for the government, and for other purposes," just as today a law authorizing the FBI to put an immediate wiretap on any citizen they suspect of owning a telephone is always called "The Personal Communications Privacy Protection Act of 1999" or something similar. (Why do they keep on doing that? Because it keeps on working.)

In spite of the politicians' best efforts, though, the new tax wasn't exactly a great hit with the public. The Washington Post, a more sensible publication in those days, called it "an abhorrent and calamitous monstrosity ... [which] punishes everyone who rises above the rank of mediocrity," adding "The fewer additional yokes put around the necks of the people, the better." The new tax law was challenged in court, and in 1895 the Supreme Court found it unconstitutional because it was a "direct" tax not apportioned among the States based on population, as the Constitution requires [Art. 1, Sect. 2].

Cordell Hull, 1871-1955. Now you know why this man is smiling... But it wasn't long before the politicians discovered the magic of class envy and -- helped along by union organizers and intellectuals influenced by the European socialist movement -- began to convince the voters that the great magnates somehow weren't paying their share. For example, Representative Cordell Hull, then a thirtysomething spokesman for the Scrooge McDuck view of economics that has prevailed in Washington for most of this century, railed against "the Carnegies, the Vanderbilts, the Morgans, and the Rockefellers with their aggregated billions of hoarded wealth."*

Of course the small fortune the Astors were paying, for example, for their extravagant crystal chandeliers wound up buying food and clothing for the kids of some hardworking glass blower. ("But all that money could be feeding poor people somewhere," she said. "It is," he said.) But the concept of the free market is obviously too complex for the Hulls of our glorious Ship of State.... (OK, OK, sorry!)

So proposals for a Constitutional amendment to allow an income tax started floating around Washington. At the same time, by an amazing coincidence, the Federal bureaucracy began to channel military spending disproportionately into states whose elected representatives had consistently voted against the income tax. Between 1897 and 1908, for example, nearly three-quarters of the Federal spending increase for Army posts and arsenals went to the 17 states which had been opposed to income tax legislation.

The Federal establishment was using bribery to cajole the states into doing its bidding more than a century ago, when it was less than one-fiftieth its current size. Now, of course, we have the use of Federal subsidies to control the States' education programs, and Federal grants to "encourage" the States to issue national ID cards disguised as driver's licenses, but it's a very old trick. (Why do they keep on doing that? Because it keeps on working.)

In February of 1913, the Sixteenth Amendment was ratified, allowing the Federal government to impose income taxes. Many voters who had supported the amendment believed that it would be invoked only in emergencies -- like the Civil War, still fresh in many minds -- but the Congress adopted legislation imposing the tax by October of the same year. Those who complain that our system of government makes it too hard to get anything done should observe how rapidly the machinery can move when it's giving the bureaucracy what it wants.

Opponents of the new tax claimed that soon it might rise from 7% to the horrendous level of ten percent. Outraged supporters of the tax accused them of wild exaggeration and scaremongering. By 1915 the top rate was 15%, and in 1917, in honor of the First World War, it was raised to 67%. (Why do they keep on doing that? Because it keeps on working.)

And that's how the income tax was originally inflicted on us -- the now-familiar combination of lies, demagoguery, bribery, and obfuscation that the Washington establishment has been using ... Hey, wake up! We haven't even gotten to the part about withholding yet.....

* "More than any single individual, he was responsible for the adoption of the law which serves as the basis for the present system of federal income tax," brags the Cordell Hull Foundation at Tulane. Hull later became FDR's Secretary of State. His legacy to the country consists of the income tax and the United Nations, so naturally he is widely revered.

Thanks to Professor Charlotte Twight of Boise State and Stephen Moore of the Institute for Policy Innovation for their invaluable research on this topic. I hope they will bear in mind the time-honored academic principle that plagiarism is the sincerest form of flattery....

Computer guru Craig Goodrich lives in a house in the woods in Elkmont, with his wife, two children, and four cats. He is the Huntsville district representative of the Libertarian Party of Alabama, a smoker, and a gun owner.