Thursday, Apr 24, 2014

100 years of income tax and controversy still rages

Published:   |   Updated: May 7, 2013 at 07:44 PM

Put on your party hats. Get ready to celebrate.

Next year will be the 100th anniversary of the modern income tax, which helps keeps the United States financially afloat despite never-ending controversy. Among the controversial features: loopholes, huge disparities and way too many people who think it's cool to cheat their fellow taxpayers by lying on their returns.

The amazing thing is that Americans ever voted to enact an income tax, but that's what they did with the 16th Amendment to the Constitution. Obviously, those Americans never met Grover Norquist, Ron Paul or today's Tea Party members.

The income tax actually passed pretty easily, winning in 42 of 48 states, six more than required for a constitutional amendment to become law.

President Woodrow Wilson, a Democrat, signed it into law in 1913, the same year the Federal Reserve was born. Some states liked the income tax so much that they started their own income taxes, too, although Florida preferred to bank on tourists. That tax approach may be one reason the Sunshine State ranks in the bottom third of the nation when it comes to individual health and well-being.

Of course, back when the federal income tax began in 1913, the highest tax rate was 7 percent, and the 1 per-centers of yore paid the vast majority. The first 1040 form was three pages; instructions took one page. No need for TurboTax then.

This information comes to us from Jill Lepore, a historian writing in the Nov. 26 issue of the New Yorker magazine.

She traces the passage of the income tax to a series of dire events that began in 1906 with an earthquake that destroyed most of San Francisco.

The disaster set off a run on the banks – big bad guv'mint hadn't yet created insurance for bank deposits – and triggered the Panic of 1907. In the ensuing recession, the New York Stock Exchange and the U.S. Treasury both nearly collapsed, Lepore writes.

Americans summoned the courage to tax themselves to make our country stronger. This was before the Bush Doctrine – everyone go shopping to finance our invasion of Iraq.

After the 16th Amendment passed, there was a lot of voter remorse, especially from rich folks. They tried for decades to undo the amendment, says Lepore, who teaches American history at Harvard University.

Many of the opponents were financiers, who showed a tremendous grasp of public relations by changing the name of their group, the American Bankers League, to the American Taxpayers League.

Supporters of the tax that dare not mention its name should take a cue from the rich boys and start promoting the virtues of the income tax. It's a job creator, and that's something we need now.

Look at all the jobs the income tax creates for accountants, lawyers and lobbyists who plumb its Byzantine rules and poke loopholes through the bureaucracy, all the better to help their clients.

Without the income tax, there would be no Internal Revenue Service, one enterprise where the customer is always wrong. Who else would employ all the humor-impaired IRS agents?

There's a more serious reason to keep the tax and maybe bump it up some to improve the federal government's financial status and provide valuable services like education, health care and environmental protection. You know, things that help make America great.

Look at Lepore's history lesson – natural disaster, recession, financial uncertainty in the early 1900s – and you see scary parallels with the early years of this century – costly hurricanes, wars, recession, financial uncertainty.

Those folks a century ago put on their big-boy pants and voted to enact a tax to get the nation on an even keel. There's no reason we shouldn't do something similar and raise some rates to help the nation over its current financial hump.

Formerly a columnist for the Pensacola News Journal, Mark O'Brien is a writer in Pensacola, and the author of "Pensacola On My Mind" and "Sand In My Shoes." He can be reached at

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