Financial History 141 Spring 2022 - Page 34



America ’ s First Experience with a Steeply Progressive Income Tax

Library of Congress
By Daniel C . Munson
Critics of the scholarly pursuit of historical truths — and it must be conceded that such persons do exist — often lament that history seems like “ just one damned thing after another .” In response , those who value history often quote the philosopher George Santayana that “ those who cannot learn from history are doomed to repeat it ,” but these warnings often fall on deaf ears . Historians should perhaps grant that human progress , while generally a
War Time Taxing and Spending cartoon by Herbert Johnson , 1917 . good thing , tends to change conditions enough to make comparisons with the past somewhat imperfect .
French writer Jean-Baptiste Alphonse Karr delivered the priceless bit of wisdom that ( loosely translated ) “ The more things change , the more they stay the same .” Conditions change but human nature does not , so the historian struggles on , mining the records in search of those gems that — according to an equally famous quote by Mark Twain —“ rhyme ” with today ’ s very different conditions .
Perhaps nowhere can we see these historical rhymes more clearly than in the income tax laws , and in the debates concerning what system or series of tax rates is best .
The drive for tax fairness is always balanced with the practical concern for economic efficiency . This balancing act was famously expressed over 200 years ago by French economist Turgot when he wrote that the art of taxation involves “ procuring feathers from a goose with the least amount of hissing .” Thus , if high rates on certain high incomes are considered by some to be “ fair ,” they may be counter-productive if they discourage the activity that produced the income to be taxed at those high rates .
The present US income tax system got its start in 1913 , and it had a tumultuous first 10 years . The system started modestly , but it was quickly called on to help finance the country ’ s World War I effort . Top marginal rates escalated dramatically to try to keep up with the war spending : from 7 % on income over $ 500,000 ( huge
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