(Edited from 2 April 2004)

woody_zimmerman_118_2007At our house April 1st is a favorite date for more than the usual silly reasons of practical jokes and improbable scenarios that end with shouts of “April Fool”. For it was on this day that my wife and I met. The date was April 1, 1961. (Obviously, I was a mere boy at the time.)

I tell people that I was just minding my own business on the bus of the touring choir for our college, when this beautiful babe “threw herself at me”. (My mother had warned me about this, but did I listen?)

Carol (a.k.a. “The Wife”) tells the story a little differently, of course. She claims she was holding a seat for her friend, Sylvia, who was late boarding the bus that morning. I – young and brash, but not blind – saw an unexpected opportunity to sit next to a bodacious choir babe, so I sat down next to her. Her protestations about Sylvia availed naught. (Even then, I was stubborn.) Throughout the day we chatted amiably and wandered around the Dupont Gardens in Delaware. I learned that she had sworn off men and now planned to be an old-maid schoolteacher. (Obviously, this was thrown down as a challenge to me.)

The rest, as they say, is history. We were married sixteen months later. I often reflect on how Sylvia’s five-minute tardiness made such a difference in our lives. On such Providential close-timings many a marriage has undoubtedly begun. It was for us – as I have often said over these forty-eight years – God’s April Fool joke to top all April Fool jokes.

But I love early April for more than these romantic reasons from my past. I also love April because it is what we have come to call “tax season”. Yes, it’s entirely true. I love that time of the year when we all spend many hours – or else pay tax consultants lavishly – to prepare our income tax returns. Indeed, I have just completed my own return after spending much of two weeks gathering and sorting receipts and using a software package (my first time) to prepare the forms.

Like most Americans, I approach the annual task with a distaste bordering on nausea. Usually I delay until a week before the deadline, although this year I actually started earlier. I use a commercial tax-preparation software package. It is invaluable since it quickly recalculates the entire return after any change. (Experienced returniacs know the frustration of redoing numerous “schedules” of the return after inserting last-minute changes.)

Why, then, do I “love” tax season if I hate doing my return, like anyone else? The answer is that as a political conservative, with libertarian leanings, I love tax season because it is one of the few times when all Americans must actually confront the ponderous, extortionate income tax system we have today, as well as the reason we have it. That reason boils down to Envy. How envy became the annual nightmare of the Income Tax is a cautionary tale for all of us.

By the early 20th century a few industrialists, miners, bankers and railroad tycoons had made vast fortunes in emerging industries like steel, oil and railroads. Dollars were backed by gold, so they bought far more than the greenback of today. But, notwithstanding the mega-success of some, dollars were a lot tougher to earn than today. Many workers earned just a single dollar for a long day of hard toil. Maids and other servants made less.

Orphanages and poorhouses cared for people who were in real want, but nothing existed like the welfare “safety net” of today, whereby significant income and in-kind services are provided for prolonged periods. Without work, circa 1900, you were in deep trouble. Many people in such circumstances lived on the streets without shelter or wandered as vagrants.

In this economic environment – far more demanding but also less restrictive than today’s – the spectacle of rich people ostentatiously displaying their wealth in mansions and kingly living styles generated much resentment among the millions who were just scratching along. Populist politicians began to fan the flames of envy to gain political advantage.

This produced two political initiatives. First was “trust-busting” – a government-led effort to break up the huge monopolies in oil, steel, railroads, etc., which might actually threaten both the economic health and wartime safety of the nation. Because of those monopolies, some prices – which now appear low from our inflated vantage point – were actually very high.

Although we now consider gasoline outrageously expensive, for instance, prices during the early years of the century were really far higher than today’s – even without the high gas taxes we have. I read recently that the price of gasoline, if translated commensurately from the 1920s into today’s cost of living and wage levels, would be $10 a gallon. At a time when people were still working for $1 a day, a man could spend a whole day’s pay filling his tank with 20¢ a gallon gas – if he had a car (which was unlikely, if he was making $1 a day).

The second initiative launched against the “malefactors of great wealth” (as the rich were popularly tagged) was the income tax. Conditioned, as we are, to having 25% of our pay “withheld” as tax, before we even see it, we find it difficult to grasp that this was not always so. At the dawn of the 20th century, people actually took home their full earnings on payday. The man on the street could imagine nothing else. (They didn’t know when they had it good.) The major funding for the federal government came from import duties and excise taxes.

The fly in the ointment was a handful of high-profile rich people, like the Carnegies, Vanderbilts, Rockefellers, Goulds, etc., who had accumulated fortunes in the hundreds of millions – wealth beyond the dreams of avarice – without paying a farthing in tax. This is impossible to imagine today, and was becoming hard to swallow then. People who complained that others had made so much money without paying any tax failed to notice that they had not been taxed, either. “Envy politics” had been born.

An income tax was imposed during the Civil War, but it was phased out in 1872. In 1894, farm and labor discontent spurred enactment of a peacetime income tax. Pressured by trade associations, Congress passed the Wilson-Gorman tariff bill, which included an income tax. Soon after enactment, however, a conservative Supreme Court ruled the tax unconstitutional (Pollock v. Farmers' Loan and Trust Company), pronouncing it a “communistic threat” to property.

But the dogs had been let loose. During the Progressive Era, sentiment for the income tax grew so strong that in 1909 President Taft proposed amending the Constitution to permit it. An amendment was drafted giving Congress authority to impose taxes on the proceeds of any lawful business without apportionment according to population or equal treatment of all taxpayers.

Support for the amendment came from a coalition of: (1) progressives alarmed by rapid concentration of industrial wealth; (2) conservatives who believed the government needed an elastic and reliable system of revenue to cope with national emergencies. By February 1913 the Sixteenth Amendment had the approval of the required three-fourths of the states. The nose of the Income Tax camel was under the tent.

Thereafter, income tax legislation was quickly enacted. The “normal” income tax rate in 1913 was 1% on annual income up to $20,000 – the first $3000 being exempted for single taxpayers, and the first $4,000 exempted for married taxpayers. (This took 90% of workers off the tax rolls.) Higher (i.e., “super tax”) rates were applied to incomes above $20,000, with the maximum super tax rate of 7% applied only to incomes above $500,000. (Contrast this with today’s highest tax rate of 35% on incomes above $312,000 – comparable to about $15,000 in 1913 dollars.)

Today, personal exemptions are only $3,050 per person; the individual standard deduction is $4,750. Somehow, the inflation that escalated income tax rates from a range of 1-7% to 10-35%, today, didn’t touch the exemption. If it had, today’s personal exemption and standard deduction would be worth about $45,000 per person.

Of course, those original rates, which would seem idyllic today, did not last very long. The top rate quickly leapt to 77% during World War I. By the 1950s – within my working lifetime – the top tax rate was actually 92%. Naturally, very few incomes were subjected to that rate, since people earning at this level could buy advice on how to shield their income from taxation.

Data from the Congressional Joint Committee on Taxation shows that income tax rates have been adjusted (by my informal count) no less than 56 times over 98 years. An abbreviated table of tax rates in the lowest and highest brackets is furnished below. (Please refer to http://www.winke.com/wts/wts./histusrt.htm for the complete table and qualifying footnotes.)

 

Years

Lowest Rate (%)

On Income under

Highest Rate (%)

On Income above

1913-15

1

$20,000

7

$500,000

1918

6

4,000

77

1,000,000

1922

4

4,000

56

200,000

1924

1.5

4,000

46

500,000

1925-28

1

4,000

25

100,000

1930-31

1

4,000

25

100,000

1932-33

4

4,000

63

1,000,000

1936-39

4

4,000

79

5,000,000

1941

10

2,000

81

5,000,000

1942-43

19

2,000

88

200,000

1944-45

23

2,000

94

200,000

1946-47

19

2,000

86.45

200,000

1948-49

16.6

4,000

82.13

400,000

1950

17.4

4,000

91

400,000

1951

20.4

4,000

91

400,000

1952-53

22.2

4,000

92

400,000

1954-63

20

4,000

91

400,000

1964

16

1,000

77

400,000

1968

14

1,000

75.25

200,000

1971

14

1,000

70

200,000

1981

13.825

2,100

69.125

212,000

1983

11

2,100

50

106,000

1985

11

2,180

50

165,480

1987

11

3,000

38.5

90,000

1988

15

29,750

28

29,750

1991

15

34,000

31

82,150

1993

15

36,900

39.6

250,000

2000

15

43,850

39.6

288,350

2003

10

14,000

35

312,000

Over the ensuing century, wars have generally occasioned the highest tax rates. (See yellow-shaded years. Shading error: 1965-'72 were also war-years.)

Democratic administrations (gray shading) have generally kept rates higher than Republican administrations (blue shading). Some of this is explained by the fact that Democratic administrations involved us in all four major wars in the 20th century. (Surprise!)

Wars or not, however, the Democratic Party has clearly favored “soaking the rich”, while Republicans tended to lower rates whenever possible. In 1988, rates reached their lowest levels since 1930 when just two income brackets were established, with rates of 15% and 28%, respectively. As few as two rate strata had never before been established in the entire 75-year history of the income tax. (Naturally, it was too good to last.)

The years 1954-’63 represent the longest period of stability in the tax rates. Tax-withholding – previously mentioned – was first established during World War II. President Roosevelt actually vetoed it, but it was passed over his veto by a worldly wise Congress that realized half of the country would be in tax-default, at year-end, unless taxes were pre-collected.

Although tax legislation of recent years has exempted increasingly higher levels of income from taxation, the fact remains that millions of non-rich citizens today are taxed at rates reserved for zillionaires in the early years of the 20th century.

Many inferences could be made from the data, but space does not permit. Suffice it to say, the April Fool joke is on us for thinking we could establish a tax that would touch only “rich” people. We shouldn’t have done that.

The Bible says Envy is a sin. The Income Tax amounts to visitation of the “sins of the fathers on the 3rd and 4th generations”. We need to learn from this and not repeat the error.

Even reckoned in strictly secular terms, envy-based public policy usually comes round to bite us. Keep the income tax in mind the next time you hear a politician say he’ll make the other guy pay “his fair share”. The “other guy” will eventually be You.

We should know this by now, but a hundred years on we still haven’t learned it.