Monday, November 4, 2013

History Lesson, Part III: from The Birth of a Nation to a Federal Income Tax

Odd tangents, moments of strange intersections, events seemingly unrelated but with a thread pulling them together: this is the theme of this post (Part III), the final one in this series that began with Part I and Part II several weeks ago.
As promised at the end of Part II, this post will delve into some of the background story, with regard to the Sixteenth Amendment, which was formally adopted on February 25th, 1913 after being ratified by three-fourths of the States. The proposal for the Amendment had been drafted and passed by Congress in July of 1909. At the time of ratification, William Howard Taft was still President of the United States, but was preparing to step down for Woodrow Wilson, who would assume office a mere week (March 4th) after the the official pronouncement of the the ratification of the Sixteenth.

But before going further into this matter, allow me to briefly sum up Part I and Part II, for those who may have forgotten what was discussed therein.

Part I was largely about D.W. Griffith's film The Birth of a Nation (which premiered in 1915) and how it became the primary source of the mythos behind the rebirth of the Ku Klux Klan in the years after its release and into the 1920's, a rebirth that culminated in the infamous "Klanbake" at the 1924 Democratic National Convention. In this regard, we met several important players, with regard to our larger narrative: President Woodrow Wilson, Senator Oscar Wilder Underwood of Alabama, 1924 candidate for the Democratic nomination William Gibbs McAdoo, and future Supreme Court Justice Hugo Black. Of the four, only Underwood stood in clear opposition to the Klan. The others tacitly accepted the Klan at the very least (Wilson), cultivated its support (McAdoo), or were actual members of it (Black).

Part II was concerned with the passage of the Revenue Act of 1913 (the Underwood Tariff Act) and the roles of Senator (than House Majority Leader) Underwood and President Wilson in that regard, two men apparently on the same page when it came to revenues and taxes, but on very different pages when it came to the Ku Klux Klan. I delved into the specific nature of the legislation, with regard to the progressive income tax it established and ended with a question about Underwood's support of this tax and opposition to the Ku Klux Klan:
Here's a question, predicated on the assumption that Underwood--being a smart guy--knew the income tax was an easy sell because it targeted a very small group and knew that it would expand over time: why was he concerned about protecting marginalized groups on the one hand while he was engaged in explicitly creating them on the other?
The issue here, the one that maybe people are missing, is the identity of the marginalized group created by the institution of a progressive income tax. Because it's not the rich. Exactly the opposite. It's the very poor, the ones who would--over time--lose their stake in the system, would become a permanently dependent class. Thanks to the rapid urbanization partly caused by Reconstruction, this group would also predominantly be composed of the very same people targeted by the Ku Klux Klan.

The passage of the Revenue Act of 1913 was possible only because of the ratification of the Sixteenth Amendment, quite obviously. A previous attempt to initiate a limited (and progressive) Federal income tax had already been set aside by the Court, since it violated the Constitutional requirement for any direct tax to be proportional according to population. Any income tax--which was based on a percentage of income, whether progressive or not--violated this requirement. And of course that was the very intent behind having such a requirement in the Constitution.

Too little is made of this point, I think. The reasoning behind not having an income tax was not based on some sort of "protect my wealth" hatred of income taxes in general. Such things were fine at a State level for the Framers, if that was how States chose to collect their taxes. Rather, the issue was--based on an understanding that not all States were or would be equal in terms of wealth--about power, about the presumption that having the cost of government borne inequitably would creates expectations by those (States and individuals) bearing that cost, since the existence of States alone created factions. And based on history and the experiences of the Framers themselves, it was quite an understandable point of view.

But over time, the Federal government expanded--despite the best efforts of the Framers to stifle such growth via checks on Federal power--and the issue of funding it became more important, especially during wartime, when tariff revenues were both insufficient and often declining. The attractiveness of an income tax as a means to fill this need was based on the presumption that such a tax could be targeted at a a narrowly limited portion of the population: the very rich. By and large, in the United States of the late 19th and early 20th centuries, this economic class existed almost exclusively in the Northeast. And it was in the Northeast that the opposition to an income tax originated, as well.

Thus we come to the major conundrum of the Sixteenth Amendment, it's ratification by States. This is the order of ratification, to the point of the three-fourths needed to make the Amendment official:
Alabama (August 10, 1909)
Kentucky (February 8, 1910)
South Carolina (February 19, 1910)
Illinois (March 1, 1910)
Mississippi (March 7, 1910)
Oklahoma (March 10, 1910)
Maryland (April 8, 1910)
Georgia (August 3, 1910)
Texas (August 16, 1910)
Ohio (January 19, 1911)
Idaho (January 20, 1911)
Oregon (January 23, 1911)
Washington (January 26, 1911)
Montana (January 27, 1911)
Indiana (January 30, 1911)
California (January 31, 1911)
Nevada (January 31, 1911)
South Dakota (February 1, 1911)
Nebraska (February 9, 1911)
North Carolina (February 11, 1911)
Colorado (February 15, 1911)
North Dakota (February 17, 1911)
Michigan (February 23, 1911)
Iowa (February 24, 1911)
Kansas (March 2, 1911)
Missouri (March 16, 1911)
Maine (March 31, 1911)
Tennessee (April 7, 1911)
Arkansas (April 22, 1911)
Wisconsin (May 16, 1911)
New York (July 12, 1911)
Arizona (April 3, 1912)
Minnesota (June 11, 1912)
Louisiana (June 28, 1912)
West Virginia (January 31, 1913)
Delaware (February 3, 1913)
Note the obvious: aside from New York (very late in the game), the northeastern States are wholly absent from this list. Southern and western States dominate it. And the first State to ratify the proposed Amendment? None other than Alabama, home to both Underwood and Black. Given of course that Underwood went on to--with the help of Woodrow Wilson--push through the legislation for the first real income tax, this is unsurprising. Despite their obvious disagreements on the politics of race, they were again apparently on the same page when it came to income taxation and the Sixteenth Amendment.

And William Gibbs McAdoo--the man who curried favor with the Klan in 1924 and was staunchly opposed by Underwood--was right there with them, when it came to income tax. For he was also President Wilson's first Secretary of the Treasury, coming in to office on March 6th, 1913, just after the Sixteenth Amendment was ratified. He helped organize and institute the required bureaucracy for the new income tax in this role. He also revamped the Federal Reserve System completely. But most importantly, he helped expand the income tax system during World War I, when the nation was struggling with rising debt.

And it was here that things really get interesting, when viewed through the prism of current politics. As I have noted, the initial income tax imposed in 1913 was progressive, but quite limited in scope. I have no intention of delving into the why and how behind America's involvement in World War I, but note this: Republican Senator Robert La Follette and Democratic Representative Claude Kitchin (and majority leader, a role he assumed after Underwood decided to retire because of the Klan-related issues I have detailed) stood up and forcefully opposed entering the War.

Why do I mention these two men? Because they were also responsible for spearheading the attempt in 1916 to once again increase taxes on the wealthy in order to benefit the middle and lower classes. The Revenue Act of 1916 bears out their success in this regard, as rates were basically doubled (the top rate went from 7% to 15%). The Act also established an estate tax, a new tax on beer, wines, and liquors, and a number of special corporate taxes. The second in this list--the taxes on alcohol--points to yet another odd connection: the prohibition movement drew support from the same disparate groups who supported the Sixteenth Amendment. Both progressives throughout the country and disgruntled whites from the deep South  and West favored it. Underwood was an odd duck out on this issue, as he strongly opposed Federal prohibition laws (but for reasons based on the idea of States' rights).

To take stock of the situation, the rise of the Klan was on the one hand opposed by some staunch advocates of the Sixteenth Amendment but on the other used by some of the same. And by and large, supporters of the Sixteenth--whether also supporters of the Klan or not--favored nationwide prohibition. The ratification of the Sixteenth led--predictably--not only to a progressive income tax, but also to other Federal taxes, all of which were expanded and increased as soon as there was an excuse to do so (like World War I).

Is there some kind of hidden linkage here, a nefarious subplot or conspiracy to any of this? Almost certainly the answer is no. But the central figure in this disjointed tale represents an interesting character study, to say the least. Oscar Wilder Underwood is not usually treated as a major figure in U.S. History. But he really was; the significance of his role in all of this simply cannot be understated. Standing on principle, he publicly opposed the rise of the Ku Klux Klan and its power within the Democratic Party. Doing so cost him his political career and very likely cost the Democrats the 1924 Election. Yet his stand also initiated the beginning of the end for the Klan as a real political force.

At the same time, he pushed for a Federal income tax, led his State to ratify the Sixteenth Amendment ahead of all others, then wrote and shepherded through the legislation creating the first income tax. In truth, he did this as a matter of principle too, I think. Yet one can't help but wonder if Underwood recognized the consequences of this, if he would have actually approved of just how far these taxes would extend, how big the Federal government would become. His opposition to prohibition provides a clue.

Underwood was no progressive, this is certain. His book, Drifting Sands of Party Politics, was published in 1928, shortly before his death in 1929. Despite his support for an income tax, he comes across in this book as very much a small-government libertarian, opposed to intrusive laws and government overreach, while very much in favor of individual freedom and equal rights for all. Thus, there is a great deal of irony here, which is really the only point of the tale...

Cheers, all.

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