IRS at 100: How income taxation built the middle class … Exactly a century ago, on October 3, 1913, President Woodrow Wilson signed the first modern federal income tax into law. The sky did not fall. That may have surprised the eminences of the American plutocracy. For years they had predicted the most dire of consequences should the federal government begin taxing the incomes of America’s most comfortable. – Reuters
Dominant Social Theme: Thank goodness for taxes. They are a fundamental building block of civil society.
Free-Market Analysis: Ordinarily our second lead article would focus on a dominant social theme somewhere other than Reuters, as we have already analyzed a Reuters story.
But, as mentioned, the crop of articles offered up in the Reuters editorial section this past week is so extraordinary that we find ourselves transfixed by both the wrongheadedness of many of the assertions and the bluntness with which they are stated.
It’s notable because it seems as if Reuters has raised its rhetoric and heightened the stridency of its argumentation. We could advance a couple of theories as to why this is going on, but for now we’ll just offer an analysis of the article excerpted above.
Ironically – perhaps because we are in a melodic mood given the return of The Daily Bell – we found yet another popular song running through our tiny noggins as we perused it. Pardon us for the profanity, but these lyrics surely occurred to us because of the outrageousness of the idea that forcibly confiscating wealth and redistributing it is an essential element of prosperity.
It strikes us as, well … bananas – with an obscenity for emphasis. Here’s more:
In 1910 and 1912, new progressive state legislative majorities across the nation endorsed the income tax amendment. Early in 1913, final ratification gave Congress a green light to add an income tax to the tax code.
Months of congressional debate culminated eight months later with a new revenue act that featured a modest income tax. How modest? The top tax rate would sit no higher than 7 percent on income higher than $4,000 — the equivalent of slightly more than $94,000 today. That top rate would soar higher in the decades to come — much higher. In the 1940s, during World War Two, income above $200,000 faced a 94 percent tax rate. America’s top marginal federal income tax rate would hover around 90 percent into the early 1960s.
These high-tax years — for the rich — should have been a time of economic calamity. At least according to the critics of progressive income taxation. But real life proved these critics wrong. Commerce did not cease when the tax code levied steeply graduated rates on U.S. incomes. The wealthy did not flee. The entrepreneurial spirit did not evaporate. Quite the contrary. The United States thrived throughout the mid-20th century heyday of high taxes on the rich.
… History hasn’t been kind to all those who sought to prevent progressive income taxation a century ago. None of their dire predictions have come true. This is the great irony of federal income taxation’s first 100 years. Our contemporary political movers and shakers go about their business as if history had vindicated those shrill critics of income taxation in the early 20th century.
Pols and pundits today have swept off our political center stage any serious consideration of the stiff progressive rates that even moderate Republicans, like President Dwight D. Eisenhower, once accepted as political and economic common sense.
Economists like Emmanuel Saez, the University of California, Berkeley scholar who rates as the leading authority on high incomes, points out that this refusal to revisit stiff top marginal rates makes no sense. Top tax rates today could double, Saez and his colleagues say, without jeopardizing our economic health.
Saez has more than economic theory on his side. He has history. On this anniversary of the first income tax, let’s be sure to remember that history — and the Americans who made it. In 1909, former Attorney General Wayne MacVeagh asked “Why should the colossal incomes and the colossal accumulations of the possessors of what Mr. Carnegie himself calls surplus wealth continue to be exempted from proper taxation?”
“Gigantic fortunes,” MacVeagh said, serve as “serious obstacles to the contentment, the peace and the healthy growth of the community as to call for their abatement.” Let’s stop treating our egalitarian-minded forebears like MacVeagh as crazy old uncles we hide away in the attic. Let’s invite them into our public policy parlors. They have much to share. We have much to learn.
The main trouble with this analysis (and there are many troubles to be sure) is that this brief history leaves out the role of the Federal Reserve. It was the creation of the dollar reserve structure that created the US’s 20th century “prosperity” not the enforced confiscation of taxes.
The Fed created the boom of the Roaring 20s by debasing the dollar, supposedly to help the English pound regain its status as the world’s dominant currency. In 1929, the market finally, quite understandably, crashed and the long, dark night of the Depression swept over both the US and most of the rest of the world.
Panicked, Fed bankers apparently prevailed on Franklin Delano Roosevelt to confiscate gold. This was so that US citizens would not trade in their “dollars” for gold at commercial banks and find out that the banks had none because the Fed had transgressed against the legal dollar/gold reserve ratio. That was, after all, how the Fed had created a spurious boom and debased the dollar, by printing more paper than they were allowed to, given their gold holdings.
Yes, the Fed was conceived in iniquity and raised in sin. Its history is a kind of continued criminal action. As the Great Depression rolled on, the bankers and the US and British political elite became more and more worried about civil insurrection. Fortunately, and most conveniently, a world war broke out.
After the war, the US was the single, lone, dominant standing nation-state. Its gross national product for a while represented 50 percent of the world’s, apparently. And when the US spent itself almost into oblivion during the Vietnam War, the result was a cessation of the gold standard entirely and the birth of the petrodollar.
Richard Nixon dispatched “Super K” – Henry Kissinger – to Saudi Arabia to instruct the Saud family to trade dollars only for oil. As the biggest producer of oil in the world, Saudi Arabia was also the marginal hinge and its currency policies were therefore the policies of OPEC.
The world would now have to hold US dollars to buy oil and thus there would always be a demand for these dollars. This deal gained Kissinger a TIME magazine cover picturing him as Superman and gave rise to a thousand myths about modern US “exceptionalism.”
The original US exceptionalism had to do with its agrarian republican heritage, in large part enunciated by Thomas Jefferson. The US’s late 20th century exceptionalism as enunciated by a controlled mainstream media suggested fuzzily that “American values” were responsible for the US’s extraordinary prosperity. US workers were simply more efficient, unions were more determined, individuals more patriotic, science more expert, multinationals more determinedly managerial, etc.
The US was indeed a shining house on the hill … only it wasn’t.
US prosperity was built on Mao’s famous dictum: Power springs from the barrel of a gun. We know today that there is oil all over the Earth. But throughout the 20th century, top elites managed to control discoveries and exploitation via “green” maneuverings and repetitive fictions such as “peak oil.”
This is the REAL history of the 20th century. US prosperity was built from calculated resource scarcity and determined intimidation of the Saud family and other oil producers. Because the world had to hold dollars, the US could print as many of them as it wanted. No other nation could do so.
The dollar tribute poured into the US. Never had there been such a mighty empire. The dollar reserve system allowed the power elite to build an enormous military and a vast penal system. Gradually, US Intel spread its agents and influence around the world.
The US’s 20th century prosperity had NOTHING to do with graduated taxation or the idea advanced by this Reuters editorial that somehow a political determination to create a “moral” people with income-leveling facilities sparked US power and prosperity in the 20th century.
Leaving aside any potentially logical reasons to forcibly confiscate wealth, the secret monetary history of the US shows us clearly how US and British elites manipulated the world’s monetary system to gain riches grander than Croesus’s.
For those with the stomach to face reality (and if you are reading this, perhaps you are such a person) there is something else to consider that we have mentioned before. It is the idea that the power elite responsible for the petrodollar has decided to abandon it.
We base this conclusion on the sudden emergence of shale oil and the increasing Western spawned violence destabilizing the Middle East. It seems to us that a move is afoot by the dollar’s controllers to gradually substitute something else for the dollar, a more globalized “bancor” – as Keynes once predicted.
In any event, these are trends you should be careful to watch. Don’t be fooled by the mainstream media’s dominant social themes. The Anglosphere remains the world’s most powerful entity and it is highly doubtful that global financial maneuverings would be taking place without its acquiescence.
Of course, you will read none of this in the Reuters article, only that the moral imperatives of leveling created the prosperity that US citizens cherished in the 20th century. How this explains the economic chaos of the 21st remains a mystery into which the article does not delve. Probably for obvious reasons.
A weird and misguided article, indeed, in our humble opinion. And so we leave you with this, dear reader, from the immortal Gwen Stefani in her one-time monster hit single, “Hollaback Girl.” She wasn’t singing about this Reuters editorial to be sure, but she might as well have been; and thus this chorus, so popular with the younger generation, expresses our sentiments.
Let me hear you say this sh-t is bananas
(This sh-t is bananas)
This sh-t is bananas
(This sh-t is bananas)