The lost promise of progressive taxes

April 15, 2014

By midnight on April 15, roughly 140 million Americans will have filed their federal income tax returns and breathed a sigh of relief. Politicians from both parties, however, will spend most of the day criticizing our current tax system.

Conservatives bemoan that not enough people are paying taxes. They insist that a minority of “job creators” and “makers” are underwriting the social benefits that go to the “takers.” Liberals cite the growing concentration of wealth and lament that the rich don’t pay their fair share. In this new Gilded Age, they say, the 1 percent should be paying far more of their annual earnings.

Yet neither party seems willing to reform our tax system dramatically. Both avoid talking about the vital link between taxes and government spending. This was not always the case.

More than a century ago, during the first Gilded Age, lawmakers embraced progressive taxation. Responding to the massive inequalities between plutocrats and workers, policymakers used graduated taxes to rebalance the tax burden, reminding Americans about their shared duties to each other.

As the nation struggles through another period of rising inequality and social dislocation, history shows there are effective ways to address these issues.

The reformers’ goal then was to reallocate the burden of financing a bourgeoning modern industrial state. They were not seeking to radically redistribute wealth, as some Tea Party conservatives claim or as some on the left may hope. The Progressives wanted to replace tariffs and excise taxes on alcohol and tobacco — the existing system of indirect, regressive and hidden taxes — with a direct, graduated and transparent tax system. They wanted to create a new fiscal order.

By taxing individual incomes, business profits and wealth transfers instead of ordinary consumption goods, activists were trying to force those segments of society that had the greatest taxpaying ability — the wealthy individuals and corporations, then largely in the Northeast — to share the burden of underwriting a modern democratic state. Progressives a century ago, like their liberal counterparts today, believed citizens owed a debt to society in relation to their “ability to pay.”

This curt yet crucial phrase captured the idea that people who had greater economic power also had a greater social obligation to contribute to the public good — to contribute not just proportionally but also progressively more.  Influential thinkers and political leaders — including Francis A. Walker, president of the Massachusetts Institute of Technology, and William Jennings Bryan, three-time Democratic presidential nominee — used the term “ability to pay” to illustrate the widening circle of social responsibilities in a modern society.

The Progressive Era was, after all, a time when the social dimensions of American democracy were paramount. “The identification with the common lot,” as the influential social reformer Jane Addams noted, was “the essential idea of democracy.”

Creating a new tax regime based on the ability to pay had significant consequences. Not only did it provide sorely needed revenue while addressing growing inequality, it also fostered greater social solidarity and bolstered faith in government — a lesson lost on many lawmakers today.

Progressive Era politicians knew that adopting graduated taxes to counterbalance the existing regressive tariff and excise tax was one way to show that all Americans were contributing to the greater collective good. Graduated taxes reflected the importance of shared sacrifice.

Reformers believed progressive taxes could be used to reconfigure the relationship between citizens and the state to renegotiate a new social contract and forge a new sense of fiscal citizenship.

Activists also contended that a lawmaker’s duty, as part of this new social contract, was to ensure that the tax burden would be shared fairly by all Americans. If policymakers held up their end of the bargain, reformers argued, citizens would come to trust, even welcome, the growing powers of the modern state.

Americans would come to see how the public sector could enhance their private lives, creating the basis for economic development and prosperity, while also providing assistance in times of stress and crisis. They would view government not as an enemy, but as an ethical agency “whose positive aid,” Richard T. Ely, the progressive economist, explained, “is an indispensable condition of human progress.”

Indeed, making sure that the wealthy contributed their fair share was one of the key motivations for a progressive tax system. “I have no disposition to tax wealth unnecessarily or unjustly,” Tennessee Representative Cordell Hull, one of the chief architects of the 1913 progressive income tax, said: “but I do believe that the wealth of the country should bear its just share of the burden of taxation, and that is should not be permitted to shirk that duty.”

Hull’s comments still resonate today. Warren Buffet’s argument that he should be taxed at a higher rate than his secretary, the calls from Occupy Wall Street’s 99 percent to “tax the rich” and even the Obama administration’s partial victory last year in raising top tax rates on the wealthiest Americans are legacies of a progressive tax system based on the notion of “ability to pay.”

This tax day it may be useful to reflect on how an earlier generation of bipartisan reformers and lawmakers responded to a similar set of concerns — by creating the foundations for and the promise of a more progressive fiscal order.



PHOTO (INSERT 1): A general view of the Internal Revenue Service building in Washington, May 14, 2013. REUTERS/Jonathan Ernst

PHOTO (Insert 2): William Jennings Bryan, Democratic Party presidential candidate, October 3, 1896. Courtesy of LIBRARY OF CONGRESS




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The loss of political support for increased taxation has two main causes – the record of egregious wasteful government spending and the stratospheric rates of the modern era – Cordell Hull, quoted so favorably here, would be incredulous at a 39.6% income tax rate (before state income taxes). Those who, like the progressive economist Ely, also quoted, who see government as a tool to “improve” society share a common sentiment – unfortunately, a sentiment also shared by some of the worst people in history.

Posted by SayHey | Report as abusive

The original ‘Progressive era’ was at a time when the income tax was newly introduced – the Federal Goverment moving away from reliance on consumption taxes – and the concept of “ability to pay” was widely recognized as fair.
As SayHey clearly points out above, There is No Comparison from that ‘era’ to today where a bloated Federal bureaucracy consumes 22%+ of Total US GDP every year – with no effective checks and balances.

It is an absolute fact that most citizens of this Country have lost ‘faith’ in our government; now the ‘end justifies the means’. Professional politicians identify more to their DC cronies than consituents. Everyone is looking for a handout.

True tax reform will only be possible if we start with controlling federal spending First to a level below 20% of GDP – by recongizing that there is a Limit on what the Federal Govt can and should do… and then build a ‘progressive’ and fair individual and corporate tax code of both income, consumption and wealth taxes – where everyone pays to his or her ability – but everyone pays something.

Now we have devolved into the 50% ‘Payers’ and the 50% ‘Takers’ – this class distinction will not be sustainable.. But it starts with Federal spending…

Posted by willich6 | Report as abusive

Federal income tax rates were already progressive, even before the recent hike in the top rate. According to CNN: “As a group, the top 1% earned nearly 19% of all adjusted gross income reported in 2011 and paid 35% of all federal income taxes.”

I realize one’s total tax burden includes more than just federal income taxes, but many of the arguments about the wealthy not paying their “fair share” appear to be based on an unstated but incorrect premise that those with higher income pay less in taxes.

Posted by Meh_1776 | Report as abusive

SayHey, sorry but you seem to not have looked at history. Historically, our highest tax brackets are taxed at the lowest rates since pre-Great Depression. Prior to Reagan’s presidency, highest earners were taxed at 70% marginal rate on their income over the highest level. In the 50s and 60s, the highest marginal tax rate was 91%!! Please check your facts before postulating incorrectly that 39.6% is in some way a high marginal tax rate; it absolutely is not.

For inflation-adjusted income levels and associated marginal tax rates for 1913-2013, see the link provided: history_adjusted.pdf

Posted by DavidA1982 | Report as abusive

To the comments above, please refer to the 50’s and 60’s, where growth was high and quality of life was improved dramatically for all Americans… the highest rates were far far higher, and our spending was also kept in check by sensible politicians.

We can all agree that the government wastes billions, however those billions are mostly paid to companies that benefit a few key people, and make sure workers do not get the protection they would as government employees…

We need sensible rationalization across our spending areas, focused on the big ones (defense, medicare) and make it harder to defraud the system. Just in defense billions are wasted on pointless weapons while solders are left with low pay and benefits.

instead of partisan BS, we need a rational and fact based approach to taxation… Do we need a tax system to encourage growth? Yes. Do we need a tax system that encourages risk taking? Yes. Do we need a tax system that is so complex you need a CPA to file your taxes? No. Do we need a tax system that rewards excess debt but punishes savings? No.

Posted by GA_Chris | Report as abusive

yeah both parties don’t give a damn about the working man in the middle class. unless their is public push for such a change, we won’t see any results.

Posted by geasobd | Report as abusive

I believe the lost promise has more to do with the continued tinkering with the tax code to accommodate concerns on both ends of the spectrum. Wealthy companies and individuals want to keep their money, so they lobby for tax credits and safe havens. Poor people, not today’s 47%, barely having any money to begin with, vote for politicians that will help them keep what little they have. So tax breaks abound across the spectrum and somehow a reasonably good taxing system gets eviscerated. No surprise then that today’s tax code is nowhere near the progressive tax system originally implemented.
Given the lack of nationalism in the country, I doubt we could get everyone to agree to a tax system where everyone pays their fair share for the good of the country.
In any event we need to get the politicians moving forward on defining a better, simpler, and more fair tax code than we have today.

Posted by JKenny | Report as abusive

We hear all too often that the rich are not paying their fair share. That is absolutely inaccurate. 90% of the taxes collected are paid by 10% of the American population.

These days, about 50% of the population pays no taxes. A flat tax, where if you earned only a little, then you paid only a little, would actually be more fair.

In the end, though, the biggest problem is all the government waste. Want to save billions of $$? Obama should take out his pen and sign an executive order that says, “No more partying on the taxpayer dime.” We need to remove all the “entertainment” budgets from every level of government. If you want a Christmas party, everyone enjoying it should kick in. You don’t send the bill to others.

Posted by Dragos111 | Report as abusive

My objection to the current tax law is that my household pays the maximum rate plus AMT, while the Romney’s and Soros’ of the country pay at a deep discount, or not at all. We have millions currently breaking immigration laws with impunity … what if taxpayers like me decided to not pay their owed taxes? Heck … the once mighty rule of law is a 21st Century fantasy, so why pay?

Posted by SanPa | Report as abusive

It appears that Americans are now so used to paying for other people’s needs and greeds, that no pol takes seriously the idea that there should be one flat tax or fair tax for all concerned. Everybody should pay taxes and frankly, the IRS, a hugely corrupt org. should be abolished and a new far less powerful collection agency should replace it. About 20% of Americans pay almost all the taxes. The so called poor pay nada and get perks that again people are finally thinking is just un-American . It is not empathy that the tax system foists upon us; it is a fascist, or socialist, or communist power play to keep certain pols in power and reduce the liberties of many individuals. The Const. is telling us that national defense and certain infrastructures are a federal action duty but other than that, Americans are slowly but surely wondering just why do producers have to prop up a huge huge number of non-producers and one political party who loves to spend , tax and regulate freedoms.

Posted by phillyfanatic | Report as abusive

The current inflated system of “progressive” taxes is a fraud and is one of the biggest reasons for the stagnant economy.

Any system that penalizes people for success – for working hard, for creating, etc. is evil and wrong on so many levels. Why is it that the redistributive system we live under (I don’t care what folks claim the progressive tax system to have been, it IS a redistribution scheme), the more money you make – the large portion the government takes as a percentage (up to a point – until you are wealthy enough to find ways to shelter those funds – a whole other argument, though I cannot blame anyone who takes advantage of those legal holes).

I know quite a few people who have or do face a situation – where if they were to work extra (overtime, 2nd job, or spouse goes to work), their actual spendable income after taxes and other cost will significantly DECREASE. This has been further expedited by the most recent additions to the system – ObamaCare. Lets say you currently qualify for subsidies to help pay for your O-care policy. But – you are a hard worker and your employer gives you a raise – you can suddenly have to PAY BACK already paid subsidies (tax credits), and not receive those subsidies in the future… Add this to moving into the next tax bracket, thus paying a higher percentage of your income in taxes.

Now – lets also consider programs like the “Earned Income Tax Credit” – where if you are in the above situation and you were able to claim said credit last year… but your raise bumps you out of qualification… you might see a much larger tax bill yet.

Lets see – work hard, be successful – and actually lose money for it… how is that moral in any way? How does it encourage hard work and creativity?

How many of us know people who have jobs, but pay zero federal taxes because of their total taxable income being below the threshold? Yet even though they PAY zero tax, they get a huge “refund” check every Spring? They get it even if they do not work hard. Indeed – if they DO work hard, they may actually risk LOSING that “refund”, as well as actually PAYING taxes (thus having less actual income in their pockets).

Posted by TheBattman | Report as abusive

By what flight of reason are high marginal tax rates “progressive”? These rates are, if anything, regressive. They are a throwback to statist, almost medieval, mentality that deems all possessions to be
the right of the state.
One can imagine a Louis XIV proclaiming that he has the
right to confiscate the wealth of the nation. One can
imagine a Russian Czar demanding to control of a majority
of the country’s income. One can imagine a modern dic-
tator – say, Adolf Hitler – insisting on state control of
the economy.
But can anyone really imagine a true believer in representative government making such demands? I know many do, but their mentality is in the past, not the future. They want power and control as surely as did Louis XIV or Hitler. Perhaps the want it – or claim to
want it for different reasons, but they want it nonethe-

Posted by gus17 | Report as abusive

1) The vast majority of our national debt was created by Republican presidents starting with Reagan leaving office with the 8 largest budget deficits in U.S. history, and almost no complaints from voters. Which is why Daddy Bush and Baby Bush rang up their enormous deficits that were used mostly to benefit the rich and powerful. (Voters ignored the pleas from Republicans like Perot and pre-VP Daddy Bush, who warned us about the danger of Reaganomics.) Dems Clinton and Obama both made substantial cuts in the giant Republican deficits that they inherited, and got no credit from voters for doing so. So let’s not be amazed by how politicians act when it comes to deficits.

2) I earn $50,000 a year and paid more than twice the tax rate of Mitt Romney *after* he had adjusted his tax return to get the highest rate possible. (And he adjusted his tax rate back to single digits after the election.) And the middle class and poor pay a higher percentage of their incomes in local, state and federal taxes and fees than the rich. *That’s* today’s tax system. Focusing only on “federal income taxes” allows the elites to create the talking points that hide the fact that the tax and fees system greatly favors them at the expense of the so-called “lazy poor”.

Posted by BeBopman | Report as abusive

Morally speaking. Taxation is theft. Even if a government legalizes it. Stealing is stealing if you or I steal we are jailed.

Posted by Carson69 | Report as abusive

Distributive efficiency… Diminishing marginal utility…
Incentive structures…

Posted by notnews | Report as abusive

In the 50s and 60s when the tax rates were so high, no one paid those rates. There was exemptions and shelters for everything. When the tax code was simplified and those exemptions and shelters were removed by Reagan in the 80s, the Federal government BROUGHT IN MORE REVENUE. The sad thing is now we have the lower rate, but GW Bush cut the taxes and gave the exemptions to the rich to where they are once again not paying anywhere close to the posted tax rate. Don’t raise taxes, just remove all of the exemptions, credits, shelters, etc. Problem solved.

Posted by TheNewWorld | Report as abusive

Thank you for an excellent article, Mr. Mehrotra. You say, “Progressives a century ago, like their liberal counterparts today, believed citizens owed a debt to society in relation to their “ability to pay.” I am a progressive today, not a liberal, and agree with that theory, along with the majority of the wealthiest in America. Progressive taxation ended when a few of the financial elite decided they were supposed to be “masters of the Universe”, formed ALEC and enthroned Ronal Reagan as President to start dismantling – and privatizing – OUR government. The Koch brothers, dictator Grover Norquist, and a few other radicals have managed to get their non-thinkers elected to government offices at every level of society to try to further destroy democracy in America. We must stop them. NOW!!

Posted by njglea | Report as abusive

The wealth and business benefit from a higher progressive tax in having a stake in creating a better civilization.

Helping all people participate in a better civilization protects risk and investment.

A civilization not bettering itself as a benefit of capitalism results in turmoil and unrest that threatens investment and wealth.

It is that simple!

Posted by Flash1022 | Report as abusive

“Creating a new tax regime based on the ability to pay”

“From each according to his ability; to each according to his need.” was the formulation popularized in the Critique of the Gotha Program in 1875; but it didn’t work out that well.
The Federal Government’s ability to collect graduated taxes (such as income tax) that fell unevenly on the wealthy was actually prohibited by the Founding Fathers. In 1913, the ability to collect such taxes was created by the 16th Amendment to the Constituti­on after earlier attempts were declared unconstitu­tional by the courts – see: http://en.­wikipedia.­org/wiki/S­ixte enth_A­mendment_t­o_the_Unit­ed_State s_­Constituti­on

Posted by walstir | Report as abusive

@DavidA – not to beat a dead horse, but the level of taxation is not a question of “facts” – it is judgment – some, like me, believe that a nearly 40% federal income tax rate (prior to state income, sales and property taxes)is unjustifiably high – others, like you, believe 70%- 90% is ok. In any event, those 70%-90% rates were more theoretical than real when accounting for the types of deductions, exemptions and shelters no longer allowable. Nearly 40% is a high tax rate and it is incontestable that the income tax supporters of 1913, as I noted, would be shocked beyond belief at that rate of taxation.

Posted by SayHey | Report as abusive

The arguments regarding the percentage of the taxes paid by the TOP are ineffective if we examine wealth inequality in the United States. To say that the TOP pays the most taxes and then say they have accumulated the most wealth over the past hundred years flies in the face of reason. If the TOP Is paying the most taxes how are they accumulating the most wealth? You see the problem is not only that they don’t pay a large enough share of their income, but also that they make an unfair level of income (the top 10 percent of earners took more than half of the country’s overall income in 2012). Much of which has been derived (not by hard work, competence or innovation) but rather via legislation that their bought and paid for government has enacted to increase their income.
Read more:
SORRY CHARLIE: TAX CUTS DON’T STIMULATE THE ECONOMY y-charlie-tax-cuts-dont-stimulate-econom y/

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