February 1913 marked a turning point in U.S. history. One hundred years ago this month, the states ratified the 16th Amendment, clearing the way for adoption of a federal income tax. Two decades before, in 1892, the Populist Party had first put a progressive income tax on the national agenda.
The income tax faced steep conservative opposition. Since it was enacted, in fact, the political wars over income tax have never stopped. Conservatives battled against it when it was first proposed and have continued the struggle ever since. Now, Tea Party conservativism has given that fight new force.
The economist Joseph Schumpeter called tax systems the “thunder of world history.” Because if you dig beneath the rhetoric, tax systems reveal the underlying direction in which societies move. The saga of the income tax says a great deal about changes in America.
In the decades before the income tax, the rich grew extremely rich while most Americans struggled on the edge of poverty. Mark Twain dubbed it the Gilded Age: Plutocrats built ever-bigger mansions; hard times pressed on everyone else. Yet by the 1950s, the income tax had played a crucial role in the mix of policies that narrowed the income gap and built a broad middle class.
Over the past 35 years, however, those policies have been under siege.
Corporations have bent the regulatory regime to their will. Legal barriers have helped efforts to dismantle the trade unions. And conservative assaults have pounded the progressive structure of the income tax. As a result, the United States is experiencing a crisis of inequality not seen since the last Gilded Age.