The 16th Amendment to the Constitution authorizing the income tax is 100 years old this month. But despite this passage of time, the tax remains as controversial as ever. The political battle over it from the start has been a fight by a succession of small groups of very wealthy Americans who contend that this tax is just a populist government policy to "soak the rich" and to redistribute their wealth through this tax to pay for programs benefiting the mass of Americans.
After losing their bare-knuckled class warfare battle to prevent the income tax and following the blowback by a majority of Americans who adopted this amendment, these wealthy few worked hard to revise the story of this warfare in an effort to minimize the tax. They accuse the mass of Americans and Democratic Party politicians of engaging in class warfare when proposals are made for tax increases or to reform the federal tax law by, among other things, eliminating tax breaks for the wealthy. They claim that increasing the tax burden on them is a scheme to close the gap between the haves and the have-nots. They also claim that Democratic presidents like FDR and Obama pushed for tax increases to fund socialistic policies. But the history of this warfare contravenes these claims.
The precursor to this amendment was a contrived legal case challenging the constitutionality of a 1894 law passed by Congress to impose a tax of 2 percent on income above $4,000. Joseph H. Choate, a prominent attorney, led a group of lawyers in the challenge to this federal law. He reportedly argued that the law was "communistic in its purpose," and based on "socialistic" and "populistic" principles. Senator David Hall (R.-NY) said the tax was "the work of anarchists, communist, and socialist." A prominent Wall Street lawyer called it "class legislation of the most pronounced and vicious type." In his closing argument, Choate warned the Supreme Court that if it did not step in and strike the law down as unconstitutional, then "this communistic march goes on." These claims are still being made today.
Prior to this case, Congress had passed an 1862 law imposing a tax for a limited time on incomes over $600. This was done because the North needed more revenue to fight the Civil War. This law was not considered unconstitutional. This tax was abolished in 1872 when Congress imposed a higher excise tax on certain products. Congress then reestablished the federal income tax in 1894.
When the constitutionality of this law was challenged, there was general public expectation that it would be upheld. The case had an unusual history. After several Supreme Court hearings, the case ended with a tied court 4 to 4. The absent justice, who was reportedly terminally ill, made the effort to travel to Washington for a rehearing of the case. He thought that the law was constitutional and it appeared that his vote would serve to uphold the law. But one of the other justices changed his vote and the law was declared unconstitutional by a split decision of 5 to 4.
One of the justices voting with the majority, wrote in a concurring opinion that this assault by the income tax, was a step toward future political contests becoming "a war of the poor against the rich." The dissenting justices in this case were outraged. One wrote that this was a "surrender of the taxing power to the moneyed class." Another in a later letter to his sons, wrote that if this case stood as good law then its effect will be "to make the freemen of America the slaves of the accumulated wealth.
The public was equally incensed by this case and demanded a constitutional amendment to overrule the court. Senator William Borah of Idaho reportedly predicted that if this proposed amendment failed then "the greatest war in history will be fought around the wreck of the Supreme Court." The adoption of the amendment removed any question of the constitutionality of congressional authority to levy an income tax. This shifted the class warfare battlefield from the courts to Congress.
The wealthy few and their lobbyists have been battling in Congress ever since to protect their interests under the federal tax code. The result so far, as one professor of economics commented, has been to not only make the very wealthy just somewhat "damp," rather than soaked, but to create a federal tax law that is a "mess" crying out for reform. Meanwhile their surrogates in Congress and in the private sector peddle misleading stories for even further tax cuts. This wealthy group is portrayed as job creators in need of special tax considerations. Also the political slogan that "we don’t have a tax problem, we have a spending problem" is being used to make their case against any tax hikes.
But, business enterprises are run for profit and not jobs -- which they cut first in favor of profits. Also there is consensus among a majority of credible economists that to address the deficit and to adequately fund government requires additional adequate revenue, wise spending cuts, and a major reform of the tax code to make it fair and equitable. Class warfare in American has been conducted by the very wealthy for their benefit and not by those referred to today as the 99.9 percent.
Robert "Frank" Jakubowicz, a Pittsfield lawyer, is a regular Eagle contributor.