tax policy - income tax - 2-4-2005

Class Notes 2/4/2005

There is a continuing argument in American History – still evident in current debates about tax policy, Social Security, etc . Let’s abbreviate as SD

Includes Goldwater, Reagan, Bush43 – his supporter Grover Norquist, Christian Coalition

I’ve laid out the sources of Social Darwinism from the first lecture.

The contrasting views would be of Lincoln Jefferson WJBryan Teddy Roosevelt (TR) Franklin Roosevelt (FDR) I’ll abbreviate all these as WJB

: during the years between the Civil War and World War I, opposing political factions in American society fought bitterly over the enactment of the income tax. Prior to the Civil War, the U.S. government did not tax incomes; instead, it derived its revenues from tariffs, or duties on imports. The distinction between these two forms of taxation is significant because the poorer segments of society bear the primary burden for paying tariffs, since the poor spend larger percentages of their incomes on basic goods than do the wealthy. On the other hand, wealthy people shoulder the brunt of a progressive income tax, which rises at higher income levels. Essentially this argument would help decide whether the poor or the wealthy would pay the costs of running the federal government.

fundamental to the political development of American society, namely the conflict between “justice” and “virtue.” WJD Americans (Bryant, Jefferson, Lincoln, New Deal until Reagan) firmly embrace the ideal of “justice,” the belief that, in the interest of fairness, resources should be distributed somewhat equally among citizens. In contrast, others (SD) hold that wealth comes as a consequence of “virtue”—work, creativity, thrift—and that the wealthy are thus entitled to keep the monetary rewards of their own talent and good behavior.

Both sides had major American historical figures such as William Jennings Bryan and the Rockefellers mobilizing the language of justice or virtue to sway debates that would influence the tax system for generations. For example, in a gripping scene, Weisman recounts the day in 1894 that Bryan convinced Congress to enact America's first peacetime income tax, using his celebrated rhetorical skills to place the burden of government financing on the wealthy and to condemn those who were unwilling to accept this responsibility as unpatriotic and unwelcome in American society.

backgrounds influenced their tax policy beliefs - Teddy Roosevelt's experiences as New York police commissioner convinced him that income inequality would lead to chaos, crime and anarchy – Brazil today? America now has approx 25% world’s prisoners with approx 6% world’s population.

enactment of a permanent income tax, resulted not from a major shift in Americans' sentiments about SD vs WJB, but personality traits like Teddy Roosevelt's fear of anarchy. The increase and entrenchment of income taxation during World War I emerges not as victory over a very American idea “individual achievement (virtue) will conquer all”, but instead responding to the federal government's need for revenue.

Tax policy illuminates values.

SD like:

tariffs and other consumption taxes. Like Tennessee’s Sales tax it hits the poorer / working class harder. They consume a higher proportion of their income.

Payroll taxes (finance Soc Security now) – cut off at $85,000 now so the rich pay much lower rates. Excludes much of the income of the rich.

WJD likes:

graduated income tax. The rich pay a higher % of their income.

Inheritance tax – avoid hereditary aristocracy – inheritances taxes – rates and exclusions vary. (SD rhetoric “DEATH” (Grover Norquist – influential in Bush43 -like “holocaust”)

Taxes on interest, capital gains

Usury in early Christianity said - “reap what you did not sew”

Social programs:

Social Security – old age pensions - SD hate – Goldwater conservatives – “privatize” it

because it embeds in the minds of the voters that government can help –

undercuts “Government is the problem” rhetoric

Bush43 has seen SocSec “crisis” “near bankruptcy” since early in political career

(house run in 1988)

2000 election “Democrats treat Ssecy as if it’s a government program”

Billy Graham “Jesus loves private property” – Cold War Christianity

Cool Rhetoric: Social Security is “evil facist Ponzi scheme” inheritance tax is like the

Holocaust – both from Grover Norquist –prominent Bush43 advisor

WJB’s love Soc Sec – help the elderly poor and infirm