Why did we start taxing income in 1913?
“Too much of the revenue… is to be derived from the tariff on necessities of household use.”
William S. Niederkorn quoted an unnamed statesman in the New York Times on March 25, 1909. He continued,
“If the Republican Party was beaten in 1892 because the McKinley bill made the women pay a few cents more for their tin dippers, what will happen, they ask, to a party that [raises] the cost of cheap stockings and women’s and children’s gloves, that taxes the supper table $8,000,000 on tea, the breakfast table $10,000,000 on coffee, and the dinner table $2,000,000 on spices, in addition to the $52,000,000 tax on raw sugar, which is finally included in the price of the refined article?”
What was this ruckus about? Members of the US Government were debating the implementation of a new tax. The same tax that President Trump decried on Wednesday when he stated, “We were at our richest from 1870 to 1913. That’s when we were a tariff country. And then they went to an income tax concept.” Why did the US make this switch and why then?
Niederkorn adds more, “the figures now available from the Ways and Means Committee [show] that cotton stockings will cost more, and that the heaviest increases have been made on the cheapest quality, worn by people who can least afford to stand a raise.”
In 1909 the government was funded mostly by tariffs. Tariffs hit the everyday person and the poorest of the country the hardest. It’s the same today. Tariffs raise the prices of goods that everyone buys. But who feels this pain the most? The people who lack alternatives. If a family uses most of its income to buy food, clothing, and shelter and have no extra savings, they have no alternatives when the prices of all goods increase. That is why working-class folks were hurt so badly during the inflation brought on by the Covid-19 pandemic.
On the other hand, people with wealth and even the middle class can do without a number of goods they routinely buy. Vacations and meals in restaurants are easy cuts from the budgets of people who can afford such things.
In 1909 people were upset because the robber barons weren’t paying their share. It was a time of heightened inequality. The top one-percent of families in the US held over 40% of the country’s wealth. The top ten percent took home 40% of the nation’s income.
What was the solution to this harsh inequality and a government funded by the common people through tariffs? Tax the income of the rich and the businesses that they owned. Make sure that those with the most pay their share. In fact, the initial income tax was a tax for only the wealthy. The new income tax applied only to those who earned over $4,000 per year. In 1909 the average yearly income was about $450. Only people who made nine times the average faced the new income tax. Today’s equivalent would be people making over $600,000! Progressives charged the rich to fund the government in 1913. No wonder President Trump hates the era.
We hear in President Trump’s words from Wednesday what he wants. Return us to the glory days before 1913 when the government was funded not by those with the most but by those with the least. President Trump’s view is clear. Let the robber barons of yesteryear and the tech bros of today keep theirs. And make sure that everyone else pays.
Troy Tassier is a professor of economics at Fordham University and the author of The Rich Flee and the Poor Take the Bus: How Our Unequal Society Fails Us during Outbreaks.