Happy tax day![fn1] In honor of today, a Mormon/tax story:
Prior to World War I, the federal income tax wasn’t central to federal revenue. In 1916, it only raised 16 percent of federal revenue; at times during WWI, that percentage rose to as high as 58 percent.[fn2]
After the war ended, there was a broad consensus that the wartime rates were unsustainable. The Revenue Act of 1921 ultimately eliminated the excess profits tax, lowered the top marginal rate on individuals to 50 percent, and, to make up for lost revenue, Congress raised the corporate rate. Congress continued to make changes—some minor, and some significant—to the income tax, but it has continued to today.
Senator Reed Smoot[fn3] was not a fan of the Revenue Act of 1921; instead, he wanted to impose a national sales tax. A New York Times story asserted that Smoot had the most connections with bankers and businessmen of anybody in Congress; his national sales tax plan was remarkably popular among the business crowd.[fn4]
Ultimately, before Smoot could assemble the support he needed to pass the national sales tax, Treasury Secretary Andrew Mellon managed to quash it, telling Congress that “[i]t would not seem either wise or necessary to change from our present system of taxation to new and untried plans. The income tax is firmly embedded in our system of taxation and the objections made are not to the principle of the tax but only to the excessively high rates.”[fn5]
Had the Mormon apostle and Utah Senator had his way, though, your April 15 (and my job) would be significantly different.
That said, again, happy tax day!
[fn1] Which, by the way, it’s tax day; if you haven’t filed your taxes yet, as much as I appreciate your readership, you should probably stop reading and file your taxes. This post will still be here when you’re done.
[fn2] It’s worth noting, though, that even during WWI, the federal income tax wasn’t a broad-based levy: only 5.5 million people owed taxes in 1920.
[fn3] Quick primer (really quick) on Reed Smoot: he became an apostle in 1900, and was elected to the U.S. Senate in 1902. He represented Utah as a Republican Senator for 30 years; Mormons probably know him best because his election precipitated a four-year battle over whether he was eligible to serve. Others probably remember him best as one of the co-sponsors of the disastrous Smoot-Hawley Tariff, which, economists generally agree, made the Great Depression even worse.
[fn4] See Joseph J. Thorndike, Their Fair Share: Taxing the Rich in the Age of FDR 14 (2013). (Seriously, see this book: it’s really pretty awesome.) The one exception may have been the retail industry, which was afraid that the sales tax would reduce consumption.
[fn5] Quoted in id. at 15.
Interesting. Thanks. And double thanks for the Thorndike recommendation.
Sam, was Smoot’s sales tax plan as regressive as most sales taxes? Would the poor have ended up paying a higher proportion of their income than the wealthy (because the wealthy don’t spend all their income on consumer goods)?
I assume that it is possible to structure a sales tax so that it isn’t as regressive, but I suspect it would be quite difficult to implement without discouraging saving and investing…
Kent, I’m not sure. My interest is whetted, but I haven’t looked at whether Smoot had a concrete proposal and, if so what it looked like. While it’s possible to design a progressive sales tax, it usually involves removing necessities (food, clothing) from the tax base. There are other ways to design a progressive consumption tax, but they don’t tend to fit withing the form of a sals tax.
Another example of Prophetic fallibility…
Riley, its like the old joke about Mormons and Catholics:
Catholics say the Pope is infallible, but act as if he isn’t.
Mormons say the Prophet is NOT infallible, but act as if he is.
I wish we would realize that we don’t need infallible leaders.
Riley, I’m afraid I don’t follow you: I’m pretty sure that there was nothing prophetic about Smoot’s tenure in the Senate. He acted as a Senator, with his own policy preferences. There is nothing capital-T True about either an income or a sales tax (though I have my personal policy preferences), so it’s hard to say that advocating one or the other could demonstrate prophetic fallibility, even if tax policy were withing the purview of prophetic guidance.
Or are you talking about the tariff? Because again, an apostle has has several roles, but those roles lean toward being witnesses of Christ, not expounding tax policy.
Interestingly, the catalyst for the income tax was Prohibition. Prior to the adoption of the Eighteenth Amendment, one of the federal government’s principal sources of revenue was excise taxes on beer and liquor. Supporters of Prohibition argued that the government could easily make up the shortfall by adopting an income tax, and Congress and the States bought it.
As we all know, Prohibition was short-lived; alas, the income tax was not. In an amusing historical twist, a Utah State convention was convened in 1933 to decide whether the Beehive State should vote to repeal the Eighteenth Amendment and repudiate this failed social experiment. Not surprisingly, the vast majority of the delegates at the convention were LDS. And when their beloved prophet, President, Heber J. Grant, spoke at the convention in stern opposition to repeal, he was greeted with rousing cheers and great affection—whereupon the delegates promptly ignored his advice and voted to end Prohibition. Indeed, Utah cast the deciding vote in the repeal effort, sealing the passage of the Twenty-First Amendment, which struck down the Eighteenth.
If you want to learn more about Prohibition, read “Last Call,” by Daniel Orkent, one of the best works of American History in recent years.
The first income tax was enacted in 1862 to help pay for the Civil War and it was progressive. One has to wonder if we had kept that tax and not relied on tarrifs whether we would have had fewer rather than more financial problems later on.