DOTHAN, AL, December 3, 2012 — The “fiscal cliff” is now less than a month away and all we are getting from our politicians is the same thing we’ve gotten since 1861 – empty promises and more bureaucrats to feed. Democrats and Republicans just seem to be different branches of the “Big Money Party.” Until the late-20th century avoiding taxation, or at least resenting it, was a common American sentiment. So who are the people who are pro-taxes today and why are they so eager to part with their hard-earned dollars?
The “spirit of 1776” was all about taxes imposed on the American colonies by Great Britain. One revolution and two wars later, America found itself free but poor. There were no direct taxes on citizens and government revenue came from tariffs and duties on goods. That system sometimes created nasty little revolts like the Whiskey Rebellion of 1794, when being a tax collector anywhere near Pennsylvania was decidedly unhealthy.
The first income tax on Americans came with the Revenue Act of 1861, levied to pay for the Civil War. War is always good for a tax hike. This tax was imposed on anyone earning $800 a year or more and set the stage for progressive taxation, deductions and the not-so-popular Internal Revenue Service, all of which are still with us today. The history books are fuzzy regarding what level of income someone needed to be considered rich.
The US Constitution actually forbade direct taxation on American citizens if it was not in direct proportion to the population of the state they lived in, but that happy way of life (for some) came to a screeching halt in 1913 with the 16th Amendment. Suddenly anyone earning $3,000 or more a year in “lawful income” was subject to income tax and, Democrats please take note, that was only about 1% of the population.
The war on the wealthy began in earnest and more taxes were quickly levied to pay for US involvement in World War I. As a side note, in 1916 the wording “lawful income” was changed to just “income” so federal agents could go after organized crime on tax charges. Criminals felt that was unfair, but they are much better represented in Congress these days.
Many taxes were rolled back after the war, which had the astounding effect of creating a business boom that resulted in federal tax revenue rising from $3.6 billion in 1918 to $6.6 billion by 1920. Wait, does that mean we probably can’t tax ourselves into prosperity as we’re being promised today?
By 1932, federal tax revenue had dropped to just $1.2 billion as a result of the stock market crash of 1929 and the resultant economic depression, which was very similar our current recession. We don’t use the word “depression” anymore except when talking about Republicans after the last election.
President Roosevelt tried to fix the economy with more taxes and a top tax rate of 76% in 1936. By 1940, income tax was levied on anyone earning $500 a year or more with rates set from a low of 23% to a high of – better get oxygen ready for Republicans – 94%. By 1941, tax revenue as rolling in at $9 billion a year as the US geared up for World War II, and by 1945 there were 43 million taxpayers bringing in $45 billion a year. Take that Hitler.
The Revenue Act of 1945 brought an overall tax cut of $6 billion that eased public concerns about high taxes lingering after the war, but the economic benefit was largely offset by the new Social Security bill plus costs of a bigger government. It should be noted that neither Democrats nor Republicans have ever really done a whole lot to cut the actual size of government. The 1950’s saw post-war prosperity and growth but the income tax rate still went as high as 80% and that in turn helped create an epidemic of loopholes in the tax code.
The word to best describe the economy of the 1960’s and 1970’s would be “inflation,” partly from starting Medicare without indexing taxes for the additional expense. This in turn led to “bracket creep,” which is when inflation pushes an earner into a higher income tax bracket without any real increase in spending power. God bless America.
President Reagan took his hand at economics in the 1980’s and lowered the top tax rate from 50% to 28% for individuals, and from 50% to 35% for corporations. This resulted in a huge economic stimulus (which surprised Democrats) although a deficit was created because the federal budget didn’t properly account for a reduction in inflation (which surprised Republicans).
By the Clinton years the trend to lower taxes pretty much ended, and 1997 saw something called the “negative income tax” resulting from giving tax credits to people who didn’t pay taxes (thanks Democrats). President Bush, faced with an economic mess both from the end of the dot-com era and from the impact of 9/11, lowered some tax rates but also increased tax credits and grew the deficit to help pay for social programs. Did you think only Democrats give stuff away?
That brings us back to the original question of who approves of the idea of handing over money without any real accountability for how it’s going to be used. You’re not going to like the answer, because it’s you, and you over there, and you in the back of the room and yes, me too. The same common sense we use when buying a car seems to go out the window when it comes to voting.
We don’t ask about a warranty, we don’t check repair history and we don’t shop around for the best rates. We don’t ask how many bureaucrats will come along with that shiny new social program, or how to stop federal employees from vacationing in Las Vegas with our tax dollars. We don’t even ask why there is an empty seat at the “fiscal cliff” negotiating table.
It’s about time every American learns that we don’t have a fiscal crisis, we have a leadership crisis.
Every time a politician of either party promises something in return for our votes, we need to ask for full disclosure on what it’s going to cost us – in real dollars and in plain language — because the day is not far off that we won’t have the luxury of asking anything, we’ll just have do as we’re told.
(Get the backstory, plus author notes and more at Rick’s blog site:www.ricktownley.com.)
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