Guest, ajay mehrotra, who will discuss his very significant and timely book, making the modern american fiscal state, law, politics, the rise of progressive taxation 1877 to 1929, published by Cambridge University press. We will resume this top, these talks, on january 15th. We will have rebecca edwards, professor of history and the former chair of mass or college. Her top is titled sex on the frontier, fertility in americas antebellum empire. Rebecca edwards is a very imminent historian who would expect to get quite a draw. But the presentation of that title, i think this is something that should not be menaced. The professor is the associate dean of research, professor of law, and i is a professor of history at Indiana University. He received his j. D. At university of georgetown law center. He has served as the codirector of the Indiana University center of law, society, and culture, and before arriving at Indiana University, he was a doctoral fellow at the American Bar Foundation in chicago. After law school, and prior to his graduate training in history, he was an associate in the structured finance department of the new york office of jp morgan. Ajay must be among a small group of individuals who have left wall street to pursue a career in history. He is coed it are of a new fiscal sociology perspective, published also by Cambridge University press. We should have time for qanon afterwards. If you have a question, please raise your hand so we can ask around and then after that there are copies of ajays book for purchase at the back of the room. Thank you. Thank you all for coming. If i may begin by saying thank you to richard for inviting me to this, we met at a policy history conference last summer when he was kind enough to come to one of the panels where i was presenting some recent research that was an outgrowth of a collaboration, and we got to talking about how important the National Archives were to my project and my entire Research Agenda and many other people find it reliable in political history. Rebecca edwards is certainly one of those pioneers and we will have a great top when she is here. Richard was kind enough to invite me out here so thank you all for coming out here. Let me also take a moment to thank the archives and archivists everywhere. Historians cannot do what we do without the great work of the archivists and Staff Members at a place like the National Archives, library of congress, and other places. I know we tried to make acknowledgments for all the great archivists out there, but really, it is the fodder for all of history, and its the primary sources that are very important to our profession. I want to note that. I thought i take about a half hour or 45 minutes or so to go over the general outlines of the book. Before i do, that i want to give background on how i became interested in writing about u. S. Fiscal policy. As richard mentioned, the book that is being discussed today is the making of the modern american fiscal, state law, politics, and the rise of regression taxation from 1877 to 1929. I thought i had spent some time going over with the main arguments and claims i tried to make in the book, and then i will focus on these sources of historical evidence. As i do so, i want to even some of the very valuable sources i found here in this building, as well as in the library of congress and some of the other places where the unpublished primary sources, the historians true desire for getting to these unmitigated past, and theres a lot of important sources in this building that i will try to weave into my presentation. As richard mentioned, i am a legal historian. Ive been trained both as a lawyer and as a historian. But i also teach and write about a topic that most historians do not work on, and that is tax law and policy. Taxes one of those areas that has been neglected, at least in this country. Its quite surprising, actually, i was in town for a conference at the German Historical Institute and every couple years the g8 japanese together a terrific conference on taxation. All these folks from europe, germans, for them, fiscal history is it. There are so many people doing it and they have so much vast knowledge. And they say what is wrong with americans . How come you dont Pay Attention to issues of fiscal policy. And we say we are getting there. The sources are here. Give us a chance. We are catching up. This has been my Research Agenda from the very beginning. This book is part of a larger Research Agenda, when i look at the political causes and consequences of changes in american tax policy. At its core, my book really is about the intellectual, legal, and administrative foundations of what i refer to as direct and progressive taxation, those two key words are direct and progressive. Those are really important. Like all historians, my research is based on historiography and shaped by our own political, social climate. Arthur slash injure once famously said that all historians are prisoners of their own generation. As much as you want to read about different generations, we are impacted by whats going on around us and so ive been working on this book for longer than i care to remember, from dissertations to transcripts. In that time, weve heard from many social commentators and scholars that the United States this is not tremendous use. Lots of scholarly commentary about this, lots of books about the growing inequality and the concentration and mild distribution of wealth thats occurred not just in the United States, but the western industrialized, world since about the 1970s to the president. Some of us read paul krugman every other day and we are reminded of that. And of course, the sensational reception of thomas piggies capitalist has shown that this has become a very important issue, not just for scholars, but for social commentators. So my goal in this book of course is to take us back to the first golden age. If we are in the second gilded age, there was a first period in which there was the massive inequality. It is an incredible concentration of wealth symbolized by such mansions as this one. This is of course the vanderbilts built more estate in nashville. Some of you may have visited this, now a big tourist attraction. But this 250 room home in, a nice summer home for the vanderbilts, is just an example of some of the opulence and massive inequality, and of course contrast it against that was the ravages of industrialism in the late 19th century, the period when massive urbanization, migration, industrialization has the other end of the spectrum. This is from the 1930s. , a famous dorothy laying photo from the great depression. You get the idea of the inequality that existed in the gilded age. And so, the puzzle that drove me when i first started thinking about, this thinking about the first gilded age and what the response was. When was the political, economic, and social reaction to this kind of inequality. There is a fundamental physical transformation in the United States in terms of the 20th century. I teach tax law, so numbers are a part of talking about tax and fiscal policy. You can see there is a dramatic transformation from the late 19th century to the sources of revenue from the federal government. You see that it is indirect and ostensibly regressive taxes. We would call that consumption taxes today. They philip 90 of government revenue in 1880. And if you scan up, if you go to the 1930s, income taxes almost 66 . A legacy of world war i, of course. This is a fundamental transformation in the way our federal government finances itself. This was the real puzzle. How did we make this shift . How did we go from this indirect and highly regressive system of consumption taxes to a more direct system as they would say referring to the base. And its graduated rates. Not dramatically graduated as we would expect, although drawing world war i, there is a spike where the top goes up to 77 . How did this shift a curve . What was the driver behind it . Part of it is geopolitical. So another version of this, you can see the yellow is the income tax, world war i is the event on which this pivots. I have a chapter on world war i. It plays a crucial role. Much of the historiography and much of the historical social Science Literature gives a lot of emphasis to war. More and state building go hand in hand. Taxes are the sort of handmade in that gets us there, except the chronology does not quite work for the u. S. Because it changes well before world war i. 1913, before the war even starts, we have the 16th amendment and the first set of federal income tax laws. Part of my contribution to the literature is to challenge it a little bit. Sort of the charles to the view of the world that states make war and war make states. That its all about war as the independent variable. We go to the social scientists and say it cant be just one variable, its not just one independent variable that explains such fundamental structural changes in society. So i wanted to ask myself what where the motivations for the fiscal transformation . What were its consequences . Thats what i was trying to get it in this book. I wont spend the entire time, but let me go over the main consequences of not just transformation of Public Finance, but how that itself leads to a new fiscal polity. A new kind of stagecraft. Its driven by and contained within kind of five different elements. One of which is this desire to allocate the fiscal burden. Moving it away from regressive consumption taxes toward a direct, its about reallocating the burden of the financing of modern regulatory administrative welfare state. The roots are there in this progressive area period. The question is how are you going to finance it . How will you do in a more equitable and effective manner . This is not all that new because literature has talked about how the rise of income tax on a graduated direct tax has had this effect. What has been underestimated i think is how this also has had a social and cultural implication. I argue in the book, the second element of this new fiscal policy is how it created this new sense of civic identity and national identity. Fiscal citizenship. Thats not a term that i have coined, but its an important turn to my book and it has become more popular in tax reform or debates. Theres a new book called learning to love form 10 40 in which he calls for the minutes of return income tax based system. But the actual process of paying taxes actually engages citizens with the state in a positive kind of way, or at least potentially can be. In my period, that is certainly one of the drivers of this move away from a hidden kind of regressive consumption tax to a more direct visible and transparent tech system. Thats a really important part of the book. Also third, i am at heart a legal and political historian. I think when one thinks about the turn of the 20th surgery in american political historiography, this is when we see a transformation away from what is known as the party period. When things like the tariff are the defining issues that separate republicans and democrats, to the move of what is known as i dont know if theres an exact term, but the postparty period is certainly one where the special interests rise. There is a more fractured sense of politics and how law making occurs. Of course, fiscal policy is at the center of that. The move away from the tariff and customs and excise taxes. Part of this shift and this alteration in political arrangements. So those are the sort of three main elements. The other two that i dont tease out in the book, whether dilute to, that are more consequential, is really how at the end of the day the income tax becomes a fiscal workhorse. It does not happen in my period. Its really world war ii when we move from a class tax to amass tax. It generates the kind of revenue that is important for us. But the foundations, again, the intellectual, legal, administrative foundations are all there in the progressive era. It just gets accelerated in world war ii, i argue, when it underwrites this modern administrative regulatory social welfare state. You have to have the revenues to do these kinds of things. Its at this early progressive era stage that these foundations are built. The fifth, which is a little more provocative perhaps, so my historian friends always push me a little bit on this, but i try to make the argument that the foundations, theres also paradox, or an unintended consequence that comes from this move toward direct and progressive taxations and away from consumption tax. That is, i argue, it kind of exacerbates what i described as a fiscal myopia that certain americans might have. This comes from my comparative work that ive done. The value added tax and europe for example. If one looks at oecd that it today, i think it shows us two things. One, there is a myth, there isnt under text american. That we are overtaxed, pardon me. We dont pay as much as other oecd, but its not as if we are overtaxed in that sense. More importantly, what is missing is almost all modern industrial countries have some kind of consumption tax in the form, Something Like a value added tax. The conspicuous absence of a value added tax in the United States is really really sort of jarring. In some ways, the punch and trying to make in this book is not to explain why, that would take another book all by itself, but at least to suggest this fixation on a progressive income tax may have foreclosed the opportunity for other kinds of taxes. Possibly the movement to say that. In some ways, you know that in the United States. The question of why in america, its kind of like why no socialism. They go hand in hand. One of the consequences i see is how this foundational period really narrowed the imagination and vision of tax reformers when they thought about the income tax versus the consumption tax and what was possible. I would be happy to learn about this talk about this more in the question and answer period. I dont think i can prove this point, but i certainly think theres evidence to suggest that this foundational period had this unintended and paradoxical consequence. Let me get to the first three claims, those are really the most important. The first is this notion of shifting the tax burden. What we saw here is this move away from tariffs associated with the tariff and excised taxes on alcohol and tobacco to taxing individual income, business profits and intergenerational inheritance. That meant targeting wealthy individuals and corporations in the northeast. This has been told by others. Im sort of weaving and synthesizing some of the information that exists. One of the thing that i focus on is this notion that we need to pay. At this time, those words become very powerful. This is where my book is kind of more of a combination of intellectual and political history. I look at the reformers who initially are populist farmers, in some sense, up to intellectuals. Some of the key protagonists in my book political economists. What we would today call economists, but they call themselves back then political economists. I think the distinction is important. They thought of the economy in a much more broader way than economists think of it today. It was these political economists, like edward seligmann, who is probably the leading tax theorist at this time at columbia university. Henry carter adams from the university of michigan. These are, what i argue, the sort of pioneers of American Public finance. They are all german trained, so there is a transatlantic story to be told as well that i use in my book. They focus on this notion of ability to pay. That our tax system should have, as its fundamental cornerstone, the notion that those who earn more have a social obligation to contribute more. Not just proportionally more, but progressively more. This notion of graduated rates fixed into this idea. Its driven by this concept of ability to pay. Of course, its no coincidence that these economists are running at a time when utility analysis is taking over the United States. Another transatlantic story from europe, but its things like that. Notions of marginal utility and how the last dollar to the vanderbilt means a lot less than the last dollar to a local new york labour. This very important phrase, ability to pay, i trace this language from the political economists, the writings and their treaties, and this is a time when the political economists are progressive performers. They are not just writing for a specialized audience of intellectuals. They are actually trying to write for broad audiences. They are really trying to reach a broader audience. What i argue they are doing is they are harnessing the social response, or social reaction against the existing regime of regressive and direct taxes. They are using this language not just as an intellectual tool, but a political tool. As a way to galvanize a movement. So their ideas are picked up by politicians. So this is where the lawmakers come in. This is where the National Archives story has been very important to me. Just to trace how this language moves from the hall of academic seminars and journals and popular magazines, to what lawmakers are saying in the halls of congress. So this is clearly one of the main points about this. The other thing that seligmann and others are pushing is that they are not trying to radically redistribute well. Thats never been the goal of shifting the tax burden. I think we sometimes forget with the origins of our tax system are about. In some ways, i wear historiography, at least the current existing, im sorry, im thinking of different works. Its this view that this was a lost opportunity. With this was coopted. The income tax was coopted by conservatives who really averted would could have been, we could have been scandinavia sort of the premise. We could have had this really radical change in this progressive era and we missed out. So its really this kind of conservative ploy to kind of just silent the mantises masses. Its kind of the argument that horowitz and others have made. I think thats wrong because if you take a look at the primary sources yes, there were some people, its not completely wrong, nelson alter itch is the famous conservative republican from rhode island who actually says he will art greet for the income tax to stop the socialists. There is some evidence of that. But thats not what is going on elsewhere. Thats not the only lawmaker who has influence. I think we lose sight of this in the historiography that thinking income taxes really meant to radically reduce wealth. Its not just a historiography. I think unpopular political discourse sometimes, folks on the right thing we have had a goal of using it to radically redistribute wealth. So the modernday tea party, in a sense, has this sense that our tax system is about somehow punishing capital or punishing wealth. You see these kinds of posters about text and have already. This is one of the core elements of our modern tea party. So there is of course a huge cognitive dissonance to some of the key party. This is my favorite poster from the tea party. Keep government out of my medicare going back to the sailing. Its, would people dont understand is the public of the private public against the private. Im trying to address both the kind of new left historiography that wonders why we are not scandinavia and the kind of current political dialog that thinks we are radically redistributing wealth. That was never the goal in any of this. So if you go back to this, whats the goal really was, its really about reallocating the financing. How will we support a modern industrial state . So it wasnt just the intellectuals. In fact, it starts, i argue, with a sort of social history. Heres a source that i found in this building. I dont know if its too small, but this is a letter, a petition, from the secretary of a massachusetts movement to the congressman. This is the quote that is in the book. The American Farmer is here paying more than his just proportion of taxation. To equalize the burden of taxation. Its not about radically redistributing wealth, and so the resolution they come up with his the members request the Representative Congress and senators to play such a low up on the statute this is in 1983, 94. So this is a social movement. It starts with this kind of populism. It spreads through the peoples party. You actually see this. Its not just the granges. Theres actually a political voice for this in the political parties. And then later, you actually, this becomes a resounding theme that the intellectuals kind of harness. So my story moves from the social movement to the intellectuals who harnessed that social movement to become the bridge between the people on the ground and then the lawmakers. Of course, i am trying to write about ideas and action, not just the ideas of intellectuals, but how they are trying to influence lawmakers. One of the most important lawmakers is cordial hall, who is in many ways a political father of the income tax. He suggests that its not about a radical notion to redistribute wealth. There is no disposition. But i do believe the wealth of the country should be a jest share of the burden of taxation. Those are both proving in concepts, but there was a sense at least initially, and slowly, gradually, a bipartisan notion about a shift from a regressive and indirect system to progressive is a way to justify that. And you see that back in popular culture. There is a terrific political cartoon thats the cover of my. Book this was here in the library of congress. The title of the cartoon is the new man on the job, the treadmill of governmental defenses. But weve got this modern, burgeoning, regulatory social welfare state. Its the working class that is on the top of the treadmill doing all the work, and finally, the heavyset character is the idle rich. And the color is the income tax, you cannot see that. That is bringing the rich onto the treadmill, not to radically equalize all wealth and income, but to get them on board with doing their fair share. And then this quote from george holmes, a government statistician at the time said there is always a danger that the rich will get to grade a hold upon the wealth in the country. In which, case the most effective and progressive remedies are taxes on income and gifts. It is a direct hand graduated tax system away from indirect and regressive to this, and thats whats really driving it. I think we still hear echoes of this today. Think back to just a couple years ago when Warren Buffett was talking about his own Tax Liability compared to his secretaries. Thats an example of this concern about the ability to pay. I think we also saw it in california, for example. Theyve raised their taxes in california and people often think, i imagine here in particular, you can talk about tax increases. Thats completely off the table. It doesnt have to be. It hasnt always been that way. One of the things i am trying to show or present today, you could label my book as a neoprogressive kind of reminder that americans have not always been antitax and antistate. Too often, people draw direct, linear lines from say the revolution, the initial tea party to newt gingrich. Thats how American Political Culture has always been. Thats just not right. Thats part of the upshot of this book and i think you see echoes of that today. We saw that a bit with the occupy movement and other things going on. I think you see it in law. There is a partial victory on raising taxes on the high end, not as high as they wanted to, not the same threshold, but a partial victory also suggests that the notion of ability to pay still has residents today. The other claims i would mention, quickly so that we have time for acumen a, the notion of forging a new identity. The reformers during this progressive era really believed you could use taxes to reconstitute or reinvigorate the social contract, the relationship between citizens and the state. And you could use taxes, in a sense, to help citizens reenvision, reimagine their ethical or social obligations to the Broader Community. Thats what taxation was about, going back to a larger, Broader Community or state that could help with things like crisis management, economic development, all the things the Public Sector does for us. This is really at heart would, in many ways, the historiography tells that progressivism was all about. This was an age when the social dimensions of american democracy with a key concepts. The identification with the common lot, as jane adams put, it is the essential idea of democracy. This is clearly the progressive era notion, and thats why its this time that we see this structural transformation that leads to the fiscal state. And i think we also see it in the sense of replacing what they saw as an old, outmoded notion that taxes were based on government benefits. That was an ideological rationale used for much of the existing taxes, certainly at the state level. Property tax, for example, and even the tariff. There is a notion that there was this quid pro quo. People pay taxes for the direct benefits the government gave them, protecting their property, for example. The intellectuals i look, at the political economists, they really attack benefits theory and call it an outmoded notion. There is no such thing as an isolated oneonone relationship. They use the notion of ability to pay as a counter to the benefits. It suggests that there is a social obligation that comes with that. Taxation is one way to fulfill that social obligation. The third thing i try to stress in the book is how this Movement Towards an income tax or direct tax, not just income, also corporate profits taxes and as well as wealth transfer, the estate tax, of course, also has its origins in this time period. That also transforms politics. We get new tax law policies and regulations that are very different from a tariff. Its no longer about log rolling, about what is going to be on the duty list and the, but how do we define something called income. To this day, thats an important income and its continuously litigated and discussed and enforced with regulations. In that sense, this move to a different base, graduated rates that i argue really becomes not the vanguard, at least the protoadministration. I think the new deal still becomes the High Water Mark for a lot of these changes. But a lot of the agencies that followup are really following along with but the treasury is doing. Treasury regulations that come up in this time period to help us define what counts is income, what counts as a taxable unit, all these things are really important in developing us towards a new set of politics. Now, we are Less Beholden to Party Politics of horse trading over which items to put on the duty list and how much and who to appoint to the customs houses. These are all part of the party period. Now, its about bureaucratic experts. Its a separate chapter on the Critical Role that treasury lawyers played, during world war one in particular, in building the administrative infrastructure of this fiscal policy that then spills over into other aspects of the modern state. Another example of this that we see in the earlier part is all about partisan politics. We see a much more detailed need for professional knowledge about the tax and the process of remittance. Its no coincidence that this is a time when the modern corporation plays an Important Role. The policy when i first met richard was about corporate taxes. Its less about corporate taxes than the knowledgey and information that corporations start to accumulate in this period. That becomes very important through the process of withholding. Thats a really important cornerstone to our system of taxation, and richard burr is a wellknown Public Finance economist. He has a terrific line. He says if the custom house was the locus of tax power in the 19th century, its the modern corporation that has become our custom house today. Its the information they corporations contain that allows us to do all the kind of thirdparty reporting through withholding and other things that leads to this kind of change in political arrangements. Ive used up a lot of my time. I want to conclude with a couple of quick slides on the importance of constitutional law. The 16th amendment is what allows for the creation of new taxes, a response to the appalling case which strikes down the 1894 income tax. And it was here that i found some terrific information. There is a really Important Role that the new york senator eli route played in actually drafting. Richard and i were talking earlier about how important it is to demonstrate to grad students and junior scholars about what the archives can tell you. I spent several weeks here looking through a lot of these papers, and i stumbled upon in record room 56, up in college park, this sort of back and forth between route and the Treasury Department about how to actually write the actual language of the 16th amendment. Its hard for you to see here, but this is roots handiwork. He is a very clever wall street lawyer who is really thinking carefully about how the real language of the resolution needs to be worded, in this particular way. It is like seven or eight drafts that go back and forth about how exactly are we going to have things like from whatever source derived, and a very key word thats not on the part of the 16th amendment, but becomes part of their income tax law. You cannot get that from the published sources. This is why the archives are so important. I probably dont make enough of it in my book. In my next project, i am thinking about toying with a second book on the appall it decision. Not since twists have we had a book that really takes a closer look at the income tax case, the decision and the rise of the 16th amendment and i dedicate chapters to it but im thinking about going into talk about how important that constitutional amendment really has been. Let me conclude now with a present day implication. When i give this top, especially to an audience not familiar with archives or scholarship, they kind of say what are you talking about, that period has gone. Civic identity . The ability to pay . Really . No one really believed that. I have to concede, times have changed. There is no doubt about that. But i would also say that even todays revolt against taxation, even the tea party, shares a very important link with the roots of our modern fiscal policy. They are responding. That has set the agenda. The progressive period and the new deal elaboration continues to sip the political and i would argue intellectual agenda of our modern fiscal politics. In that sense, this long history that i am talking about about the making of the modern state, i think, continues to press today. Let me end there. Thank you very much for your attention. Im happy to take questions. Thank, you again. My experience has been that in developing federal policies, very, often state governments test out interesting ideas first. Yes. Very good. If you could describe the history of direct taxation and income taxes at the state level and comment on how that influence the federal government. Thank you. Great segue. Wisconsin is the answer, in some ways, the short answer. During the progressive era, wisconsin is really the incubator to use brandeiss term. Its there that in 1911, we see the first state level income tax. Its no coincidence, senator robert becomes a very important proponent of the income tax at the federal level. He sees it works at the state level and has an Important Role in convincing the of farmers, the intellectuals. Edward sellers says that its not possible. States cant do this because theres too many things that are national now, even in the early 20th century. The states are kidding themselves and it has to be the national level, which state should not even bother. Its administratively too difficult. Richard e. Lee, who is in wisconsin, doubts him. I have an entire chapter about what is going on at the national level. And its wisconsin that becomes a leader. Other states do other things on administration and the Actual Development and implementation of income tax. Its wisconsin that becomes the bellwether, not just for the congressional states. One of the provisions they have is thirdparty reporting. They have a crude form of withholding where its not the modernday notion of withholding, but requiring banks and other Financial Institutions that are paying interest and dividends and things like that sort to actually report with their paying. That becomes a very important administrative innovation at the federal level. Its very much a story about both states experimenting with things. Ohio does some very interesting things, michigan, sodas indiana. And then the actual implementation of a direct, progressive taxation successfully in wisconsin emboldens National Lawmakers to do it themselves, just a few years later. Its very much a state to national story. Does that help . Yes, very much so. Thats one of the keys of this. It allows social democrats in milwaukee, for example, to galvanize support. It requires a constitutional amendment in wisconsin as well. Part of the argument is we are going to keep rates high. This is meant to, in a sense, to ameliorate the existing dysfunction of the state level property tax, for example. So the property tax in theory ought to be this sort of graduated rate. People with more property should be paying more. But at this time, we are witnessing radical transformations in notions of property and wealth. Its not about my real estate, its about intangible well. Its about stocks, securities. In wisconsin, its about large farmers who have mortgages that are not being taxed. So the argument at the state level is, a property tax which may have function fanned in a preindustrial prefinancial capitalist world was okay, now that we have all this intangible well, our property taxes not getting to it. On the books, it is supposed to, but in effect it is not. How do we counter that . We come up with another tax as a sort of counterbalance to that. Its aimed at the elite. Thats exactly how it is pushed through. The state story is very important. I have a whole chapter, probably too long chapter, but i found very interesting. Your top focused really on taxing and not so much on spending. One point you made early on was that developments in your period may be exacerbated fiscal myopia. Yeah. Wondering again what was happening on the spending side during your period. In particular, i guess a couple of questions. Number one, just imperiously, to what extent was Government Spending growing . What was Government Spending its money on . That change during your period . And then to, and this i guess is motivated from observations about our current politics. I think now theres a great destroyed about taxing and discussions about spending. So i wondered whether the protagonists in your book, and maybe other policy makers at the time, were similarly segmenting those discussions. Or were they talking about taxing and spending all together. That really gets at this point of fiscal my ovia. One of the arguments i make is that it is during this period that we actually see that segmentation crying much more explicitly. Again, this is not an argument that im making innovatively. Richard musgraves made this argument along with Allen Peacock in the mid 20th century when he was attacking ability to pay. That notion is being too powerful. So ive just taken musgraves argument argument and put it into historical perspective. What must grave and peacock and what im trying to say now is that back when the benefits principle was the identity, the two were linked. Spending and extraction were tied together. Ability to pay comes along, its the deck that this that has been dealt to them. They do everything against the regressive tax system. By pushing ability to pay as the counter, they focus exclusively on the extraction side. They sever the link between spending and raising revenue. Thats what i think is myopic about this. The argument im trying to revise in historical frame is that may not have been such a great thing. If you take a look at other industrialized countries in the world that are trying to address poverty and inequality, its in fact through consumption taxes. So why arent we scandinavia . If you look, what is scandinavia actually doing . Im using that example as just an illustration. Its got an incredibly regressive that attacks is everything. Nothing is exempted last time i checked. Its an incredibly regressive tax system. But yet, it is its spending side is progressive. National health care and education. This spending that ameliorate the regresses of the extraction process. Part of the fiscal myopia and im suggesting is the reformers in the spirit were so fixated on ability to pay, so obsessed on focusing on the extraction that they severed the link between spending and revenue extraction. Thats the legacy. I do want to make too much of this. Its not purely an intellectual story, its picks up on arguments about political institutions. That scandinavia has a parliamentary system so its more possible. The u. S. Has veto points so it was never going to do it. Roger smith has a cultural argument about how descriptive notions of race and ethnicity and also influenced our policymaking. All of those things are there. Im just adding another layer to suggest that this intellectual legacy is pretty strong as well. To get to the other question about spending, there is a lot of spending in this early period. There is also the ratchet effect of course. As soon as world war i comes along, even before that, the civil war. So the beginning of my period, one of the largest counts for federal spending is on civil war veterans pension. Thats the beginning of our welfare state. Its a significant number in the late 19th century. It starts to dwindle later on, but in some ways raising revenue is not a goal of the tariff system. Some scholars say look at the tariff system, it did not raise revenue. You say thats kind of the point. It was a protective tariff. It wasnt meant to raise a lot of money. It wasnt that there was a lot of demand for federal revenue that time. Things change after world war one. The worst to become important. There is this ratchet effect. Military spending stays very high, it comes down, but it never goes back to the prewar period. There is spending on world war i veterans as well. This is also the time where the regulatory states take there is an incremental growth of federal spending that is beyond national defense. The question becomes where is the revenue going to come from . Part of my story is describing. Does that help . Very good question. I have a question about what you think about funding our transportation infrastructure. Our Highway Trust Fund is broken. Thats based on feel taxes, but they have not raised, no competition no administration has had the guts to raise our gasoline tax. Its been the same since 1990. Yeah. Should we pay for Highway Infrastructure out of the general fund . How should we do this . Well, so let me first say im a historian. As a historian, i study a lot of periods, but the future is not one of them. Im not sure where we should be going. And other times, if we take history as an analog, and other times when you had these earmarked kind of taxes that have been insufficient, the response in the past has been to increase that in some cases. But youre right, in todays political environment, that seems unlikely. So you have to turn to other sources. Theres talk a bit on occasion. President obama does talk about our dysfunctional infrastructure, but its mostly just rhetoric. I agree with your point that in the current environment we dont seem to be spending money for that. But if history is any guide, there becomes a crisis moment. Im not sure what that would be in the future. We had a crisis in august when they predicted the Highway Trust Fund in the red and sending money from the general fund to the Highway Trust Fund. Yeah, but that was a budgetary crisis. I mean the crisis that usually galvanizes the kind of reforms that youre talking about is more farreaching than that. When there is the next bridge catastrophe or Something Like that and human lives are taken, that might be the moment. Thats the other thing that fiscal history teaches us. There are those moments in opportunities as windows for reform. That might be the time where progressive performers who want to either increase the gasoline tax or find other funds for it might be able to use that. But with that line . Its a shame to waste a crisis or Something Like that. Theres a lot of historical truth the left. Youve said income is a slippery term. Another slippery term is direct tax. Apparently to some Supreme Court. They disagree. The pollack decision [inaudible] thats a great question. The direct tax clause that is in the constitution from the founding period requires that any taxes does not define direct but direct acts as to be portioned by population. Thats the language that govern before the 16th amendment change that. Thats hardly thats not how the court interpreted that. Before pollack, and income taxes never deemed to be a direct tax. There was never an explicit challenge to that. For the most part, the way the court to find a direct tax, it was presumed that in income tax would be fine. In fact, in my chapter on the lead up to the pollack decision. Seligmann, who is also a trained lawyer, is consulted by both sides of the pollack decision. Theres a bunch of new york wall street lawyers who are representing pollack. They contact him as well as the government lawyers to sort of get his consultation. Hes the expert. Hes done all this historical work on it. He thinks this is a nonstarter. This is not going to be challenged. Weve always had this. He does an incredible study of the colonial era massachusetts all the way up. He tries to convince the pollack lawyers that they are wasting their time. In fact, he says that. They are of course paid lawyer so they will do their job. They selectively use some of his research and not the way he was appreciative of, so he writes an article in response. But it is all moved because to his surprise and to this rise of every expert, they deem attacks on rental income. That was the key part of the policy decision. Attacks on irans was a derivative of a land tax. Therefore, it was a direct tax that had to be a portion of the 1894 law, which is not abortions, she was struck down. The experts are all shocked by this. You law reviews are all full of what is the court doing . Since that time, theres been a ton of historiography because the actual cases is actually tricky to here once and then there is a missing justice. But here it again and theres a different justice votes different way. Thats why a book on that might be interesting. You are right. The courts interpret with a direct tax clause very differently than all the Supreme Court cases that have been at least similar on that topic before it. So the experts are shocked. And in fact, when taft is running for president , hes a lawyer, on the campaign trail he says the court might be able to implement an income tax despite the pollack decision. We suggest hes not in agreement with the decision. When you become president , he backs often does not want to challenge the integrity of the court. In fact, he helps broker the compromise that leads the 16th amendment. The image i have here is fascinating. When i stumbled upon it, its root going through each word trying to figure out how he can write the 16th amendment so that there wont be any future challenges. You go back, the language of the 16th amendment say without a portion, he adds in there that there is an income tax that will be deemed correctly will not require reapportionment. Root plays this Important Role. The political economists plain Important Role. At the end of the day, its really about social politics. Its a social movement. Constitutional amendment is not an easy thing to do. So its really not surprising that you go back to the populist form. Its not surprising if this app. Alabama is the first state to ratify the 16th amendment. Its an influx of southern states. Where the income tax is going to do is tax the northeast industrial sector. Its the south that is being hurt by the tariff. The shift from the two after the income tax has important sectional implications. You see the slowly going through. New york becomes a very crucial state in the 16th amendment battle and that is where seligmann is. I ripped off of john bunkers book on the 16th amendment. Seligmann is testifying before the new York Assembly about the 16th amendment. Governor hughes, Charles Evans hughes is the governor and comes out against the 16th amendment because hes worried its going to give the federal government too much power visavis the states. Hes worried that means they are going to tax state interest on bonds and things like that, for example. Hes worried. Seligmann comes out and says, and Charles Evans hughes is a classmate of his. They go to law school together. So they are france. He has this terrific presentation before the new York Assembly where he says governor hughes does not understand the economics of taxation. If he was a student of mine, i would have flunked him dead. Thats not whats going to happen. The Capital Markets will sort out. The markets will sort out if there is an exemption for certain kinds of rights and others. So governor hughes is going down the wrong path. Im not saying that seligmanns testimony was the linchpin, but new york, thats where 80 of the income tax comes from. Pennsylvania, massachusetts does that help . It was sort of a roundabout response to your question. More questions . Well, ajay has given us an example of why we should purchases book. A discussion of what can be an intimidating subject. Thank you so much for a wonderful presentation. Thank you all for coming. [applause] we take you into the house capitals house wait where artifacts are used to trace the history of women in congress. This is the first of a two program. The start of women in Congress Begins with janet rankin who is elected to the house in 1916 from montana. Shes elected to the house for years before women had the right to vote nationally
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