The Big Bite

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This week once again the great American taxpayer--that irascible and yet docile composite of the butcher, the baker, the candlestick maker, John D. Rockefeller Jr., Senator Taft, John L. Lewis and the fellow next door--was working over his income-tax return. He did not do the job happily, or--in a year when he couldn't quite decide whether his country was at peace or at war--even very patriotically. The feeling that an enormous eye in Washington watched him as he wrote down his deductions was often all that kept him from cheating--and sometimes that didn't quite keep him honest.*

He hated the dreary toil of filling out his complicated, sometimes incomprehensible income-tax form, and was inclined to have wild, triumphant daydreams about finding on the street a big bundle of unmarked small bills which he could bury without the knowledge of the Bureau of Internal Revenue. As he entered item 6, added items 2 and 3, and fumbled distractedly with old dentist's and gasoline bills, he sometimes stopped to stare for long intervals at the ceiling--as if he expected to see a little loudspeaker push through the plaster and hear President Truman's voice saying softly: "Oh, pshaw, Jim, we've decided to call the tax off this year."

Look, No Clubs! Such remission from on high could no more come to the American taxpayer than to Atlas, the Greek weight lifter. On the taxpayer's shoulders rest the defense of the free world, the salaries of 2,500,000 U.S. Government employees, the care of Eskimos, and the spaghetti supply of Naples. The American taxpayer is the latest product of aeons of human progress. From his forefathers, despots were able to extract, under club or sword or torture, a livre here and a bushel of turnips there. But every dime the American taxpayer gives up has been voted out of him by his duly elected representatives.

The process of gathering the American income tax is so efficiently organized, so highly buttressed by every device of triumphant capitalism that it costs only 50-c- for every $100 disgorged. And the American taxpayer has reached such a high standard of living that he sometimes pays more in taxes than it costs him to feed himself and his family.

He has just footed a large part of the bill for the greatest war in history. He is riding the crest of the greatest boom in history. In 1952, he is about to attempt the greatest feat of all. He is going to give up $62.6 billion, more in a single year than the U.S. Government collected in the whole leaf-raking decade of the '30s--and almost a third again as much as in the most expensive year of World War II. Of this $62.6 billion, almost half ($29.3 billion) will come from the individual income tax, not an American creation, but one which the Americans, with their genius for large-scale organization, have brought to its fullest flowering.

The biography of the American income taxpayer is a story of surprises--and the biggest surprise may be still to come. It can be viewed as a victory of human progress or as a bitter historical joke--the joke being that when the American income tax began, the mass of American voters thought they were taking a swing at a fellow named Pierpont or Cornelius. The blow, in full and crushing measure, now lands each March 15 on the chin of a fellow named John Q.

From Little Acorns. How modestly it all started! To help support the Civil War, Lincoln's Congress in 1861 adopted 33% levy on all incomes over $800. The New York Herald applauded: "Millionaires like Mr. W. B. Astor, Commodore Vanderbilt . . . and others will henceforth contribute a fair proportion of their wealth to the national Government." This act was never enforced, but in 1862 Congress passed a 3% levy, plus a 5% tax on incomes over $10,000, thus introducing the now famed principle of taxation according to ability to pay. There was little dissent. In 1864, more gradations were introduced. Was Representative Justin S. Morrill (R., Vt.) the voice of reaction or of conscience or of ironic prophecy when he opposed the bill? He said: "This provision goes upon the principle of taxing a man because he is richer than another. The very theory of our institutions is entire equality, that we make no distinction between the rich man and the poor man. The man of moderate means is just as good as the man with more means, but our theory of government does not admit that he is better."*

The Civil War tax was collected from about 250,000 people in a population of 39 million. The tax, which had been voted for a limited period, was dropped in 1872. After the Civil War, U.S. capitalism began to spawn millionaires, and millionaires begot mass envy and a burning sense of social injustice. The eyes of Southerners and Westerners saw hundreds of cigar-smoking millionaires swarming like cuttlefish around New York and Newport harbors. This contrast tells the story: in 1843, there were only 20 millionaires in the whole U.S. In 1909, the 92 members of the U.S. Senate included 17 millionaires--15 Republicans and two Democrats.

The rise of the millionaires revived sentiment for an income tax. It was strictly and frankly a soak-the-rich measure. In 1893, a St. Louis editor urged William Jennings Bryan to lead a crusade for a graded tax of 5% or 10% on incomes over $10,000. "There is nothing those Eastern plutocrats dread so much as that."

Bryan heeded the call. In 1894, he tacked on to a Republican tariff bill an amendment levying a 2% tax on incomes over $4,000. The silver-tongued old king of corn stood in the House, wrapped like an animated tamale in an American flag, and forced his colleagues to hear and act. He cried shame on those who accused proponents of the amendment of "extending their hands to anarchy and Communism." He attacked Ward McAllister, a leader of New York's "400" who had threatened to leave the country rather than pay the tax. "If some of our 'best people,' " he bawled, "prefer to leave the country rather than pay the tax of 2%, God pity the worst... Let them depart, and as they leave without regret the land of their birth, let them go with the poet's curse ringing in their ears . . ."

The Bryan-sponsored tax became law in August 1894. The Supreme Court, reversing "a century of error," quickly found it unconstitutional. The New York Sun fairly panted with relief: "The wave of socialistic revolution . . . breaks at the foot of the ultimate bulwark ... of our liberties. Five to four the court stands like a rock."

The Frozen Smile. So the income tax was crushed to earth again. It is possible to fix the day, the hour, the minute, almost the very second when it began to rise again, a rise that was to lead without serious check to the Great Disgorging of mid-March 1952. President Theodore Roosevelt, who had been annoyed for some time at what he called "the dull, purblind folly of the very rich men," made a speech on April 14, 1906, at the cornerstone laying of the new House Office Building. Congressman Champ Clark, long the Democratic House leader, gave this account of the historic occasion: "The President made a flamboyant Fourth of July speech for ten minutes, an uplift speech for 15, skinned the muckrakers within an inch of their lives, and delivered a few light taps on Democratic ribs. The mouths of the eminent Republican magnates were spread in smiles reaching from ear to ear. They were having the time of their lives when suddenly, without any connection whatever with anything he had said, apropos of nothing, he declared vehemently for both a graduated income tax and a graduated inheritance tax. The Democrats were jubilant and applauded hilariously, while the smiles froze on the faces of the Republicans . . . The President seemed to be delighted with the sensation he had created and the consternation he had wrought among Republican statesmen. Their curses on him for that speech were not only deep, but loud."

The fat--and, before all was done, much of the lean--was in the fire. The Democratic platform of 1908 (candidate: W. J. Bryan) declared for a constitutional amendment permitting an income tax. The Republican platform did not, but the candidate, William Howard Taft, announced that he was for it. In the heavily G.O.P. Congress of 1909, the income-tax group, led by a fiery Tennessean named Cordell Hull, introduced their measure--aimed, as Hull said, at the Carnegies, the Vanderbilts, the Morgans and the Rockefellers. The leading "plutocrat" of the Senate, Nelson Aldrich of Rhode Island, first tried desperately to stave off the bill, finally offered the constitutional amendment legalizing an income tax. Hull and his group thought that Aldrich was trying to trick them, that the conservatives would kill the proposed amendment in the state legislatures.

If Aldrich was up to tricks, they did not work. The amendment passed the Senate unanimously, passed the House 318 to 14, and was soon ratified by the legislatures. John D. Rockefeller was one of the few dissenters. Said he: "When a man has accumulated a sum of money within the law, that is to say, in the legally correct way, the people no longer have any right to share in the earnings resulting from the accumulation."

The Payoff. Under the tax passed in 1913, a married man with two children and $10,000 a year paid $60. There were a good many complaints. The tax brought in $28 million. As a weapon against the rich, the income tax was little better than a flintlock. In 1902, there were 2,000 U.S. millionaires. In 1920, there were 42,000. There are many more today. Reason: millionaires rarely get to be millionaires by thriftily saving income; they do it through increasing capital values.

Almost from the beginning, however, the tax began to assume a form and function which its sponsors never intended--a broad and major levy against the people as a whole.

The charts which record this transformation make nostalgic reading for the American of today. When the citizen of 1916 paid his local town or city taxes, he satisfied almost three-fourths of his year's tax bill--the states took 11%, the Federal Government 23%, and the whole shooting match came to only $3 billion. Even as late as 1939 (when, despite New Deal spending, all taxes totaled only $12.3 billion), Washington took little more than a third. In fiscal 1950, the Federal Government gulped up 70% of the $53 billion tax pie. The percentage is still rising. Trying to tag along on the gravy train, 29 states now have income taxes of their own on the books.

On the forms now being made out for 1951 incomes:

P: 1,526,000 people with incomes under $1,000 a year will pay an average of $25 each.

P:I Nearly 6,000,000 taxpayers between $1,000 and $2,000 will pay $125 each--twice as much as the $10,000-income man under the 1913 law.

P: The whole group of 33,900,000 taxpayers with incomes under $5,000 will pay more than $8 billion, as much as the whole federal budget in 1938.

P: Another $5 billion will come from the 6,300,000 taxpayers between $5,000 and $10,000, who will have an average tax of $811.

P: As for the "millionaires," the 95,000 with incomes over $50,000 a year will kick in only about $4.4 billion.

Most of these, of course, are not millionaires at all, but high-salaried executives who live for a day, like gaudy moths, in the bright light of the tax collector's investigators. Surtaxes consume their substance. They have no more chance of getting rich by saving than a Nebraska hog farmer of Bryan's day had of eating oysters with Ward McAllister.

Taxes, federal, state and local, will take about 32% of all the money made in the U.S. in 1952. The American taxpayer who consoles himself that he is far better off than his British cousin may find it an interesting fact that Britain takes about the same percentage (not counting another 4% for social security). The American income tax provides 45% of all federal revenues. The British income tax amounts to only 30% of current British government revenues.

The British taxpayer feels complete assurance that his tax is honestly collected. The U.S. taxpayer felt the same way until Senator John J. Williams (R., Del.) began looking under logs and finding numerous parasites of the pyramiding public revenues. There is no evidence that graft takes a large part of the tax bill, but the overburdened U.S. taxpayer rightly considers it outrageous that it takes any at all.

But is the American taxpayer justified in his current grumbling about taxes? Shouldn't he agree with the late Justice Oliver Wendell Holmes, who said: "Taxes are what we pay for civilized society"?* Or with the late Movie Star Carole Lombard, who made $465,000 in 1937, paid state and federal taxes of $397,000, and just loved to do it? Said Carole: "The Government spent it on improvements to the country, and I really think I got my money's worth."/-

The complacent observer of high taxes points out that all the money somehow comes back to the people. A fresh-water clam in the well-balanced home aquarium pumps through his voracious valves nine gallons of water a day, yet the fish around it do not starve. Rather, the tank is purified in the redistribution. So the Government pumps it in, and pumps it out for the greatest good of the greatest number. That's the idea.

A suspicion is beginning to grow that there is something wrong with this idea. Down in Australia an eminent economist named Colin Clark has been studying high-tax countries (of which his is one). He finds that the effect of taxes changes when the tax bite rises above 25% of the national income. Taxation has always been considered deflationary, i.e., it saps up "excess purchasing power," and keeps demand from exceeding supply. Beyond 25%, however, Clark thinks that the tax bite is inflationary. The number of dollars in the national income increases faster than the amount of goods. Prices go up. If taxes do not fully cover Government spending, prices go up even faster. At present, the U.S. is taxing more than 25% of the national income, and the Federal Government is running a deficit. Not surprisingly, U.S. prices have nearly doubled since 1939, thus cutting almost in half all dollar savings, all insurance, all pensions. ("Bryan, wouldst thou wert living at this hour.")

When money is left in the hands of the people, part of it is invested in productive improvements that can make more of the things that people use. But money that goes to the Government, especially beyond Clark's 25% limit, adds to the demand for products far faster than it creates the means of making more products. The clam in the aquarium is no longer performing a service; he is eating what the fish need.

But You Gotta. America's 42 million income-taxpaying fish of 1952 are, however, far from the starvation point. They never, they keep telling one another, had it so good. Around March 15, they suspect that they are living in a mirage. This suspicion is confirmed by many economists. A livelier witness is Miss Doreen Gray, no economist but a striptease artist who was performing last week at the Colony Club of Gardena, Calif.

The orchestra pumped out the final bars of St. Louis Blues, whistles and applause filled the club, and Miss Gray hustled offstage wearing two strategically placed bits of red stickum, high-heeled shoes, a silver G-string, and an expression of queenly displeasure. Doreen, a single-minded girl, had been conversing about a thought just before she went on, had kept the thought firmly suspended in her mind during her act, and began conversing about it again just as soon as she was out of sight of the audience.

Doreen was brooding about the economic situation of the U.S. "Take even this G-string," she cried. 'Five years ago, I could get a real nice one like this for $1.50. Now they're up to $2.50. But my taxes have doubled too. I can't understand it. Why don't we tax England instead of sending them all our taxes?"

"I'll tell you what it is, all right," said her boss, a brooding, sandy-haired fellow named Marvin Ross. "It's political. It's those fellows in Washington. Take all our strippers. Maybe they're doing all right. But pretty soon they get a little old. They lose their builds. What have they got. then? Nothing! But the Government goes on taxing 'em as if it thought they could strip forever."

"Well," said Doreen in submission, "the country is in such a mess I guess somebody's gotta pay. I don't know how much more of it I can stand ... or what the hell they do with the money. But you gotta."

"You gotta," said Marvin.

And indeed 42 million Americans gotta, and it will be that way until a sizable number of them yell at Congress, "Take it off!" Or, more modestly and sensibly: "Take some of it off!"

* One out of every four tax returns contains "mistakes" and nine out of ten of them are in favor of the taxpayer. Most interesting recent error: a San Franciscan, questioned about overwhelming medical expenses, explained that his doctor had directed him to have frequent sexual intercourse to calm his nerves, and he had written off the cost of "treatment" plus carfare to & from the scene of operations.

* At a later date this line of argument was countered by Anatole France's gibe: "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges."

* In 1927, when Holmes made this remark, he had a salary of $25,000; tax: $600. Present tax on that income: $5,456. Either there is more civilization around, which is not noticeable, or the price of civilization has increased ninefold.

/- At the time, Government experts said she was overstating her payments by $70,000.

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