Commentary: The GOP’s Great Depression Tax Plan
Critics of this fall’s tax reform spectacle on Capitol Hill never seem to miss an opportunity to contrast the GOP’s rush to judgment today with what they hail as the measured, bipartisan approach to tax reform back in 1986.
Back then, the line goes, legislative statesmen from both sides of the aisle joined and vanquished tax policy’s most ornery sacred cows. They slashed individual tax rates while closing loopholes favored by corporations—without party line votes or deceitful math.
But if we want a historical analogy that illuminates our present political moment, we would do well to ditch 1986 and look back to 1932, a year when America’s political elites made an amazingly brazen tax move to comfort America’s already comfortable. Sound familiar?
At that time, we were in trouble. The Great Depression had left government barely able to function. New revenues, almost everyone agreed, simply had to be raised.
Where to get these revenues? According to the political elites, top Democrats and Republicans alike, only tax breaks for the rich could start the nation down the road to prosperity.
America, Democratic Senate floor leader Joseph Robinson of Arkansas pronounced, could only tax the rich so high “without discouraging investment and production.” Our nation, echoed House Ways and Means Committee Chair Charles Crisp of Georgia, could never meet its fiscal emergency by “soaking the rich.”
Average Americans, Crisp added, were going to have to “gird” themselves for “tremendous sacrifices.” The nation needed a tax levy that demanded “stamina” and “backbone” from all Americans, and congressional leaders had just the ticket: a national sales tax—which, of course, would ask the most of the lower-income Americans suffering the worst of the Depression.
That call for a sales tax would be music to the ears of 1932’s donor class. Moguls like publisher William Randolph Hearst wanted income—their income—off-limits to tax collectors. Americans, Hearst wrote in March 1932, must “carry on a sustained crusade Morning, Evening, and Sunday against the present Bolshevist system of income taxation.”
Congressional leaders did their best to oblige. The House Ways and Means panel passed an almost all-encompassing national sales tax, a 2.25% manufacturer’s excise levy on everything but food.
But America’s elites had overreached. Out from the nation’s grassroots came an enormous roar of protest. Rank-and-file members of Congress turned on their leaders and drubbed the House sales tax plan by a 223-153 margin. They went on, amid shouts of “Soak the rich!” on the House floor, to hike the top income tax rate from 25% to 63%.
Congressional leaders couldn’t believe what had hit them. “We have made a longer step in the direction of communism,” House Democratic Majority Leader Henry Rainey lamented to his colleagues, “than any country in the world ever made except Russia.”
Others had a different take. In New York, Governor Franklin D. Roosevelt sensed an emerging grassroots push against plutocracy and soon aligned his presidential candidacy with it. Roosevelt began championing the “forgotten man at the bottom of the economic pyramid.”
We cannot “inject life into our ailing economic order,” added Roosevelt, without “a wiser, more equitable distribution of the national income.”
That “more equitable distribution” would soon take shape. In the dozen years after 1932, upsurges from below intensified and altered the trajectory of American political life. Out of those years would come a much more equal America—the world’s first mass middle class nation.
The impact of the widely ballyhooed 1986 tax reform, by contrast, proved incredibly inconsequential. Inequality was increasing rapidly before the 1986 reform. Inequality continued increasing after it.
So what history will the 2017 tax clash end up making? It depends on whether representatives listen to political elites or their own constituents.
Sam Pizzigati co-edits Inequality.org for the Institute for Policy Studies. His latest book is The Rich Don’t Always Win: The Forgotten Triumph Over Plutocracy That Created the American Middle Class, 1900-1970. This article is adapted from an earlier post on Inequality.org.