With tax time approaching, I finally settled down with my tax-filing software to figure out where things stand. Working with software is nowhere near as daunting as tackling the paper forms, and it does the job, as long as the tax situation is not so complicated that it takes a certified public accountant to figure things out. In fact, as I learned while running a newspaper, some CPAs even use consumer-grade tax-filing software for some of their work.
This year, through the 2022 Inflation Reduction Act, the Internal Revenue Service rolled out Direct File, a pilot program for residents in Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming, with limited availability in Arizona, California, Massachusetts, New York, and Washington. The IRS plans to enhance the software and make it available to more taxpayers in the future, but currently it only works for simple tax forms.
Of course, there is still the Volunteer Income Tax Assistance (VITA) program that offers free help to those making $60,000 or less, persons with disabilities, the elderly, and limited English-speaking taxpayers who need assistance in preparing their tax returns.
People generally dislike paying taxes, but today’s tax rates are far below the post World War II levels. In order to recover from war debt, the United States’ highest marginal tax rate for individuals was 91 percent in tax years 1944 through 1951. It increased to 92 percent for 1952 and 1953, reverting to 91 percent in 1954 through 1963. For the 1964 tax year, the top marginal tax rate was lowered to 77 percent, and then to 70 percent for tax years 1965 through 1981. The top rate dropped to 50 percent in 1982, 38.5 percent in 1987, and 28 percent in 1988. It began rising again in 1991, back to 31 percent, then 39.6 percent in 1993. Since then, it has fluctuated between 39.1 percent in 2001, 38.6 in 2002, 35 percent in 2003, 39.6 percent in 2013, and 37 percent since 2018.
Americans may not realize that it was Abraham Lincoln who proposed the first graduated income tax to cover Civil War costs. It applied only to people who made more than $600, and was a voluntary tax. Representative Justin Smith Morrill (R-VT) argued for the measure, saying, “The weight [of taxation] must be distributed equally, not upon each man an equal amount, but a tax proportionate to his ability to pay.”
That first income tax was repealed in 1872, and was not revived until the passage of the Sixteenth Amendment in 1913. During those intervening years, some citizens became very wealthy, while most remained poor. As historian Heather Cox Richardson reminds us, “In June 1889, steel magnate Andrew Carnegie published what became known as the ‘Gospel of Wealth’ in the popular magazine North American Review. Carnegie explained that ‘great inequality … [and] ... the concentration of business, industrial and commercial, in the hands of a few’ were ‘not only beneficial, but essential to … future progress.’”
Carnegie asked, “What is the proper mode of administering wealth after the laws upon which civilization is founded have thrown it into the hands of the few?” Rather than encouraging “the slothful, the drunken, the unworthy,” he said, the elites should hold the purse and “consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer … in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community — the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves. … [T]his wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if distributed in small sums to the people themselves. Even the poorest can be made to see this, and to agree that great sums gathered by some of their fellow-citizens and spent for public purposes, from which the masses reap the principal benefit, are more valuable to them than if scattered among themselves in trifling amounts through the course of many years.”
Indeed, while Carnegie amassed a huge fortune, he was generous in providing money for the establishment of libraries and other philanthropic ventures. Others were not as civic-minded.
J.P. Morgan was ruthless in accumulating wealth for himself. He filed paperwork on February 25, 1901, to incorporate a new iron and steel trust and, on March 2, announced that he was overseeing the $1.4 billion merger of the companies that produced two-thirds of the nation’s steel into the United States Steel Corporation — a purchase in an amount almost three times that of the federal government’s annual budget.
President William McKinley was a champion of big business, but his vice-president, Theodore Roosevelt, sympathized with the workers, farmers, and entrepreneurs who eked out a living. Republicans concerned about Roosevelt’s sympathy for workers thought he would be kept under control by his vice-presidential role and, indeed, Roosevelt found he could not accomplish much when his only official duty was to preside over the Senate. That changed when, in September, an unemployed steelworker assassinated McKinley, and Roosevelt became president. One of McKinley’s aides commented, “I told McKinley it was a mistake to nominate that wild man at Philadelphia. I told him what would happen if he should die. Now look. That damned cowboy is president of the United States.”
When J.P. Morgan formed the Northern Securities Company to bring together the nation’s main railroad magnates, Minnesota sued to stop the organization, and Roosevelt’s attorney-general said the administration believed the formation of the Northern Securities Company violated the 1890 Sherman Antitrust Act, and that he would be filing a suit to keep it from organizing. J. P. Morgan met with Roosevelt, saying, “If we have done anything wrong, send your man to my man and they can fix it up.” Roosevelt responded, “We don’t want to fix it up. We want to stop it.”
In 1904, the Supreme Court ruled that the Northern Securities Company was an illegal monopoly and that it must be dissolved.
Roosevelt later said, “The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The object of government is the welfare of the people.”
Today, President Joe Biden Jr. is reinvigorating the government’s enforcement of anti-trust laws, taking on the billion-dollar industries that are responsible for the high prices that are unrelated to inflation. Those with extreme wealth again are calling the shots by donating to politicians to manipulate laws in their favor, and companies that jacked up prices during the pandemic are maintaining those high prices while reaping huge profits. Many of them pay few, if any taxes.
Meanwhile, Republicans are seeking further tax cuts that would require further cuts to government services, from the IRS to Social Security and Medicare benefits.
No one likes to pay taxes, but if, as Roosevelt said, the object of government is the welfare of the people, paying taxes — especially by the wealthy — is part of the package.
By The Way…
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