(Ajay K. Mehrotra is a professor of law and history at the Indiana University Maurer School of Law. The opinions expressed are his own.)
By Ajay K. Mehrotra
April 15 By midnight on April 15, roughly 140 million Americans will have filed their federal income tax returns and breathed a sigh of relief. Politicians from both parties, however, will spend most of the day criticizing our current tax system.
Conservatives bemoan that not enough people are paying taxes. They insist that a minority of "job creators" and "makers" are underwriting the social benefits that go to the "takers." Liberals cite the growing concentration of wealth and lament that the rich don't pay their fair share. In this new Gilded Age, they say, the 1 percent should be paying far more of their annual earnings.
Yet neither party seems willing to reform our tax system dramatically. Both avoid talking about the vital link between taxes and government spending. This was not always the case.
More than a century ago, during the first Gilded Age, lawmakers embraced progressive taxation. Responding to the massive inequalities between plutocrats and workers, policymakers used graduated taxes to rebalance the tax burden, reminding Americans about their shared duties to each other.
As the nation struggles through another period of rising inequality and social dislocation, history shows there are effective ways to address these issues.
The reformers' goal then was to reallocate the burden of financing a bourgeoning modern industrial state. They were not seeking to radically redistribute wealth, as some Tea Party conservatives claim or as some on the left may hope. The Progressives wanted to replace tariffs and excise taxes on alcohol and tobacco - the existing system of indirect, regressive and hidden taxes - with a direct, graduated and transparent tax system. They wanted to create a new fiscal order.
By taxing individual incomes, business profits and wealth transfers instead of ordinary consumption goods, activists were trying to force those segments of society that had the greatest taxpaying ability - the wealthy individuals and corporations, then largely in the Northeast - to share the burden of underwriting a modern democratic state. Progressives a century ago, like their liberal counterparts today, believed citizens owed a debt to society in relation to their "ability to pay."
This curt yet crucial phrase captured the idea that people who had greater economic power also had a greater social obligation to contribute to the public good - to contribute not just proportionally but also progressively more. Influential thinkers and political leaders - including Francis A. Walker, president of the Massachusetts Institute of Technology, and William Jennings Bryan, three-time Democratic presidential nominee -- used the term "ability to pay" to illustrate the widening circle of social responsibilities in a modern society.
The Progressive Era was, after all, a time when the social dimensions of American democracy were paramount. "The identification with the common lot," as the influential social reformer Jane Addams noted, was "the essential idea of democracy."
Creating a new tax regime based on the ability to pay had significant consequences. Not only did it provide sorely needed revenue while addressing growing inequality, it also fostered greater social solidarity and bolstered faith in government - a lesson lost on many lawmakers today.
Progressive Era politicians knew that adopting graduated taxes to counterbalance the existing regressive tariff and excise tax was one way to show that all Americans were contributing to the greater collective good. Graduated taxes reflected the importance of shared sacrifice.
Reformers believed progressive taxes could be used to reconfigure the relationship between citizens and the state to renegotiate a new social contract and forge a new sense of fiscal citizenship.
Activists also contended that a lawmaker's duty, as part of this new social contract, was to ensure that the tax burden would be shared fairly by all Americans. If policymakers held up their end of the bargain, reformers argued, citizens would come to trust, even welcome, the growing powers of the modern state.
Americans would come to see how the public sector could enhance their private lives, creating the basis for economic development and prosperity, while also providing assistance in times of stress and crisis. They would view government not as an enemy, but as an ethical agency "whose positive aid," Richard T. Ely, the progressive economist, explained, "is an indispensable condition of human progress."
Indeed, making sure that the wealthy contributed their fair share was one of the key motivations for a progressive tax system. "I have no disposition to tax wealth unnecessarily or unjustly," Tennessee Representative Cordell Hull, one of the chief architects of the 1913 progressive income tax, said: "but I do believe that the wealth of the country should bear its just share of the burden of taxation, and that is should not be permitted to shirk that duty."
Hull's comments still resonate today. Warren Buffet's argument that he should be taxed at a higher rate than his secretary, the calls from Occupy Wall Street's 99 percent to "tax the rich" and even the Obama administration's partial victory last year in raising top tax rates on the wealthiest Americans are legacies of a progressive tax system based on the notion of "ability to pay."
This tax day it may be useful to reflect on how an earlier generation of bipartisan reformers and lawmakers responded to a similar set of concerns - by creating the foundations for and the promise of a more progressive fiscal order. (Ajay K. Mehrotra)