The article contains an underlying theme
that ribbons its way through much of the magazine’s journalism—a conviction that, if political events aren’t unfolding according to the rarefied sensibilities of New Yorker writers and editors, the explanation must involve people who habitate the political environment wearing black hats—bad guys who manipulate public opinion in a nation of people who are basically dupes.
In Lepore’s telling, Americans accepted passage of the Sixteenth Amendment in good grace a century ago and supported the subsequently-enacted income tax.
But with America’s entry into World War I, the top income-tax rate went up—from 7 percent to 70 percent. Still, few Americans paid any income taxes at the time, and this seems to be what Lepore considers just about ideal—rich people paying 70 percent while most taxpayers are exempt.
But this level of taxation couldn’t hold, as Lepore acknowledges. She writes, “Wilson’s tax policies were one reason that his party lost Congress in 1918, and the Presidency in 1920.”
This sentence seems to say that the issue of taxation in itself generated a backlash against an optimal tax regimen. She views the backlash as stirred primarily by rich autocrats protective of their net wealth. She neglects to mention that Wilson’s tax policies contributed to a devastating recession, with no economic growth in 1919, a 2.24 percent decline in 1920, and a further 4.16 percent decline in Wilson’s final budget year of 1921.
The question she ignores is what a top income-tax rate of 70 percent does to the economy—and what that does, in turn, to political attitudes toward an incumbent or incumbent party that fosters such an economic cataclysm.
Then came the Republican presidential administrations of the 1920s and that premier black hat of Lepore’s narrative, Treasury Secretary Andrew W. Mellon. He was rich, so he must have been a black-hat type, and on top of that he fostered a severe reduction in marginal tax rates, adding to his bad-guy persona (and to Lepore’s characterization of him as a man simply out to aggrandize his own wealth). But, again, Lepore neglects to mention some pertinent facts. For example, amid Mellon’s early tax-reduction policies (not very dramatic, down to 46 percent in 1922), gross domestic product shot up to $85 billion in 1923 from $69.1 billion in 1921. The turnaround from the Wilson recession was amazing (including a GDP growth rate in 1922 of nearly 14 percent).
Then came the Great Depression and the New Deal—and tax rates more in keeping with Lepore’s philosophy, up to a top rate of 79 percent (and later, during World War II, to 91 percent). Now this gets closer to Lepore’s sweet spot. But it also created another huge backlash, which Lepore characterizes as an assault on American civilization by rich autocrats who somehow managed to hoodwink the American people on the issue. She is particularly disdainful of New Deal and Great Society Democrats who drew a distinction between federal transfer-payment programs (welfare, farm subsidies, Food Stamps and Medicaid) that were paid for with income taxes, on the one hand, and so-called safety net programs such as Social Security, on the other. The latter were funded by payroll taxes that were intended to be tied directly to the benefits received.
That rankles Lepore because, in her view, these programs, too, should have been based on income-tax collection, transfer payments and concepts of redistribution. She writes, “The architects of the War on Poverty, like the New Dealers before them, never defended a broad-based progressive income tax as a public good, in everyone’s interest.”
This is a remarkable statement given that it refers to a time when America’s top income-tax rate hovered between 70 percent and 91 percent. It also ignores the political reality, fully understood by Franklin Roosevelt, that Social Security would never have passed as an income-tax-based transfer program.
Then things really began to fall apart, from Lepore’s perspective, when Ronald Reagan arrived with a political scythe directed at tax rates he believed had thwarted economic growth in America. Of course, Lepore makes no mention of the “stagflation” and economic malaise that contributed to Reagan’s election and his success in reshaping the country’s fiscal policy. Nor does she mention Reagan’s impressive economic record (including restoration of strong GDP growth rates). Such mentions would have implied that there was some logic in Americans’ affirmative response to Reagan’s fiscal advocacy.
Lepore ends her article by listing in dramatic fashion all the things we get from taxes, including “civilized society, modernity, prosperity…roads and schools and bridges and police and teachers…doctors and nursing homes and medicine…rescue workers, shelters, and services” and much more.
Of course we do. But we also get bloated governments with huge unfunded liabilities in government-employee-benefit programs; unchecked bureaucracies; a tax code that favors those who know how to game the system over ordinary citizens; mammoth corporate-welfare programs for huge companies and particularly big banks; and the kind of corruption seen in President Obama’s subsidies to Solyndra and other “clean energy” enterprises (which, among other things, helped former Democratic Vice President Al Gore increase his net worth from $2 million to $100 million since leaving public service).