Willoughby: In the tax debates, 2018 mirrors 1913
April 14, 2018
Only Uncle Sam celebrates Tax Day. Some payers see taxes as a price of democracy, others call taxes "takings." Congress enacted our first federal income tax law in 1913, and parallels between the debates then and now may surprise you.
American pioneers paid the costs of the commonwealth through subscription or donation. Passing the hat funded schools and paid teachers. And by the time of Aspen's founding, state and municipal governments had established acceptable systems to tax everyone.
But even with tax systems in place, some projects still depended on subscription. In 1913, a project widened and graded the rutted stagecoach route over Independence Pass, for automobiles. The smoother unpaved passage, vital to Aspen's summer tourist season, cost $3,000 ($67,000 in today's dollars). The city of Aspen chipped in $200 and more than 80 individuals paid the balance.
The city's entire budget for 1913 totaled $9,600 ($213,000). Electricity, the greatest monthly expense, lit the streets. The cost of the city marshal ranked in second place. Income came from a 20-mill property tax, plus a liquor tax collected from Aspen's 11 saloons. With the slowdown of mining in 1918, property tax income fell when residents moved and abandoned properties. Two years later, Prohibition knocked out alcohol-related income.
In the course of three decades, Aspen and the nation had experienced three major recessions caused by bank speculation and failures. Only a few years into recovery from the most recent recession, workers struggled to make ends meet. A round of progressive federal and state legislation passed in 1913, and Colorado enacted inheritance taxes, as did other states. Governor Elias Ammons, a Democrat, pushed for a graduated income tax, one that taxed lower-income citizens — those with less disposable income — at a lower rate. Also that year, Ammons signed into law a minimum wage for women, joining several other states that set rates around $9 ($200/week).
The question of whether to establish a national income tax occupied the debate sphere for months. Democrats pushed for the tax, Republicans opposed it, and other issues complicated the question. Proceeds from an income tax would replace government funds lost from a proposal to reduce tariffs. The proposed reduction in tariffs, in turn, threatened profits of the larger trusts of the time: steel and related smelter business, sugar, beef, woolen goods and tobacco. Colorado, a major producer of sugar beets, assumed an outsize role in the Senate vote because its two Democratic senators were beholden to the sugar trust.
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The Aspen Times Democrat laid out simple framing, "First of all it means that millionaires will, for the first time since this nation has stood, bear a fair proportion of the burden of taxation. The United States of America is practically the only one of the great nations where such conditions exist. Nearly every first class nation on earth levies either an income tax or an inheritance tax. We have neither."
High tariffs, including 89 percent on woolen goods, drove up consumer prices of most imports. With foreign competition priced high, and domestic competition reduced through trusts, manufacturers could raise their prices concomitantly. One study estimated that the average American family paid an extra $6 ($133) annually for sugar because of the tariffs. Thus, high tariffs benefited trusts at the expense of working Americans.
The Revenue Act of 1913 lowered the tariff rates from 40 percent to 25 percent. It also created a graduated tax that exempted the first $3,000 of income, and then taxed income at 1 percent. Further tax gradations topped at 6 percent for income over $500,000 ($11 million). Woodrow Wilson signed the act into law. Secretary of State William Jennings Bryan, Aspen's favorite populist, said, "I realized that while Western Republicans voted for the extortionate rates of a higher tariff, and Eastern Democrat Woodrow Wilson, right by Wall Street and the manufacturers, cast his lot with the plain people and gave them a low rate on the necessities of life. Why did he do it? Because his heart is on the people's side."
Hold the federal economic policy of 1913 up to a mirror to see it in reverse: the policy of 2018.
Tim Willoughby's family story parallels Aspen's. He began sharing folklore while teaching Aspen Country Day School and Colorado Mountain College. Now a tourist in his native town, he views it with historical perspective. Reach him at email@example.com.