Abstract

A great deal and possibly all of the mind-numbing complexity of America’s largest and least popular tax follows from the decision to have a progressive personal income tax. Proponents wanted an individual income tax notwithstanding — indeed, in large part because of — such a tax’s “double taxation” of savings. This double-tax argument is an analytic point generally attributed to Mill’s classic 1848 treatise, Principles of Political Economy. Historically, much of the support for the Sixteenth Amendment, ratified in 1913, came from Southern and Midwestern, progressive, agricultural interests, who wanted, in general, to implement a redistributive tax and, in particular, to collect some tax from East Coast financiers. After all, the Supreme Court had ruled that the income tax of the late nineteenth century was unconstitutional only insofar as it fell on the fruits of capital; no constitutional amendment would have been necessary to retain or implement a national wage or sales tax. The legal raison d’etre of the income tax was to get at such returns to savings as dividends and interest. To this day, liberals and moderates insist on retaining the structure of an income tax precisely because it gets at the returns to saving in addition to labor earnings. Consumption taxes of all sorts are set in contrast to the income tax, on another side of a great divide, as taxes that fail to get at the yield to capital — that deliberately avoid Mill’s “second” tax.

Disciplines

Tax Law

Date of this Version

May 2005

Download

Included in

Tax Law Commons

Share

COinS