Throughline - Past is Prologue: Talking Taxes

Episode Date: April 13, 2023

Benjamin Franklin said the only certainties in life are death and taxes. Sifting through receipts, deciphering confusing codes, and filling out forms is an annual ritual that's about much more than money. The history of the income tax and the battle over who should pay how much is about what we value as a nation. In this conversation with historian Molly Michelmore we'll explore the past, present, and future of the income tax.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for this podcast and the following message come from the NPR Wine Club, which has generated over $1.75 million to support NPR programming. Whether buying a few bottles or joining the club, you can learn more at nprwineclub.org slash podcast. Must be 21 or older to purchase. Big news from the IRS overnight, announcing a change that will lower the tax bill for many Americans. And it's all because of inflation. In case you're curious, California has the highest income tax of any state at 13.3%. Places where people are going, like Nevada and Texas, have no income tax. Your refund, it may be smaller for the 2022 tax return season.

On the contrary to popular belief, more Americans are paying federal income tax this year. The nation's top 25 richest people, including Warren Buffett, Jeff Bezos, and Elon Musk, pay little to nothing at all. You're listening to ThruLine from NPR. Where we go back in time to understand the present. Benjamin Franklin, one of the framers of the U.S. Constitution, once said that there are

two certainties in life, death and taxes. It's the ritual most of us can't avoid, gathering receipts, filling out forms, deciphering confusing codes that leave you pulling out your hair. Completing your taxes is the worst. Taxes come in a few different forms. There's sales tax, which you pay when you buy something, or property tax if you own land or a house. But the one that annoys us every year is income tax, the one you have to pay on the money you make every year. So we wanted to know, where did this come from?

How did sending the government a percentage of our hard-earned dollars end up being a thing? So we called up Professor Molly Mitchell-Moore. I'm curious, why did you get interested in studying income taxes? So that's, I mean, that's an interesting question. And there's some biography there, I suppose. She teaches history at Washington and Lee University, and she's dedicated a lot of her career to studying this question. When I was applying to graduate school,

I knew I wanted to do something in 20th century American history. I knew I wanted to do something that dealt with the kind of relationship between citizens and the state. There was a lot of stuff on welfare. It was a pretty popular thing for people to research. And so in terms of distinguishing myself and kind of adding to the literature, I thought that I would look at this kind of question of who pays. And I think that it does get to this sort of philosophical question about what we value as a nation, what we pay for, and what we resist paying for, and how we pay it and who we ask to pay for it.

The history of the income tax and the battle over who should pay how much is about more than money. So how did we get here? What does paying your taxes actually translate into? And what can it tell us about what's important to us as a society? So for this episode, we're going to have a conversation with Molly Mitchellmore to dig directly into those questions. It's the first episode in a new series we're calling Past is Prologue, where Rund and I sit down with historians, journalists, and big picture thinkers to talk through some of the burning questions we have about why things are the way they are. It's going to be more intimate and informal than a regular ThruLine episode,

but we'll have just as much depth and nuance. It'll be like you're a fly on the wall during one of our interviews, hearing unedited questions and answers, hearing us thinking out loud, and the surprising reactions from guests. Okay, actually, maybe not flies on the wall, because there's a lot of you listening in. So that would be a lot of flies. So coming up, we're going to explore the past, present and future of the income tax with Molly Hello, this is Camilla. And this is Ferdinando from Rome, Italy. And you're listening to our favorite show, Throughline, from NPR. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time, mid-market exchange rate with no hidden fees. Download the WISE app today, States began over 150 years ago.

So who asked for the income tax in the first place? To find out, we talked to historian Molly Mitchell-Moore. For you, you know, as someone who is studying this and, you know, you've obviously looked deeply into this history, what's something that you find a lot of people are surprised to know about income taxes when the topic comes up? So I think one of the things I often start with is this idea that the income tax came about in the late 19th century largely because poorer and middle-class people wanted it. That is to say, I think we've gotten used to in the last 50 years or so talking about taxes as if they are only a burden, as if they are something that is imposed on us by a distant and hostile government. But if you look at the origins of the income tax system in the United States, it really does come about because of a demand from below, because of a

demand for a fairer tax system that would extract resources, would extract the sort of fair share from those who were best able to pay it. And of course, in the late 19th century, that was your robber barons, that was your industrialists, that was your Vanderbilts and your Rockefellers and your Carnegie's who were commanding huge swaths of the American economy. You know, I realize at this point in the conversation that I'm like, I'm trying to define income tax in my mind. Again, we pay it every year. It's something like we do. It's a ritual. So help me out here. How would you sum up what income taxes are and where their origins lie in the U.S.? So I guess the first thing I would say is that this actually is a really difficult question. And this is at the

center of a lot of tax debates. That is to say, what do we count as income? What do we deduct from sort of the gross that we take in, right? Do we deduct interest? Do we deduct payments to employees? Do we deduct this or that? So this question of defining income is in fact one of the thorniest issues at the center of income tax policy. And if you think about any of these tax debates, right, they're really about both the rates and who should pay, but also this question of what is income. And so I think the easiest way to answer your question, right, is that income is sort of cash, I guess, cash that we earn through wages. But income taxes are also on unearned income, right? That is to say they are on dividends from stocks, interest on stocks and bonds earned in the market. They're distinct from payroll taxes. So they are not the same kinds of things really as

those payroll taxes that pay for Social Security, that pay for Medicare, and they're not real property taxes. Those are generally levied at the state and local level. You have defining what income is as part of the struggle. Take us back to where the idea for income taxes comes from and what their original purpose was. So the first income tax in the United States is levied during the Civil War. And part of the reason that that happened was simply that wars are expensive and wars also interrupt international trade. And before the Civil War, the United States had largely relied on tariff and tariff policy to generate basically the income that the federal government needed to do the things that it needed to do. So those are basically, right, taxes that

you pay on goods that are imported into the United States. But because of the Civil War, much of that international trade was interrupted, and it cost a lot for the United States to wage that war. And so the United States levied the first income tax. It was also a complement in some ways to other consumption taxes. So they had to impose a great deal of internal revenue collection measures as opposed to those external or tariff revenue collection measures. Those tended to be sales taxes on things like whiskey. Those tended to hit those at the bottom of the income scale harder than those at the top. And so in part, an income tax was meant to equalize the burden across the haves and the have-nots. So it's interesting because the U.S. Constitution has this spirit of preventing government overreach, right?

There's a sense of like, government, stay out of my business, you know, etc. So what was the response? So there were some people that were pretty grumpy about it, particularly those at the very top of the InSkum scale who were hurt most by it. And it wasn't really until after the war that you see this kind of concerted resistance against the both the income tax, but also these other consumption taxes that had been levied during the war. And those peak in the 1870s and 1880s. They get mixed up with opposition to reconstruction, that is the effort to both rebuild the South after the Civil War, but also reconstruct the meaning of citizenship in the United States to include formerly enslaved men and women in this more capacious definition of who is and who is not an American citizen.

Income tax is introduced during the war. The war ends. You talked a little bit about how it became part of like the Reconstruction fight. What kind of constituencies arise as the 19th century goes on into the early 20th century for people who were proponents and opponents of the income tax? So that's a really interesting question. And as I said, in that late 19th century period, opposition to Reconstruction often gets articulated as opposition to taxes because that's something that makes very clear the cost that individuals are paying for this

political effort, right? And if we are thinking about the nexus of race and of taxes and of this identity of taxpaying and citizenship, then those are very powerful rhetorical weapons, particularly in the 1870s and 1880s, particularly in the American South. Those tend to be less about the income tax and more about those consumption taxes that I talked about, particularly taxes on things like whiskey. And those would very much bring middling farmers, working class types into this discussion of tax paying. But there's also a growing sense that the larger kind of revenue system of the United States, which is dependent in large part on tariff revenues, is benefiting the very wealthy at the expense of consumers and the expense of farmers in particular. It is making the things

that they need to buy to compete in an increasingly industrialized agricultural world. It's making those things more expensive, and it's also making it harder for them to sell their produce on an international market. a demand for progressive income tax to replace the tariff system and to levy fairer taxes on basically the producing classes, right, of the United States. Yeah, I want to dig into this time period more, this kind of, you know, the rise of kind progressives who are kind of pushing back because it's such a pivotal moment in American history and global history, right? As you mentioned, industrialization, you have, you know, the growth of American empire, you have all of these forces kind of colliding and the U.S. really being transformed into a global power. And it seems like taxes, and in particular, you mentioned tariff revenue. Can you explain a little bit more about how those are factoring into this bigger kind of mission that the country had of expansion and globalizing and industrializing. Yeah, so one of the things that happens over the course of the 19th and into the 20th century is

that the things that American citizens expect their government to do, that list just grows longer, right? And that list then grows more expensive, and so more federal revenues are required to do those kinds of things, more federal revenues than a tariff can easily meet. That Spanish-American War, right, of 1898 is thisism that had kind of characterized the United States since its founding, since George Washington warns about staying out of external affairs, right, in his farewell address.

And it does cost some amount of money. A couple of years before that, the Supreme Court had thrown out a relatively modest income tax had been passed by Congress on the grounds that it was in violation of the Constitution's prohibition on direct taxation by the federal government. But the cost of that Spanish-American war, of that splendid little war that lasts fewer than four

months, right, does mean that the federal government wants to find newer sources of revenue. There is also a increasing need or demand from the bottom, and not just from the working classes or not even primarily from the working classes, but like the growing middle classes, to address some of the excesses of industrial capitalism, of the concentration of wealth in the hands of a very small but very powerful elite. And we can see that manifesting itself in a series of progressive reforms. And the income tax is one of those. The progressive era is one of those moments that gives us a lot of amendments to the constitution. You know, you get the 16th amendment, which allows for, which allows for the income tax. You get the 17th amendment, which is direct election of senators. You get prohibition,

you get women voting. It's one of those moments where there is a lot of energy around reform. And in some ways that is a response to these extraordinary changes in the shape and size of the American economy and the ways in which the United States is, by the beginning of the 20th century, are really a kind of signal player in the international order. I want to stop and really make sure that the audience has a sense of how big a deal it was and the passing in an amendment that would then look like actually codify income tax. Why did, why was that necessary? And what was like buildup to that? Because it's a big move, right? It kind of, today it seems impossible to

ever have an amendment to the constitution. I know it was happening more frequently in the early 20th century, late 19th century. But what was the kind of buildup to making that necessary to even happen? Okay, so there is this language in the Constitution that prohibits direct taxation, except as is related to basically the size of state populations. There are a lot of sort of arguments

about why this was in there. And to me, the most kind of compelling is that it was largely about slavery and that there was some fear among the signers of the Constitution who represented slave states that taxes, if levied by a federal government, could ultimately be used to undo slavery, right? So if you had a special, particularly high tax on slave property coming from the federal government, then that would be a way to essentially make that system so expensive as to be impossible. And that was sort of one of the fears, right? So that's in the Constitution.

But the Supreme Court in the late 19th century, in a case called Pollock v. Farmers Trust, reads that to prohibit the federal government from imposing an income tax. Congress had, under pressure from the bottom, right, under pressure from populists, they'd agreed to a relatively minor income tax in 1894. Supreme Court throws that out. But there's still this need, right, for a revenue system that's fairer, that does something about these gross concentrations of wealth and power in the hands of an increasingly small elite. And so there is then continuing pressure for a way to do an income tax, right? And because the Supreme Court had said that it was unconstitutional, it had to be done through an amendment to the Constitution. That begins to kind of gestate in the first decade of the 20th century. So when exactly does the 16th Amendment pass?

The 16th Amendment is enacted in 1913. I think the other thing that's important to note is that that was relatively modest and the exemption level was pretty high. So like most people weren't paying it. So it was really a kind of gesture at an income tax rather than an income tax that was necessarily going to raise a whole lot of money or going to affect a whole bunch of people. Now that changes as soon as the U.S. gets into the First World War in 1917. And there is this really interesting debate around who is paying for the war and how, right? So because there was a draft and because, as is often the case, the sons of the elites were generally exempt from the draft through one mechanism or another, there was this sort of powerful argument that said that the middle and working classes

were paying for the war with their bodies. And so we should draft the dollars of the elite in order to sort of compensate in some way for the draft of the bodies of those of the working and middle classes. Coming up, the income tax pays for not one, but two world wars. This is Adam from Indiana, and you're listening to ThruLine from NPR. clicking the subscribe button on our show page in Apple Podcasts. craft, each hotel tells its own unique story through distinctive design and immersive experiences, from medieval falconry to volcanic wine tasting. Autograph Collection is part of the Marriott

Bonvoy portfolio of over 30 hotel brands around the world. Find the unforgettable at AutographCollection.com. By 1913, the 16th Amendment to the Constitution was established and taxes on personal income became official with the hopes that a more fair revenue system would place less of a burden on the lower and middle classes. But just four years later, the system started to shift. We pick up the conversation with historian Molly Mitchellmore. It's interesting because I feel like needing the income tax, both as an equalizer, as you said, but also literally to fund the war effort. I mean, there's a defense

objective, it seems, at the heart of the taxes that in some ways, I mean, I can't help but just think that's something that permeates to this day, but begins all the way then. You think that's a fair connection to draw? Yeah. I mean, I think that you can certainly look at American history. If you look at World War I and World War II in particular. Those are particular moments where the income tax grows in size and in incidence. They grow in different ways in those periods. The World War I tax system is pretty soak the richy, right? So it really does impose pretty high rates on those at the very top and exempts those from the bottom from paying much, by the way, of income tax.

The World War II system, by comparison, transforms the income tax from what we might think of as a class tax, that is to say something that's paid only by the very rich, to a mass tax, that is to say something that's paid by most everyone. And the Roosevelt administration deliberately tied that income tax to the effort to beat the Empire of Japan and Nazi Germany. The slogan was taxes to beat the axis. And they really did launch a sort of full scale public relations effort to sell this new income tax system. So there are two Donald Duck cartoons. I don't know if you've seen these. Tell us more. There is a new spirit in America. The spirit of a free people. From 1942 and 1943, the spirit of 42 and then the new spirit, I believe. And they are part of this taxes to beat the axis campaign. So the Department of the Treasury works with Hollywood essentially to sell the income tax during World War II. And so in the

first one, it's basically about Donald Duck learning to pay his taxes. Because this would be like a new thing, right, for everybody to do. And he would have no idea exactly how to pay his taxes. Are you a patriotic American? Yes, sir. Eager to do your part? Yes, sir. Then there's something important you can do. Oh, boy, oh, boy, oh, boy.

I'll do it. And so it's kind of running through for you, the viewer, through Donald Duck, who for whatever reason was like the every duck, like how you do it, right? You won't get a medal for doing it. Oh, that's not right. It may mean a sacrifice on your part. I'll do it anyway. But it will be a vital help to your country in this hour of need.

Shall I tell you what it is? Yes, what is it? Tell me. Shall I? Tell me what it is. Your income tax. So, you know, it has him filling out, and it's a paper form, right, in 1942. It's not like a TurboTax situation.

So he's filling it out, and he's saying what his income is. He's saying what his occupation is. For those who are wondering what Donald Duck's occupation is, it is an actor, which makes sense when you think about it, but nobody ever guesses that. He claims Huey, Dewey, and Louie as his dependents, right? And so it's just kind of running through how if even Donald Duck can do this, so can you, normal citizen of the United States. There's also a song that Irving Berlin writes,

Danny Kaye records it, called I Pay My Income Tax Today that's released by the Treasury Department in either 1942 or 1943. It is a very catchy ditty. I paid my income tax today. I'm only one of millions more whose income never was...

It has these sort of, right, it's I paid my income tax today and sort of being proud to participate, right, in this effort. There's a line there that goes something like,, right, in this effort. There's a line there that goes something like, see those bombers in the sky. See those bombers in the sky. Rockefeller helped to build them, so did I.

Rockefeller helped to build them, so did I. And it's this sort of idea, right, that the little guy, the small fry, which I believe is the term that they used, is also sort of taking ownership of this war, of this conflict, and is paying his taxes to beat the Axis. Wow. It's an income tax propaganda campaign. Yes. No, it is. So it really is this effort to use popular culture and mass culture

to create a sort of larger taxpaying culture during the war. Wow. Okay, so it seems like this is the period in which the very idea of income tax becomes codified. But the battle continues, really, over what taxes mean, who should be paying them, and how much, which we've kind of talked about throughout this. How does that get more complicated as the U.S. engages in multiple major wars, and as Ron mentioned earlier, expands its sphere of influence to what many call an empire around the world,

how does the tax system become more and more a battleground over ideology heading into, let's say, the 1950s and 60s? Yeah, so I think one of the things, too, to remember is that those sort of same elite forces that are objecting to the income tax in the 1890s are also organizing around objecting to it in the 1920s, in the 1930s, in the 1940s, and in the 1950s. And one of the things that was really striking to me when I began my research, And again, I began this from the perspective of the early 21st century. I'd worked in Congress for a little bit, and I was really kind of just, I took for granted that people hate taxes and that that was a kind of, that that was a theme

through American history, right? That's one of the things we learn, no taxation without representation, yada, yada, yada, right? One of the things that struck me was that there were significant moments in American history where people just didn't talk about taxes. That these tax revolts that we sort of take as the norm of American history were often more astroturf than they were grassroots. And this was certainly the case in the post-World War II period, in the 1950s. There's this really interesting moment in the early 1960s when the Kennedy administration wants to cut taxes by like 20% for everybody, and they can't get anybody to care about it. So they have to kind of create a citizens group to push for this tax reduction, to make these arguments that tax reduction is necessary. Now, there are moments, the 1970s, for example, where you do see a real kind of grassroots

uprising against not taxation per se, but unfair taxation. And that does give you the tax revolts of the 1970s that result in Proposition 13 in California, which was this proposition to cap basically both property tax assessments and property tax rates in California. Those are genuinely grassroots, or at least the objection to taxes are genuinely grassroots. But I think we need to question or complicate this kind of assumption that taxes have always been salient, that taxes have always been important, and that Americans hate taxes full stop. Because I just don't think that's the case. You used the phrase unfair taxation, and it seems important to define, like, how is that being defined? What was unfair taxation? And how maybe had that changed from, let's say, the 1800s context of what unfair taxation might have meant?

I think, obviously, that is the big issue. And unfair is often in the eye of the beholder. And so it does, it escapes definition. So you can't, I don't think, quantify unfair taxation. I think it becomes a persuasive political argument when people think that they are paying too much for too little. So one of the things that you often see is that people are relatively, if not happy with taxes, they're not willing to kind of get up in arms about them when they think they're getting a good deal for their dollar, right? So in the 1950s, we have this progressive income tax system. And there are some people that are objecting. There are these kind of top-down tax resistance movements,

but no one's really talking about it outside of those small boardrooms. Because I think people thought they were getting a good deal, right? So people are buying homes. This is that post-war economic boom. This is that suburbanization period. People are moving from the working class into the middle class. There is economic mobility. There's increasing economic stability, particularly for white Americans. And so there is this sort of sense that, yeah, I'm paying taxes, but I'm also getting some for it. That begins to shift a little bit in the 1970s

for any number of economic and political reasons. But I think that that's, it's more of a vibe, right? Sort of this unfair taxation thing is more of a feeling than it is a discrete formula. Right, because if you're going to, if the government is going to be taking, you know, a decent percentage of your income, you want to see it manifested in kind of the roads and your healthcare and your schools and all of that. And it seems like as the 20th century goes on, people are seeing less and less of that actually translating into benefits for them in their lives.

Yeah, I think so. And that also has to do with some compromises that American policymakers make about how we are going to provide those certain kind of benefits. Right. So the United States provides what European welfare states might provide directly, whether that's housing or health insurance. We tend to incentivize private businesses to do that work. Employers don't do that out of the goodness of their own heart. They get a tax deduction for their portion of that health insurance. But because it's done through the tax code, because it's done indirectly, so you can't actually see what the government is doing there in terms of providing for health security. And so you don't see that your taxes are doing anything.

You don't see that the government is doing anything. If you have health insurance, it's because of your employer, right? It's not because of the public. It's not seen as coming from the public sphere, even though the federal government is doing a lot to incentivize that. Coming up, how taxes are about more than just money. Hi, this is Jessie Howland from San Francisco, California, and you're listening to Threeline from NPR. The income tax played an important role throughout the U.S. in the 20th century. It helped fund two world wars, and then a progressive tax system paid the way for a growing middle class. And even though there was some opposition to it, taxes remained high.

So what the heck happened? Historian Molly Mitchellmore has some answers. It seems like the decisions about what to do with tax revenue or who to tax are like a moral decision, right? Or a ethical decision that a country makes. For example, how much you choose to give someone a tax breaks for doing X or Y, like let's say for getting married, it shows that the country is trying to incentivize those particular things. We don't tend to think of it

that way. Do you think from your estimation, having studied this issue, that that's a fair statement that taxes are almost kind of like a ethical, moral reflection of a society and what it values? I think they've certainly become that. We see this idea of spending through taxes. The United States is not alone in doing this, but it is developed to a peculiar and particular degree in the United States. And so, yes, right, the tax system does more than just raise revenue. It is an expression of what we value as a society.

And we do do a lot of things through that tax code, whether it's incentivizing marriage, whether it is perhaps incentivizing childbirth, whether it is incentivizing homeownership or employers to provide health insurance, all of that is done through the tax code. And so it's kind of a backdoor, right, to the sort of social legislation of expressing these and subsidizing these kinds of behaviors and values. A scholar, Christopher Howard, has called this the hidden welfare state, right? That many of its European counterparts and the direction they went, which was a very overt, it's not a hidden welfare state, it's a more overt, you know, kind of social welfare state. And, you know, getting to what Ramtin was also talking about, the idea that there's almost like a differentiating that has to happen, it seems like in the, in this kind of Cold War

atmosphere of what defines American taxes, and more, maybe more importantly, what they are not, which is kind of feeding a socialist agenda. And even if a lot of the policies are, in some ways, as you say, a hidden welfare state, there's almost like a, I don't know if denial is the right word, but a desire to mask what is really happening. Yes. I mean, I think denial is probably the right word. Whether or not it was deliberate from the beginning is harder to tell. And this, of course, in some ways reflects the fact that the United States comes out of World War II in much better position than France or Great Britain or Germany, who had suffered a great deal, right, during the

war. The United States actually grows during the war. We come out in 1945 better than we were in 1940. The economy is bigger. And so we have a kind of cushion that those European nations don't. A lot of these patterns that we see becoming entrenched in the post-war period had begun in some ways by accident during World War II. So for example, there was a kind of agreement between labor and big business during the war that labor wouldn't demand wage increases and that business wouldn't increase prices. That said, right, there was a labor shortage. Workers had a great deal of leverage during the war. And businesses were interested in attracting and keeping workers. And so what they could do, they couldn't raise wages, but they could raise

non-wage compensation, right? So you have all of these health plans, pension plans being inaugurated during the war. And because they worked, they carried through into the post-war period. And so there was less pressure from the bottom, from workers who in places like France or England might demand government pensions, might demand government health insurance to do the same in the United States because they were already getting them through their employers. These were later incentivized, right, by the federal government. But it's done in a really hard-see way, right? Very few people, if you ask them, would be able to kind of explain how the employer deduction for health insurance works because they just don't see it, right? And they're not meant to see it.

The flip side of this, though, is, so we're talking about taxes as they relate to the welfare state. I mean, that affects the working class, middle class, but the tax system also has benefits for the very rich. You talk about what the capital gains tax is and the ways in which the people on the higher end of the earning back in Germany and the United States have used the tax system for their benefit. Yeah, absolutely. And this gets to this question, right, that we started this conversation with.

What is income and how do we treat it. And the U.S. tax code treats earned income differently than it does capital gains income, which is basically income from the sales of investment properties or other kinds of investments, so stocks, bonds. And under the Internal Revenue Code, those are subject to a lower rate of taxation than the income tax for earned income. And that is designed to incentivize investment. It will incentivize and stimulate economic growth. This comes out of, I believe, the 1970s. So the 1970s are a super weird period in American economic history because it is this moment where this great economic boom of the post-World War II period comes to an end, and nobody can really figure out why. And it's also

a period in which two things that shouldn't happen at the same time are happening at the same time, right? There have been all these theories about how you can't really have inflation and economic stagnation and rising unemployment all at the same time, those things are sort of supposed to offset each other. And yet, in the 1970s, all of those things were happening at the same time, and nobody knew what to do with it. And so this created this space for a whole bunch of alternative ideas about how you get out of this mess, right? Rejecting traditional demand side ideas that what you need to do to grow the economy is to stimulate consumption, essentially, for a whole lot of other ideas to compete. And one of the ideas that ultimately does win out in a lot of ways is that you can fix the economy

by cutting taxes, and that you can fix the economy by cutting taxes largely on the investment class. So this is where we get this idea of supply-side economics that's largely associated with the Reagan administration. But it begins to take shape in these crisis years of the 1970s. And so you basically have the idea that you cut taxes, people have more money to spend and pump back into the economy. Yeah, but you cut taxes on particular people, right? So I talked a little bit about this Kennedy-Johnson tax cut in 1963 and 1964. And that was a pretty significant across-the-board tax cut.

But it was designed essentially to put more money into the pockets of the working and middle classes because they believed that the way to grow the economy was to have people spend more in the kind of consumer economy, right? So if you give like really rich people a dollar, they're probably not going to spend that dollar, right? They're going to invest it. If you give people living on the margins a dollar, they'll probably go out and spend it. And so that then is going to stimulate economic growth. What happens in the 1970s and 1980s is that that doesn't seem to be working anymore. So we have this weird kind of combination

of unemployment, of inflation, and of economic stagnation. And so people propose alternative ways of understanding how the economy works. And supply-siders say, no, no, no, what you want to do is cut taxes on the very wealthy. That will then free up capital for them to invest in productive capacity that will then trickle down, right, to those in the middle and the bottom. They wanted to avoid the term trickle-down because that had been associated with Andrew Mellon, who was the Secretary of the Treasury in the 1920s. And as those of us who know any history know, what happens at the end of the 1920s is, of course, the crash of 1929 and the course of this conversation is that throughout so much of this history, there's a tacit agreement between, you know, not the wealthiest, but the lower and middle

classes that taxes are not necessarily a bad thing if the tax system is designed in earnest to actually, you know, support the society. And it seems like the era that kind of began with the 70s period, but arguably continues to this day, right? There was a shift. And I wonder what you make of that shift. If you think there was that shift, like, is that a fair characterization? And what you make of that shift that brings us, you know, up to the present day? This is a product, I think, of that economic crisis of the 1970s, but also the shift both in politics and in policy that begin with Reagan's election in 1980. When Reagan, you know, gives his inaugural address, he very famously says, in this present crisis, government is not the solution to our problem.

Government is our problem. And part of what it is that is funding government, part of the problem of government, at least according to Reagan, are these excessive taxes that are putting shackles on the economy, on the genius of the American people. And this really does sort of shift the burden from talking about what we get from government to what we're paying. And that really is different. That said, I think, and Vanessa Williamson has written a lot about this, is that even in this post-1980 period, we can see support for certain kinds of taxes and a recognition that taxes are, in Oliver Wendell Holmes' words,

the price we pay for civilization. I think, though, that as the things that government is supposed to do, right, pay for roads, build new airports, underwrite school construction. As those kinds of public investments are becoming less and less, right? As we see them as bridges are falling apart, as roads are falling apart, it becomes more difficult to see, right, what we are getting for those taxes. I don't think that this is an irreparable situation,

but it is a sort of sign, I think, of a fraying social compact. This is a kind of good transition to the part of the interview where we make historians uncomfortable, which is given that fraying social compact and given the kind of tradition going all the way back to the Boston Tea Party around taxes, what do you see this going? So I think the other

thing, and I should probably have mentioned this earlier, is that one of the signal parts of that challenge to the consensus that we see in the 1970s and 1980s, is that the Republican Party remakes itself into the tax cut party, right? It abandons its traditional commitment to fiscal conservatism, which is basically just balancing what's coming in with what's going out to a kind of doctrinaire commitment to tax cuts in all circumstances and in all cases. This takes a while for it to wholly take hold of the party. We can see in 1982 and 1983, for example, that Ronald Reagan signs two relatively significant peacetime tax increases in order to combat problems in the deficit.

In 1986, he signs a tax reform bill that closes a bunch of loopholes and increased taxes on some people. But that there is a sort of sharpness to the partisan debate around taxes that makes the kinds of compromises that had made possible that post-war social compact more difficult to strike because the Republican Party has remade itself largely into this tax cut party. So he's talked at the very beginning about how taxes tend to rise, right, in the face of wars to meet that national emergency. It happens in the Civil War, it happens in World War I, it happens in World War II. If I remember correctly, I think it was at the beginning of the

Iraq War, Tom DeLay, who was the majority whip in the House of Representatives, he was a Republican congressman from Texas, and says, basically, in this present crisis, there's nothing more important than cutting taxes, right? That in order to fight this global war on terror, there's nothing more important than cutting taxes. And that, of course, is a position that makes it difficult to respond to any tax increases that were often, you know, kind of described when people didn't want to say they raised taxes, they talked about like enhancing revenues. Those have been taken off the table. So I don't know if I was a kind of massive tax cut. And so insofar as, you know, Trump challenged some Republican orthodoxies around free trade, that tax cut agenda, right, still remains at the center of that legislative agenda. I think one of the things that is sort of an overarching question that I think connects all

the way back again to the Civil War era, but obviously morphs and changes as time goes on, is what is the point of taxes? What do they pay for apart from war and who the benefits should, you know, be assigned to and who is not owed the benefits? I think that's a really interesting question. And one of the things that I'm working on now is this question of taxpayer citizenship and how it is that people often articulate their claims on the state to protection or whatever under the guise not of being a citizen, but of being a taxpayer. So when I worked on the Hill, you know, you'd get these phone calls from whoever, constituents who were upset about something or who wanted to, you know, talk to the congressman about X, Y, and Z. And no matter kind of what side of an issue

they were on, they would almost always preface their demands with, as a taxpayer and a citizen, right? That those two things are very much linked. I think one of the things that we need to really be cognizant on and of is that the income tax is only one part of the sort of tax regime in the United States. And as Social Security and Medicare have grown over the last 60 years, basically, those at the bottom of the income scale tend to actually to pay more in payroll taxes than they do in income taxes, right? So they are taxpayers too. But when we simply talk about the income tax, they are often excluded from that. There are a whole host of other taxes that people who are exempt even from income tax pay, whether those are sales taxes, whether those are imputed property taxes for renters. So we're all sort of contributing to this kind of national pot of money. Molly Mitchell Moore is a history professor at Washington and Lee University and author of Tax and Spend, The Welfare State, Tax Politics and the Limits of American Liberalism.

That's it for this week's show. I'm Randa Abdel-Fattah. I'm Ramteen Arablui. And you've been listening to ThruLine from NPR. This episode was produced by me. And me. And. Lawrence Wu. Julie Kane. Anya Steinberg. Y episode was produced by me. And me. And Lawrence Wu. Julie Kane. Anya Steinberg. Yolanda Sanguini. Casey

Miner. Christina Kim. Devin Katayama. Yordanos Tisfazion. Yordanos! This is her last week with us as our amazing intern. She's done such incredible work, and we know she's just getting started on her path in audio journalism. So keep your ears open for the amazing stuff that I know she's going to put out in the future.

We're going to miss you, Erdanos. Fact-checking for this episode was done by Kevin Vogel. Thanks also to Micah Ratner, Rachel Seller, Johannes Dergi, and Anya Grunwind. This episode was mixed by Robert Rodriguez. Music for this episode was composed by Ramtin and his band, Drop Electric, which includes Anya Mizani, Naveed Marvi, Sho Fujiwara,

and finally, if you have an idea or like something you heard on this show, please write us at ThruLine at NPR.org or hit us up on Twitter at ThruLineNPR. Thanks for listening. This message comes from Grammarly. Back and forth communication at work is costly. That's why over 70,000 teams and 30 million people use Grammarly's AI to make their points clear the first time. Better writing, better results. Learn more at grammarly.com slash enterprise.