The following is an excellent excerpt from the book “THE RICH DON’T ALWAYS WIN: The Forgotten Triumph Over Plutocracy That Created the American Middle Class, 1900-1970” by Sam Pizzigati from Chapter Two on page 69 and I quote: “The newly elected president, Woodrow Wilson, had in no way led the popular surge against plutocracy in 1912. He merely rode the wave. The wave rolled on after November. Wilson kept riding.
The first piece of progressive business after the election would be ending plutocracy’s free pass at tax time. In February 1913, Delaware became the last of the thirty-six states needed to ratify the income tax amendment to the Constitution. Congress now had the constitutional authority to tax the incomes of America’s most affluent. By October, after House and Senate action, a historic new income tax had gone into effect. The new tax would burden only the affluent. No married couple earning less than $4,000 per year, the equivalent of about $90,000 today, would pay one cent in federal income tax. The greater the income above that threshold, the higher the tax rate.
This principle of “graduation” represented a victory for congressional progressives. Conservative Democrats had sought a “flat” rate for the new income tax. They wanted all income above the $4,000 threshold to face the same tax rate. Progressives argued for rates graduated steeply enough to start narrowing America’s vast divide between the rich and everyone else. Representative Ira Copley, a progressive Republican from Illinois, called these steeply graduated rates “the best way of equalizing the opportunities which society in this country offers to certain men in securing more than their fair share of the benefits derived from the labors of other men.” Copley wanted graduated rates in the new federal income tax to top off at 68 percent.
The compromise that Congress eventually struck would give Copley and the progressives their graduated rates but at far lower levels than progressives felt essential. The first $16,000 over the $4,000 threshold would face a 1 percent federal tax rate. Taxpayers in the five tax brackets over $20,000 would pay that 1 percent plus a surtax that would rise up to 6 percent on income over $500,000. No millionaires in America, under the new income tax act, would pay over 7 percent of any income dollar in federal tax.
The first modern federal income tax, in other words, would have value more symbolic than real. The federal government at long last was finally taxing the rich, not just ordinary citizens. But the modest new federal income tax posed no danger to great fortune. America’s richest would be inconvenienced, noting more. Still, progressives could see advancement and even feel some pride. The rich, after all, had gone years without feeling any inconvenience.
This same pattern—a major reform, a minor result—would repeat over and over in Woodrow Wilson’s early years as president. The new Federal Reserve System, created in 1913, would give the federal government a regulatory role over banking, but the new system would leave the big Wall Street banks in position to essentially control any major regulatory outcomes. The new Federal Trade Commission had the power to issue cease and desist orders against monopolistic marketplace maneuvers. But the rulings of this new commission, as one historian notes, would be “subject to judicial review in courts that were well beyond the reach of the people’s elected tribunes.” And the Clayton Antitrust Act of 1914—the Wilson administration’s most acclaimed initiative against monopoly power—would most definitely expand the federal government’s capacity to block corporate mergers and predatory pricing schemes. But the legislation in no way merited the “labor’s Magna Carta” plaudits that AFL president Samuel Gompers gave it. Courts would continue to harass unions with injunctions, even with the Clayton Act in effect.
Louis Brandeis would later look back with some satisfaction on the early Wilson years. Woodrow Wilson, he felt strongly, had “changed the atmosphere” in Washington. The years 1913 and 1914, Brandeis believed, would be “the only time in recent American history when rich men had not had an undue influence with an administration.”
The influence of America’s wealthy, while perhaps less “undue,” did remain substantial. Wilson’s New Freedom left untouched the basic structure of the new finance capitalism that had emerged in the 1890s. Wall Street would continue to operate, notes historian Lawrence Mitchell, as “an institution that facilitated the accumulation of wealth from speculation.” Progressive lawmakers had introduced legislation before Wilson’s election that would have significantly restricted this speculating. One bill would have permitted corporations to issue stock only “to finance legitimate revenue-generating industrial activities,” a restriction that would have prevented Wall Street’s movers and shakers from issuing stock solely to finance big-time speculative plays. But no bill along these lines would ever gain serious consideration. Business, notes Mitchell, would remain free “to organize, capitalize, and manage as it saw fit.” In the process, the incomes of America’s business titans continued to rise. Between 1913 and 1916 the incomes of the nation’s richest 0.01 percent nearly doubled.
Yet progressives of various stripes still had cause for optimism. Public sentiment against plutocracy was continuing to build, and Wilson knew it. With his 1916 reelection bid looming, the president moved beyond his political comfort zone and began backing more aggressive legislaiton to protect Americans from plutocratic predation. Important legislation rushed through congress in a torrent. The Kern-McGillicuddy Workingmen’s Compensation Act gave federal workers disability insurance protection and gave states a model for protecting their own private and public sector workers. The Keating-Owen Child Labor Act banned in interstate commerce the sale of goods that corporations had exploited children to manufacture. By Election Day in 1916, notes historian Melvin Urofsky, Congress had essentially “enacted every important plank in the Progressive party platform of 1912.”
The Supreme Court, to be sure, would later rule the Keating-Owen Act unconstitutional. But even here, on the Supreme Court front, progressives had reason to cheer. In January 1916, Wilson nominated America’s most acclaimed progressive reformer, Louis Brandeis, for the nation’s highest court. Progressives would be jubilant. Wilson, pronounced Republican insurgent Bob La Follette, “has rendered a great public service.” The president, added Roosevelt supporter Amos Pinchot, had made a decision that took “courage.” Conservatives would be furious. Ex-president Taft denounced Brandeis as “a muckraker, an emotionalist for his own purposes, a socialist, prompted by jealousy,” a man of “infinite cunning” and “much power for evil.”
“The real crime of which this man is guilty,” countered Brandeis supporter Senator Thomas Walsh of Montana, “is that he has exposed the iniquities of men in high places in our financial system. He has not stood in awe of the majesty of wealth.”
Five months later, in June 1916, the Senate confirmed the Brandeis nomination. The reform tide had never risen higher, and even higher tides seemed to beckon. In the fall’s election campaign, reformers would unite enthusiatically behind Wilson. Amos Pinchot had never before voted for a Democrat. But he would line up for Wilson’s reelection campaign an all-star lineup of progressive celebrities that ranged from the philosopher John Dewey to America’s most eminent rabbi, Stephen Wise. Americans needed Wilson in the White House, Pinchot told a rally of five thousand in Troy, New York, because “the bench and the bar of this country have taken the side of plutocracy and special privilege.” Woodrow Wilson, Pinchot and the “Wilson Volunteers” would emphasize repeatedly, had taken on “the moneyed interests.” Newspaper coverage of the progressive tour would hammer home the same theme. One headline for Rochester’s daily Democrat and Chronicle read simply, “Wilson Fighting Wall Street.”
Meanwhile, at the state level, real socialists—as opposed to the variety conservatives charged Brandeis to be—were exploring unconventional electoral strategies and scoring surprising progressive triumphs. In 1915, North Dakota socialist activists broke away from the Socialist Party and formed a new “Nonpartisan League” that would battle inside the Republican Party to advance socialist demands. By the following April this new Nonpartisan League would have forty thousand North Dakotan members. Six months later, in the November 1916 elections, Nonpartisan League candidates would sweep to victory in statewide races, including the North Dakota gubernatorial contest, on a platform that called for a graduated income tax, a state-owned bank, and state ownership of flourmills and other industries that directly served farmers.
Socialists were running and winning as Republicans. Republican progressives were cheering on to reelection a Democratic Party president who dared grace the Supreme Court with plutocracy’s least favorite reformer. By the end of 1916, anything seemed possible. Greater progress against plutocracy seemed inevitable.
More gains would indeed come in the years ahead. But plutocracy would push back much more brutally than progressives had expected—or could withstand.”
(36 STATES WERE NEEDED TO RATIFY THE INCOME TAX AMENDMENT TO THE CONSTITUTION AND THAT OCCURRED IN FEBRUARY 1913. THAT SAME YEAR, THE FEDERAL RESERVE WAS CREATED BUT DIDN’T START OPERATING UNTIL 1914. AS WORLD WAR I AND PRESIDENT WILSON DETERMINED TO PAY FOR THE WAR AS IT WENT ON, RAISED THE TOP INCOME TAX RATE AS HIGH AS 77 PERCENT AND I QUOTE FROM PAGE 90:
“The Revenue Act of 1918 brought the nation closer to this conscripting spirit. The legislation lowered the threshold for the top federal income tax bracket in the 1918 tax year from $2 million to $1 million and raised the top-bracket tax rate from 67 to 77 percent. For 1919 and 1920, the act set the top rate at 73 percent, still over ten times the top rate in 1915. This top rate would only apply to a relative handful of taxpayers, those super rich making over what today, after inflation, would equal about $15 million. For America’s somewhat more pedestrian rich—those taxpayers making between $100,000 and $150,000 in 1918, a take-home that would range between about $1.5 and $2.25 million today—the 1918 Act still constituted a sizeable “conscription of wealth” advance. The tax rate for this millionaire tax bracket jumped from the underwhelming 31 percent in the tepid 1917 Revenue Act to 64 percent in the much more progressively ambitious 1918 legislation.”
THIS COINCIDES WITH EXACTLY THE SAME ROUTINE PRESIDENT FRANKLIN ROOSEVELT USED IN WORLD WAR II, WHEN HE SAID IF WE LOST THE WAR, THE RICH WOULD LOSE THE MOST AND SO HE TAXED THEM AT 90 PERCENT BASED ON ABILITY TO PAY. THIS IS WHY OUR COUNTRY HAS GOTTEN ITSELF INTO THE BIGGEST PROBLEM IT HAS EVER FACED, A GROWING DEBT PROBLEM INTO THE TRILLIONS OF DOLLARS BECAUSE OF FORMER PRESIDENT GEORGE W. BUSH, WHEN HE STARTED TWO WARS AND RATHER THAN RAISING THE INCOME TAX TO PAY FOR IT, HE LOWERED IT, AS WELL AS ANY REGULATIONS ON THE INVESTMENT BANKERS. SO, WHILE THE 99 PERCENT OF US TAXPAYERS WENT BROKE TRYING TO PAY FOR THE BIG SALARIES AND BONUSES OF THE BIG INVESTMENT BANKS, SUCH AS JAMIE DIMON OF JPMORGAN IS THE REASON WE HAVE THE PROBLEMS WE DO HERE IN THIS COUNTRY AND AROUND the WORLD. IN TODAY’S NEWS, CONGRESS IS INVESTIGATING MULTINAITONAL CORPORATIONS, INCLUDING APPLE, WHO IS HIDING MONEY IN IRELAND TO DELIBERATELY DECEIVE AND DUCK THEIR INCOME TAXES. SO, YOU SEE THIS SEESAW BATTLE BETWEEN THE 99 PERCENT AND THE 1 PERCENT JUST CONTINUES AND IN WHO IS GOING TO PAY THE UNITED STATES’s GROWING DEBT.
LaVern Isely, Overtaxed Independent Middle Class Taxpayer & Public Citizen & AARP Members