Robber Barons: Still Dominating 100 Years Later

We need to work with human nature if we’re to have fairness in taxation.

If “ability to pay” were to be applied to everything we can possibly pay for, then we’ll quickly see how “ability to pay” and “fairness” really have no relation to each other.

We have a rich man and a poor man.  They’re both looking at a gallon of milk at the grocery store.  It’s priced at $2.00 plus tax.  They both have cash in their pockets.  The rich man has $500, while the other carries $10.  It’s obvious that the rich man could pay more for that milk – how about $15?  $20?  That wouldn’t cramp his lifestyle.

Even though the poor man knows the man standing next to him in the silk suit could afford milk at a much higher price, the poor man also understands some other things, as well.  For instance, he understands that it’s fair for the dairyman to charge everyone the same price for his product.  He also understands that the dollars in his pocket are the same as the dollars in the rich man’s pocket, and should have the same value.  This leads to the inevitable conclusion: the same amount of money paid should buy the same amount of milk.  The rich man happens to think along the same lines.  They are both human, and humans tend to have a pretty good handle on basic fairness – that is, if they’ll just think about it for a minute.

The rich man believes that if he pays more money, he should get more milk – and he’s right.  This is why the income tax will never be fair.  If the poor man’s income tax bill is $1,500, and the rich man’s is $1 million, the rich man understands that, all things being truly equal, he and the poor man have the exact same access to the exact same public services.  The rich man’s extra money into the coffers doesn’t grant him access to better roads to drive on; it doesn’t grant him sewers made with gold pipes; it doesn’t mean the firefighters will show up with bagels and coffee for his family who just escaped the flames.  What it means is that his dollars are worth less than the poor man’s, and he knows this is not fair.

So, the rich man paying millions in income taxes is forced, according to basic human nature, to demand that his extra dollars give him something extra in return.  Since he can’t demand gold sewer pipes, what does he seek?  Obviously, power and influence – he wants more say than the poor man.  He wants a voice that is in proportion to what he has put in.  This, in his mind, creates more of a sense of fairness.  And you know what?  He’s right!  His extra money has bought him what it should: something extra.

Once the rich have that influence, what do they do?  They get loopholes put into the tax laws that make them exempt from an inherently unfair tax system.  And, human nature being what it is, the poor man would do the same thing if he had the opportunity.  You pay more, you expect more.  That is fair.

So, we have this tax system set up under the pretense of “fairness” that the rich naturally squirm their way out of because it’s actually unfair.  They have the power and influence to get out of the system, leaving those who can’t get out of it (without having their property seized and being thrown into jail) to pay the bills.  This adds another layer of unfairness to a system that began as unfair.  We have tried to lay an unfair system on those who have the power to completely turn it around on us, and they have.  Oops.

Now, whether we truly laid it on them is something that should be seriously considered.  It is true that the Progressives and Populists were clamoring for the income tax at the turn of the last century as a way to “soak the rich” and make them pay their “fair share.”  This was the big selling point, and aligns with Seligman’s account in his book.  The income tax was never sold as being necessary for raising government revenue.  That would have been foolish as it was common knowledge that the federal government was getting all the money it needed (and then some) through the tariff and excise system.  It was also clear that a new generation of financiers had come to dominate the country’s economic landscape, and the public was outraged at stories in the press about the crooked dealings and accumulated wealth of the “robber barons.”  Seeing the ever-widening gap between the rich and poor, the public seemed to want a tax system that would act as something of a leveler.  That’s what they were being promised in adopting the income tax.

Meanwhile, over in Europe, the income tax had been slowly introduced from country to country under the same guise of fairness and equality.  It was universally hated by the public when first introduced, but eventually the fussing died down as people grew tired of opposing something they realized their leaders would not give up.

Consider a few interesting points here:

Who would be the most likely group in the late 19^th century to enjoy the best and most frequent overseas communication?  The very wealthy.

Who was it that met at an East Coast resort in 1910 to draw up the plans for the Federal Reserve, which would generate the income tax and produce the need for the 16^th Amendment, and whose families represented one quarter of all the wealth in the world at that time?  The very wealthy, who were very aware of the latest fiscal trends in Europe, and intimately acquainted with those who were promoting them.

Who would be the most likely group to recognize the relatively short amount of time it would take from having the income tax apply only to the wealthiest 2% of Americans, to when it would apply to almost every working American except the very wealthy?  The very wealthy.

Who would be the most likely group to recognize the gravy train that the income tax represented, that could help fund an ever-expanding government, pay interest on ever-bigger loans, and build the revenue-generating juggernaut we know as the military-industrial complex?  The very wealthy.

Looking back on the first century of the income tax, whose interests has it actually served?  The very wealthy.

These questions (and the answers) were floating through my mind as I read Seligman’s extensive history of the income tax.  Throughout his book, he cites various articles that he and his colleagues were churning out promoting the income tax, and in one of the margins I wrote: “I get the feeling that these articles were put out under the direct or indirect wishes of the robber baron crowd.  More study is needed.”

It turns out that in studying more, I came to discover that Edwin Seligman’s father was one Joseph Seligman, a prominent New York banker.  I found this on Wikipedia: “In the post-Civil War Gilded Age, J. & W. Seligman & Co. invested heavily in railroad finance, in particular acting as broker of transactions engineered by Jay Gould.  They underwrote the securities of a variety of companies, participating in stock and bond issues in the railroad and steel and wire industries, investments in Russia and Peru, the formation of the Standard Oil Company, and shipbuilding, bridges, bicycles, mining, and a variety of other industries.  Later, in 1876, the Seligmans joined forces with the Vanderbilt family to create public utilities in New York.”  (Incidentally, I have a short piece on Jay Gould I posted a while back.)

Now, I have no proof that the Goulds or Vanderbilts or Rockefellers (Standard Oil) asked Edwin to write his articles or a comprehensive book pushing the income tax, works that used the Populist appeal of making the rich pay their “fair share.”  And I’m sure it is merely coincidental that at the very time the wealthiest men in the world were busy making preparations to launch the Federal Reserve (which relies on an income tax as part of the system) – yes, it can only be coincidence that Seligman was laboring at the same time over his 700-page pro income tax book which would be published the following year.  But I must say that with such connections to some of the biggest of the big where Big Money is concerned (though Gould had passed away by this time), it is highly doubtful that Edwin Seligman would have published works in favor of “soaking the rich” if the rich didn’t want him to, if they actually thought they’d get soaked.  (Something tells me the very wealthy don’t want a tax system that acts as a leveler.  I think that “something” is…oh, yeah, history.)

So, while I am not accusing Seligman of anything, and I do admire him as a researcher and writer, I do think his connection to the robber barons is quite striking, especially in light of the very things I was starting to suspect as I read his book.

This post took a couple different (but related) paths.  To sum up:

     1.  “ability to pay” and “fairness” are not, in reality, connected, so we need to abandon the myth that the income tax is fair.  To argue that it is is to deny human nature, and nothing is ever gained by denying human nature.

      2. The more I study, the more I begin to believe that the Populist desire for fairness was hijacked by the policy makers who used it to put a permanent yoke on the middle and lower classes.  It appears that the rich we were supposed to “soak” by way of the income tax wanted the income tax more than we did, and that’s why we have it.

Well, that’s all for now, and though this post isn’t entitled “Think It Over, Part III,” I think it would be a good thing to do.