Then in the 1910 election, the Republicans completely split apart. Teddy Roosevelt had returned from his Africa safari to rebuke Taft and lay the groundwork for his 1912 presidential race. Democrats swept into office in 1910, remaking statehouses across the country. Wilson, a president of Princeton, was elected governor of New Jersey that year. The 1912 election saw an even deeper Republican split, as Taft and Roosevelt both ran for the White House. Democrats turned to the relatively untested Wilson as its nominee. By early 1913, the 16th Amendment permitting the tax was ratified and adopted, and Wilson was president.
The first priority of Congress was to lower tariffs. That fight was led by Rep. Oscar W. Underwood of Alabama, chairman of the Ways and Means Committee and a former rival of Wilson's for the 1912 Democratic presidential nomination. In the Senate, the pro-business Finance Committee chairman, Furnifold M. Simmons of North Carolina, an ultraconservative (and white supremacist), went along with it under pressure from Wilson. The tariff was lowered from about 40 percent to about 28 percent. The question was: Where would the money come from to make up for lost tariff revenues?
That was when Hull seized the moment. Son of a farmer, logger, and whiskey still operator from the Tennessee backwoods, Hull had long admired Bryan and the populists. He had pushed for an income tax for years and lobbied Wilson at the Jersey shore before Wilson took office. "Here at last was fruition to my work and study of twenty years," Hull later wrote in his memoirs, referring to his accomplishment of adding the tax to the tariff bill.
Would the income tax encourage more spending in Washington? Hull argued no. In fact, he asserted, an income tax would actually restrain spending because Congress would recognize that it was spending money directly taxed from Americans. (That is one argument you are unlikely to hear today.) But opponents used words we would find familiar. A Kentucky congressman, William Murray, said it would tax "the surplus" of income that the rich had available. Sen. Henry Cabot Lodge of Massachusetts called the tax "the pillage of a class" whose only sin was to be rich.
The law imposed a 1 percent income tax on all Americans making more than $3,000, with exemptions for married couples. Additional rates went higher, depending on a family's income, the highest rate being 7 percent for incomes of $500,000 or more. The revenue yield was projected at $70 million, but it ended up bringing in only $28 million in the first year. Prophetically, Hull and others had warned that the tax was a necessity in case of a national emergency that no one could foresee. That emergency came the following year, in 1914. By the end of World War I, the top rate of the tax was raised to an extraordinary 77 percent.
Since World War I, the tax has remained, but its amount has gone up and down, along with the tariff. The economic downturn that began in 1929 led Republicans to raise the tariff. By World War II, the tax was raised to ever higher rates and its rate came down gradually after the war with the efforts of such disparate tax cutters as John F. Kennedy and Ronald Reagan. There is little doubt that the tax is here to stay. But so also are the arguments that, on the one hand, it stifles economic activity and, on the other hand, that it is the only fair way to make Americans pay for the government they need. Whoever is elected president, Congress will be channeling the likes of Elihu Root and Cordell Hull in the coming year.
Steven R. Weisman, author of The Great Tax Wars: How the Income Tax Transformed America, is editorial director and public policy fellow at the Peterson Institute for International Economics.