THE GREAT TAX WARS

A book to warm an IRS agent’s heart: a lucid history and careful defense of the US income tax.

“Taxes are what we pay for civilized society,” Oliver Wendell Holmes observed a century ago, when debate raged over the constitutionality of the income tax and the top tax bracket was a walloping 77 percent. More to the point, former New York Times reporter and editor Weisman shows, taxes are what we pay for guns; the progressive income tax has its origin in the Civil War, when constantly growing military costs and astonishing levels of corruption threatened to bankrupt North and South alike. Lincoln’s tax reform of 1862 created the Internal Revenue Service and established two rates: 3 percent on incomes above $600 and 5 percent on incomes of more than $10,000, thus appeasing radical Republicans who believed that the rich should bear the cost of the war. (The law also taxed corporate earnings and dividends, inheritances, and other things less radical Republicans would set off limits.) Advocates of progressive taxation, in fact, argued that ending the duty on income in favor of taxes on personal property or consumption would put the burden on ordinary Americans of modest means, while opponents argued that the income tax punished those on whom fortune had smiled. Ever more progressive, the income tax was roundly debated for the next six decades until consensus was finally reached on its legitimacy during WWI. Consensus has also been reached, Weisman writes, “for an income tax that falls most heavily primarily on the wealthiest taxpayers”—though, he adds, arguments over the rates themselves are certain to continue even as exigencies such as refinancing Social Security and Medicare and paying for the war on terrorism arise.

Readers on all sides of the taxation issue will find useful material in Weisman’s fluent narrative, solid proof that financial history need not be dull.