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July 26, 2012
Tax History: The Nearly Successful Campaign to Gut the Income Tax
Joseph J. Thorndike

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Between 1938 and 1958, conservatives mounted a campaign to repeal the 16th Amendment and replace it with a watered-down version capping individual tax rates at 25 percent. "The surprising thing about this campaign is not that it failed to amend the Constitution, but that it nearly succeeded," writes sociologist Isaac Martin.

Ultimately, 31 states would ask Congress to convene a constitutional convention for the express purpose of curtailing the federal power to tax -- just two short of the constitutional threshold. Along the way, numerous interest groups would endorse the campaign, including the U.S. Chamber of Commerce, the National Association of Manufacturers, and the American Bar Association. And according to one poll, fully 68 percent of Americans supported the effort.

Historians have neglected this episode in U.S. fiscal history. But they shouldn't. As Martin explains in a 2010 article, this antitax campaign can teach us a lot about the policy process.1 In particular, it demonstrates the efficacy of what Martin calls "policy crafting": the strategic design of policy proposals to enhance the political viability of desired reforms.

The Puzzle

Martin begins his story with an observation and a puzzle. "Theorists of politics since Aristotle have argued that democratically elected politicians are strongly motivated to redistribute resources from the rich minority to the nonrich majority," he points out. "But the benefits of the proposed tax limitation were radically skewed in favor of the rich minority." According to congressional estimates circulating during the campaign, most of the benefits would flow to less than 2 percent of taxpayers.

That sort of "redistribution toward the rich," to use Martin's phrasing, has been a puzzle for scholars of recent fiscal policy, too. Over the last decade, many analysts have been trying to explain the success of the tax cuts enacted under President George W. Bush, especially the outright, if fleeting, repeal of the estate tax. In the view of two leading critics, the 2001 tax law (among others) is hard to explain using conventional models of democratic politics, because it involved "a highly salient policy that promises very modest benefits and large long-term risks to the average voter."2 In Martin's assessment, the success of the Bush tax cuts "appears to pose a serious challenge to those versions of democratic theory that assume politicians tailor their decisions to please a well-informed and self-interested voting majority."

Similarly, the midcentury campaign to limit the income tax also challenges the idea that rich elites are most successful when they pursue tax relief in the form of "particularistic tax breaks," including those aimed at specific industries, regions, or even individuals. The campaign to replace the 16th Amendment promised categorical upward redistribution of resources, Martin says, not narrow favoritism for well-heeled elites with well-connected lobbyists.

Martin explains that sort of categorical redistribution toward the rich as a function of policy crafting. Interest groups can sometimes show remarkable flexibility in designing their policy proposals to enhance their political viability, he says. There is, after all, often more than one way to skin the policy cat. "The same distribution of costs and benefits, for example, can be achieved by any of several different policy instruments," he writes. Regulation, taxation, and spending involve several policy parameters that can be manipulated independently, according to Martin. That observation is hardly news to tax experts, who have used it for decades to explain the popularity of tax expenditures. But it also helps explain broader attempts at fiscal reform.

Policy crafting involves a variety of techniques, but two of the most important are policy imitation and policy obfuscation. Policy imitation is the repurposing of familiar policy tools for new ends, with the hope that lawmakers will find proposals less threatening and more plausible. "Advocacy groups may imitate a policy that has been applied to another domain or target population in the same jurisdiction," he writes. "Alternatively, they may imitate a policy from another jurisdiction."

Policy obfuscation involves the minimization of costs and the maximization of benefits. Advocacy groups may target either voters or lawmakers with this technique, but its nature remains intact. "In the case of upward-redistributive policy, successful obfuscation requires writing a policy to obscure the budgetary and political trade-offs involved in expensive transfers to the rich," Martin writes.

The Tax Limit Campaign

How did policy crafting shape the tax limitation campaign of the mid-20th century? Martin begins his answer to this question by noting that the campaign was a clear response to dramatic fiscal changes underway at the time. The New Deal had brought rising tax rates to the nation's richest taxpayers, and World War II pushed them even higher. The war saw a dramatic expansion of the income tax, as millions of middle-income taxpayers joined the system for the first time. The tax limitation campaign drew sustenance from both these trends, as well as further progressive tax reforms enacted during the Korean War. As a result, the antitax campaign peaked twice, first in 1943 and again in 1951.

Two business organizations led the 20-year effort: the American Taxpayers' League and the Committee for Constitutional Government. A Rhode Island lawyer, Robert B. Dresser, was a leader in both organizations, and he drafted the 1938 amendment that provided a starting point for the campaign. As originally proposed, the proposal would have repealed the 16th Amendment completely and then restored it, word for word, with a similar amendment that ended with a crucial limitation: "In no case shall the maximum rate of tax exceed 25 percent."

The rate cap applied to any tax imposed by the federal government, including estate and gift levies. There was some question about whether the limitation applied to the top marginal rate or the average rate for each tax (defined in some versions of the amendment as the "maximum aggregate rate of tax"). But it was generally thought to represent a limit on marginal rates.

Soon after its introduction in Congress by Rep. Emanuel Celler, D-N.Y., the amendment died in committee. But its organizational champions quickly took their battle to the states, asking legislatures to request a constitutional convention that would address the tax issue. Article V of the Constitution requires such a convention upon request of two-thirds of the states. While this threshold was clearly a long shot -- no one had ever met it before -- champions of the tax limitation amendment hoped that early success in the states would prompt Congress to pass the amendment on its own.

"These advocates of upward redistribution recognized democracy as an obstacle to realizing their ambitions," Martin writes. "And they worked creatively to circumvent that obstacle." The states were friendlier territory for the tax limitation amendment, since public awareness and participation in the policy process were more limited at the subnational level. Activists deliberately began their campaign in states distant from national media markets, and they were careful to avoid creating a clear paper trail, for fear of showing their hand too early.

Imitation and Obfuscation

Champions of tax limitation made their first, and probably most important, policy crafting decision when they framed their proposal in terms familiar to state lawmakers. Many previous efforts at upward redistribution had sought outright repeal of the 16th Amendment or statutory limitation of the tax rate. But the business-led coalition pushing the limitation amendment understood that constitutional limits would seem more familiar to state lawmakers, because many states had similar caps on property and income taxes. "Dresser and his allies imitated this approach in order to persuade legislators that the proposed federal tax limitation was safe to put on the agenda," Martin writes.

"Practically every state has a constitutional limitation on its taxing power," declared one leaflet from the American Taxpayers Association. "So should the federal government." A national committee of state lawmakers made much the same point in a resolution: "If it is sound to limit the taxing power of State and local government, it is doubly sound to limit, with respect to income, gift, and inheritance taxes, that power in the hands of the Federal government."

Such policy imitation seemed to help the cause of tax limitation at the federal level. But it was not enough to win passage by the necessary number of legislatures. The campaign began to slow in the face of complaints that it would impair national security. Opponents argued that by limiting the power to tax, the amendment would limit the nation's ability to defend itself. Not surprisingly, that line of attack proved especially potent during World War II. And after a series of blistering attacks, led prominently by Rep. Wright Patman, D-Texas, the limitation campaign began to founder.

Amendment backers then made a second key policy crafting decision: The revised amendment could include an emergency clause granting Congress the authority to override the limit in the face of a national emergency. But this authority was itself strictly limited. Waiving the limit would require a three-fourths majority in each house, and lawmakers could suspend it for only a single year at a time. Critics insisted that such changes were a policy fig leaf of sorts, designed to obscure the embarrassing dangers lurking in the rest of the amendment.

Nonetheless, the revision seemed to quiet complaints about the effect of the limitation on national security. By the early 1950s, the pace of state resolutions had picked up, and numerous mainstream business groups endorsed the repeal effort. Amendment foes were compelled to keep up their drumbeat of criticism, Martin contends, confirming the influence of the amendment campaign itself.

The End

Ultimately, of course, the campaign to limit the income tax failed. Much of the explanation lies in the fiscal context, Martin suggests. After the end of the Korean War, Congress began to scale back business and individual taxes, which diminished interest in the amendment. Many of those tax reductions were of the less visible, less salient type -- at least as compared with the tax limitation amendment. As a result, they met with less resistance from democratic (and Democratic) forces.

Meanwhile, conservative support for the amendment began to fray. Some on the right began to view fiscal flexibility as a virtue, as Keynesian ideas began to infiltrate all parts of the political spectrum. Other conservatives, meanwhile, began to grumble that the amendment and all its revisions were no longer an effective check on the taxing power. Only outright repeal would suffice.

But Martin suggests that one of the key factors in the gradual demise of the amendment campaign may have been its chosen tool for reform: a constitutional convention. "There isn't a soul I know that wants a convention for the simple reason that there is probably no way of limiting the agenda of such a convention," Dresser said in 1953. Indeed, once out of the bottle, the convention genie was an unpredictable force -- and a potentially dangerous one for conservatives, who hardly enjoyed a solid electoral majority. No one could predict what might emerge from such a powerful event.

By 1957, the campaign for a convention was essentially dead. But its failure was hardly resounding. Indeed, the call for a convention came remarkably close to succeeding. In Martin's view, this near success goes a long way to explaining the policy process more generally. The key to victory, in tax policy as elsewhere, is twofold. First, design your proposal to seem familiar to voters and lawmakers alike. And second, do everything you can to paper over its costs and pitfalls.


1 Martin, "Redistributing Toward the Rich: Strategic Policy Crafting in the Campaign to Repeal the Sixteenth Amendment, 1938-1958," 116 Am. J. of Soc. (July 2010).

2 Martin draws this quotation from Jacob S. Hacker and Paul Pierson, "Abandoning the Middle: The Bush Tax Cuts and the Limits of Democratic Control," 3 Perspectives on Politics 33 (Mar. 2005).