Federal Taxation in America: A Short History, by W. Elliot Brownlee. Second edition published by Cambridge University Press (2004). Paperback, 304 pages. Price: $19.99.
But what are the real prospects for wholesale tax reform? Pretty slim, if history is any guide. In a recent reissue of his well- regarded study, Federal Taxation in America, historian W. Elliot Brownlee has reminded us that real tax reform -- serious, durable, ambitious tax reform -- requires a national crisis. Unless things get much worse for the United States, that reform seems likely to remain a chimera.
Regimes and Reform
Brownlee's story centers on the concept of a tax regime: the collection of revenue tools that make up a discrete system of federal taxation. Regimes tend to last a long time; the current one has been around for more than 60 years. But others have been quite short, including one that endured for less than a decade. Every tax regime in American history, however, shares one central trait: They have been forged in the crucible of national crisis. Wars have been the most common impetus for reform, but economic depression has also been a catalyst.
While crisis prompts reform, however, it does not shape it. The specifics of a tax regime emerge from a political process, one that balances revenue imperatives against political constraints. Issues of fairness and equity have figured prominently in almost every era, as national leaders have struggled to reconcile fiscal needs with dominant norms of social justice.
Over the course of more than two centuries, the United States has had five distinct tax regimes, each emerging from a crisis-borne watershed. The first, lasting from 1789 until the Civil War, was marked by tariff duties, with low-rate import duties providing the vast majority of federal dollars. The second regime stretched from 1862 until World War I, and it featured new consumption taxes, including a much steeper tariff and excise duties on alcohol, tobacco, and a few luxury goods. The third regime, in place from 1916 to 1931, introduced new corporate and individual income taxes, as well as excise levies on a range of consumer items. The fourth regime was the shortest, roughly coinciding with the first two terms of Franklin Roosevelt's presidency. FDR depended more heavily on excise taxes, as the Depression ravaged revenue from estate and income taxes. But FDR also increased rates for those more progressive taxes, inviting charges that he was trying to "soak the rich."
The nation's fifth tax regime, prompted by the crisis of World War II, transformed the income levy from a "class tax" to a "mass tax." Millions of middle-income earners were expected to pay that tax for the first time, and federal officials introduced withholding to make their burden simpler, if no less burdensome. That tax regime remains essentially intact, providing the foundation for our current revenue system.
But if the structure of American taxation has been constant for decades, the debate has raged for just as long. Since the New Deal political order began to crumble in the early 1970s, a resurgent Republican Party has moved the issue to the center of national attention. Capitalizing on popular discontent with local, state, and federal taxes, GOP officials have advanced numerous plans for wholesale reform. Replacing the income tax with some sort of national consumption duty has been a favorite option, drawing support from many professional economists and tax lawyers.
To date, however, sweeping reform has proved elusive. American leaders have repeatedly stopped short of fundamental change. The Tax Reform Act of 1986 almost rose to the status of a watershed. But its reforms did not establish a new regime. Rather, as Brownlee points out, that ambitious effort served to revitalize the existing regime. By eliminating some of the detritus accumulated in more than 40 years of tax legislation, the 1986 reform gave new life to the income tax.
Brownlee explains the 1986 reform in considerable detail; readers looking for more can turn to Gene Steuerle's recent book, Contemporary Tax Policy. (Steuerle and Brownlee offer complementary analyses, as might be expected from scholars who have collaborated on a history of Reagan-era tax policy; see their joint chapter in The Reagan Presidency: Pragmatic Conservatism and Its Legacies.)
But what seems most striking about 1986, especially from our vantage point some 20 years later, is its unraveling. For this new edition, Brownlee has expanded his analysis by including sections on the Clinton presidency and the current Bush administration. But those chapters serve to underscore the fleeting quality of the 1986 reform. Broadening the tax base and lowering the tax rates are commendable goals. But they are inherently difficult to protect from the depredations of lawmakers and lobbyists alike. As many analysts have pointed out, the last two decades have been cruel ones for veterans of the 1986 reform, who have been forced to witness the undoing of their accomplishment.
Models and Methods
Brownlee has played a central role in revitalizing the historical study of American taxation. He has rescued the topic from obscurity, establishing the centrality of taxation to the American state and society. In large part, his success in this scholarly project has been rooted in his method, which integrates the contributions of numerous disciplines, including history, political science, economics, and sociology.
Brownlee has developed what he calls the "democratic- institutionalist" model for studying tax history. Essentially, he explains policymaking as a four-part process. First, his model gives substantial weight to the power of democratic forces operating outside the federal government, including lobbyists, special interests, and political movements. Second, it recognizes the important, and often independent, role of governmental institutions, including the presidency, Congress, and executive branch agencies. Third, it assigns a pivotal role to historical contingency, recognizing that some crises -- such as economic depression or world war -- can fundamentally define the policy process. And finally, it allows ideas an important and independent role, casting them as creative forces in their own right. In fact, ideas are often the ties that bind, connecting democratic and institutional forces to create political change.
Brownlee's multifaceted approach leaves virtually nothing outside his explanatory ambit. Competing analytical frameworks -- especially the materialist explanations of Marxian analysts -- provide ideological clarity and analytical focus. But Brownlee is too able a historian to offer such flattened analyses. His model integrates ideas, institutions, and eventualities to paint a nuanced picture of the policy process.
Whither Tax Reform
When responsibly practiced, history is not a predictive science. So let me engage in a little rash speculation.
If Brownlee is right about the role of national crises in prompting fundamental tax reform, then we can't expect much from the current hoot and holler in Washington. Absent some sort of fiscal or political imperative, it's hard to imagine lasting tax reform. Fiscal watersheds do not arise from good intentions, careful planning, or political machinations. Still less could they be sustained by those factors.
Real reform happens when it must. Policymakers are not likely to make hard fiscal choices just because they seem like good ideas. Too many oxen would be gored in the process. Rather, they will make those choices when their backs are to the wall. And not a moment sooner.
Of course, we might still see a crisis. Historical contingency has a way of sneaking up on you. But the most likely precipitants of wholesale tax reform -- the looming crises predicted for Social Security and Medicare -- are still comfortably remote, at least in political terms. And the nation's current economic problems, including trade deficits, anemic job growth, and ballooning budget deficits, aren't serious enough to force anyone's hand.
So count me among the skeptical. We'll see tax reform someday, perhaps even soon. But it won't be the kind of regime that warms the hearts of Washington policy wonks. I'll bet you the interest on my mortgage.