Today, even most of the president’s opponents on Capitol Hill will probably not push back against Trump’s proposal by calling for the kind of robust tax-reform agenda that had once been sine qua non for American liberalism.
Before 1913, the United States didn’t even have a progressive income tax at the federal level. In times of peace, the government derived most of its income from mechanisms that fell hardest on working Americans, like consumption taxes and tariffs.
During the early 1900s, populist and progressive reformers embraced the idea of a progressive income tax as one of the most important reforms that would create a just society. In 1913, the government finally established a federal income tax with the ratification of the 16th Amendment. The tax only impacted about 1 percent of the nation, but it was still a major victory for progressive forces. The estate tax, established in 1916, was also meant to recast the tax burden toward the well-off.
During World War II, President Roosevelt and the Democrats vastly expanded the tax by increasing the number of people subject to the system and instituting the policy of withholding to make collection speedier and more efficient. There were other moves in the 20th century to make federal taxes more progressive. During World War I, Congress enacted an excess-profits tax that put into place a graduated tax on profits made by businesses above the “normal” rate of return. During the Great Depression, Roosevelt responded to Senator Huey Long’s “Share Our Wealth” campaign—which criticized him for still relying too heavily on regressive consumption taxes—by calling on Congress to tax wealth at higher rates to curb “entrenched greed.” During his address introducing the plan, Roosevelt proclaimed that “great accumulations of wealth cannot be justified on the basis of personal and family security” in a speech that left one corporate lawyer “frothing at the mouth.” Congress passed a “wealth tax” through the Revenue Act of 1935 that affected the highest incomes and estates. In 1936, Congress passed an undistributed corporate-profits tax.
Under Roosevelt, the Justice Department also cracked down on tax evasion, including a high-profile (though unsuccessful) effort to prosecute former Treasury Secretary Andrew Mellon for failing to pay $3 million in taxes. “I consider that Mr. Mellon is not on trial but Democracy and the privileged rich and I want to see who will win,” said Secretary of Treasury Henry Morgenthau, who was behind the effort. The tax historian Elliot Brownlee showed that New Deal tax measures raised the effective rate on the top 1 percent of Americans to 15.7 percent in 1937 from 6.8 percent in 1932. To finance World War II, Roosevelt initially pushed for a pretty radical tax agenda that would fall hardest on the wealthiest. But by then, the backlash from the business community had set in, and much of FDR’s boldest initiatives fell to defeat. He settled for another excess profits tax that didn’t accomplish his initial ambitions.