The History of (Not) Paying Your Taxes

With Professor Michael J. Graetz

Here in the States, Monday is Tax Day. I haven’t filed mine yet, partly because if you wait till the last minute, it only takes a minute, and also because I recently spoke with Michael J. Graetz about the history of Americans paying their taxes. 

In The Power to Destroy: How the Antitax Movement Hijacked America, and in conversation, Professor Graetz traces the rise of the antitax movement to 1978, when a “perfect storm” led to a tax revolt still unfolding today. Professor Graetz is a professor emeritus of law at Columbia and Yale law schools.

A condensed transcript of our conversation edited for clarity is below. You can also listen to the audio of our conversation, which includes more information on the racist motivations behind the first antitax legislation, the rise and somehow not fall of supply-side economics, the costs we bear when the government borrows money, how the far right has come to fear TI-83s, and more:

I flaunted my knowledge of religious texts

Ben: To begin, when and why did the U.S. become a nation of income taxpayers?

MJG: Well, before World War II, the income tax only applied to a relatively thin slice of high-income Americans. But to finance the war, President Roosevelt and Congress changed the income tax from a class tax into a mass tax and extended it to the public generally. 

So it was a feature of paying for the war that made the income tax something every American now has to deal with in one way or another. 

Ben: Studies show that people prefer to get a root canal than pay their taxes. If the IRS provided complementary tiny blue bibs to collect our drool, maybe things would change.

MJG: Just to make a historical point that might shock your readers, the top rate after the income tax was extended nationwide was 91 percent. 

It went down to 70 percent during the Kennedy administration in the 1960s.

Ben: Things then changed dramatically in the 70s. How so?

MJG: In the 1970s, the U.S. experienced a series of government failures, including the Vietnam War and Watergate. Economically, the nation suffered from stagflation, a combination of high inflation and high unemployment, which the government was ineffective at combating.

Race was also a very salient issue in the late 1970s. Lyndon Johnson's Great Society program was viewed by a wide swath of the American people as disproportionately benefiting people of color.

Significantly, in California, where the antitax movement took off, the California Supreme decided that the property tax, which financed public schools, could no longer create disparate finances between wealthy and poor districts. The California Court held that there shouldn't be more than a hundred dollars per pupil difference.

This meant a lot of individuals felt that their property taxes were paying for other people's schools, especially minority children's schooling. 

All of these things created the perfect storm for a tax revolt.

Ben: —which first took the form of Proposition 13. Can you give us a little background on what Prop 13 was and who advanced it?

MJG: Proposition 13 was a tax limitation measure. It said property tax couldn’t go up by more than one percent a year and that it took a supermajority of the legislature in California to raise taxes.  

The leader of the movement for Proposition 13 was named Howard Jarvis. Heading into 1978, Jarvis had previously proposed any number of unsuccessful propositions to limit taxes, but he was particularly effective in collecting signatures to get Proposition 13 on the ballot. Jarvis spread ideas about the undeserving poor, Latinos in particular, who were supposedly taking people’s jobs and collecting welfare. This was a caricature, to be sure, but Proposition 13 passed with 63 percent of the vote.

Jarvis then traveled the country urging similar measures in other states. Within four years, 34 other states had passed analogous property tax limitations. 

Ben: To give people a sense of what Jarvis was like, as he became an antitax celebrity, he said he hadn't changed, insisting, “I've still got the same number of suits, and I still eat bread and milk for dinner three times a week.”

No offense, but if your diet consists mainly of bread and milk, I don’t know if I trust your brain to decipher how many suits you do or do not have.

MJG: Jarvis was a very odd choice to lead a tax revolt in America. 

Ben: Speaking of (lightly) coded racism, can you talk about what propelled Christian evangelicals to join the antitax crusade?

MJG:  Sure. This is a very unknown part of the story.

Many Republican operatives had been trying to get Christian Evangelicals — in particular Jerry Falwell, a Baptist minister in Virginia — to join the Republican Party. They urged Falwell to join on the grounds of opposition to abortion. But in fact, the Southern evangelicals at that time regarded abortion essentially as a Catholic issue.  

What happened was that after Brown v. Board of Education in 1954, a number of private “segregation academies” opened for white students in the South. Tax exemptions and charitable deductions were the financial lifeblood of these segregated private schools in lots of ways.

In 1978, Jimmy Carter's commissioner of Internal Revenue proposed that private schools would no longer get a tax exemption unless they had minority students enrolled. The proposal created a huge backlash among Christian evangelicals. Only then were operatives able to persuade Jerry Falwell to join the Republican coalition.

But evangelicals couldn't make their platform save tax exemptions for segregated schools. They turned to social conservatism — anti-gay, anti-abortion, and more — instead.

Ben: I noted that Falwell soon developed a list of questions to evaluate “minimum moral standards” among political candidates, which he claimed were dictated by the Bible. The questions included, “Do you favor removal of the tax-exempt status of churches?” and “Do you favor removal of the tax-exempt status of church-related schools?”

If you're wondering where in the Bible those statements come from, I believe it’s Taxodus 04:15.

MJG: Importantly, the antitax movement was quickly embraced on a national level. For example, also in 1978, a fellow named Jeffrey Bell won the Republican nomination for senator of New Jersey solely on an antitax platform.

This basically proved to the Republican Party and to Democrat Bill Bradley, who ultimately defeated Bell in the general election, that low tax rates were essential to winning votes. And then Ronald Reagan, supported by evangelicals, became our first antitax president.

Reagan got big tax cuts through the Democratic House in 1981. So I’d argue Democrats helped pave the way for the antitax movement, too. When Reagan entered office, the top tax rate was 70 percent. In 1986, the top rate went down to 28 percent, led largely by Senator Bradley.

When Clinton ran for the presidency, he proposed raising the top rate to the now-famous 39.6 percent, feeling that 40 percent would just be too shocking to the American people. 

Ben: 39.7 percent was also going too far.

MJG: Yes, apparently. Since then, the Democrats have never proposed a rate beyond 39.6 percent. We've heard Biden repeat over and over again that no one with an income below $400,000 is going to see a tax increase.  

So, if you ask me, where are we now? It’s that the Republicans refuse to tax anyone, and the Democrats refuse to tax 98 percent of anyone.

Ben: One of your central arguments is that our low tax rates aren’t sustainable. 

What would you say to someone reading this and thinking how nice it might be to get a root canal instead of filing their taxes? Or to someone like me, who’s not supportive of how the government uses my taxes, especially when it comes to defense spending?

MJG: Most people who find themselves having to pay taxes are concerned about how the government spends them. Tax money goes to national defense. A lot is also in Social Security, health insurance, and veterans’ programs. If we want to continue funding them, taxes have to go up. The government can’t borrow more and more money forever.

At the same time, we're spending less on research than ever. The federal government has been a catalyst for some of the great health improvements in our history. Also, whatever you think of the internet these days, the federal government did the original research that produced it. 

So it’s a conundrum. If I were a betting man — and I am — I’d bet we don’t see tax increases anytime soon, especially with Republicans now calling for the abolition of the IRS entirely. The goalposts have been moved far downfield.

Ben: Well, thanks for your thoughts, Professor Graetz. This has been the most exciting conversation about taxes I've ever had.

MJG: A very low bar, but I hope your audience enjoys it.