Geof Stone on "The Perils of Income Inequality"

The Perils of Income Inequality

The Sixteenth Amendment to the Constitution, which authorized the federal government to impose an income tax on individuals, will turn 100 years old on February 3. It is unlikely that many corks will pop in celebration. But they should, because the income tax plays a central role in ensuring American democracy. More to the point of contemporary politics, the Sixteenth Amendment was designed precisely to protect the 47 percent of Americans Mitt Romney has reviled.

Before passage of the Sixteenth Amendment, the federal government obtained its funds primarily from tariffs on imported goods. The effect of these tariffs was to artificially raise the price of foreign products and thus to protect American manufacturers from international competition. American workers and farmers paid more for their purchases, while the moguls of industry (whom we would today recognize as "the 1 percent") reaped the benefit.

By the mid-1890s, in the midst of a devastating depression, tariff reform leapt to the front of electoral politics. In order to lower artificially-inflated prices, Populists and Democrats demanded tariff reform. To make up for lost revenue to the government, they proposed a federal income tax. In 1894, congressional Democrats succeeded in enacting such a tax.

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