Legal and Policy Narratives and the Return of Class in American Tax Policy

• Publication year: 2022

47 Creighton L. Rev. 219. LEGAL AND POLICY NARRATIVES AND THE RETURN OF CLASS IN AMERICAN TAX POLICY

LEGAL AND POLICY NARRATIVES AND THE RETURN OF CLASS IN AMERICAN TAX POLICY

Dr. Guy Charlton & Peter Skilling(fn*)

ABSTRACT

In the late 19th and early 20th centuries, tax politics were structured by a bitter class struggle. Much of this struggle revolved around the government's competence to ensure the appropriate liberty, equality of opportunity and fairness to individuals, and the use of governmental power to ameliorate social and economic problems. For much of the 20th century, however, income tax was framed in a "hegemonic logic" in which re-distributive concerns were subordinated to an assumption of the shared benefits of economic growth. This Article discusses the recent return of a class-based politics to income tax politics in the United States. Drawing on the problem definition and narrative analysis literature, it argues that despite the recent resurgence of class-based rhetoric and political action, it is unlikely that America will return to the redistributive zero-sum income tax policies advocated prior to the 1920s. The underlying premises of the historical American liberal state, as evidenced in early substantive due process decisions: liberty, equality, and a distrust of governmental authority, which suggest a continuous fear of governmental power being used to interfere with individual liberty, circumscribes the debate over tax policy and lessens its class basis.

I. INTRODUCTION

After the divisiveness of tax reform in the late 19th and early 20th centuries, tax politics in the United States lost much of its class-based flavor. This absence of a class dimension, in large part, reflected widely shared values and the institutional expressions of those values. To be sure, American political rhetoric continues to be sprinkled with "classist" language or class-based political attacks, but tax policy has never seriously sought to redistribute wealth and income. However, while embracing the idea that "ability to pay" and fairness, implicitly incorporating class type redistributive considerations in a progressive rate structure, tax policy has set forth other objectives such as maintaining and stimulating the overall level of economic productivity, investment, and entrepreneurial activity. Generally, it has taken the basic structure and income distribution of the American economy for granted.

Recently, however, class has re-emerged as a salient element of tax and fiscal politics, with most of the major participants to current tax debates accusing their opponents of privileging the interests of a specified class. This Article examines the basis of how class considerations have been implicated in the law and tax policy and considers the implications of this apparent return of class. It suggests that the underlying notions of federalism, governmental power, and individual liberty articulated in Pollack v. Farmer's Loan and Trust Company(fn1) (which declared the Wilson-Gorman Tariff(fn2) unconstitutional) continue to inform and frame class notions in American tax policy. The result, however, has not been a constraint on federal power to levy taxes as the United States Supreme Court has consistently upheld the ability of governments to control the economy and ameliorate social problems through the use of the tax power. Instead these values have informed the narratives that characterize the definition of tax and fiscal problems.

Drawing on the problem definition(fn3) and narrative analysis(fn4) literature within the field of public policy analysis, this Article argues that the way in which these class issues have been framed has been informed by underlying notions found in the substantive due process jurisprudence. These underlying notions have determined both the issues that rise to the public agenda(fn5) and the outcome of the policy process.(fn6) The Article also argues that the singular manner in which Americans conceive of class has impacted on the manner in which economic issues can be defined and framed. As such, despite the recent resurgence of class-based rhetoric and political action, it is unlikely that America will return to the redistributive zero-sum income tax policies advocated prior to the 1920s. The severity of American fiscal problems makes it likely that the United States will increase the tax progressivity; but, such changes will likely be justified in terms of a "classless" discourse based on asserting the existence of individual responsibility under conditions of equal opportunity, and on achieving economic prosperity to the benefit of all. However, the erosion of the non-class-based hegemonic discourse, which previously underpinned tax politics with the resurgence of class issues and policy narratives, suggests that the American polity will likely subject to a period of bitter and vituperative policy contestations where classist redistributive notions are an important element.

II. THE PROGRESSIVE INCOME TAX IN THE UNITED STATES: CLASS WAR VERSUS ECONOMIC EFFICIENCY

Progressive historian T.S. Adams noted that "class politics is the essence of taxation"(fn7) with its salient aspect being "a group contest in which powerful interests vigorously endeavor to rid themselves of present or proposed tax burdens."(fn8) This class-based notion of tax policy did indeed structure the bitter struggle between the general agrarian and middle classes, who supported income and inheritance taxes, corporate tax and other tax on intangible property and wealth, and moneyed interests, who supported direct taxes and tangible wealth, tariffs and consumption taxes, less capital gains, protective levies supportive, and tax breaks for business, in the years before the enactment of the Sixteenth Amendment in 1913. This conflict was expressed by Justice Fuller in Pollack v. Farmer's Loan and Trust Company(fn9) when he opined that the "assault upon capital"(fn10) would lead inexorably to "a war of the poor against the rich; a war constantly growing in intensity and bitterness,"(fn11) unless the Court struck down the proposed taxes as unconstitutional.(fn12) Since the 1920s, however, tax politics in America has generally eschewed the class-based zero-sum redistributive logic, which undergirded support for the progressive income tax and the Sixteenth Amendment. While calls for allocational equity continued, such calls were often subordinated "in the pursuit of objectives promising social benefits for all,"(fn13) such as incentivising effort and entrepreneurial activity, and stimulating the overall level of economic productivity and investment. The result was that policymakers took the basic structure and income distribution of the American economy and the primacy of individual property rights for granted when considering tax policy. At the same time, the Court essentially repudiated any jurisprudential approach which could re-apply the restrictive reading of the uniformity requirements found in Article I, Section 8 of the Constitution(fn14) and the distinction between "direct" and "indirect" taxes in Article I, Section 9 of the Constitution,(fn15) deferring to Congressional delimitations of its own taxing authority.

Exploring why events didn't follow "Justice Field's dire prediction," Ronald Frederick King describes how the income tax came to be seen not as a class-based zero-sum game (in which gains for some come inevitably at the expense of others) but as a means for achieving material prosperity and economic dynamism to the benefit of all con-cerned.(fn16) King typifies this shift as a movement from a redistributive to a "hegemonic logic"-a logic that denied opposed interests and posited that all Americans had shared interests premised on equality of opportunity and liberty broadly defined.(fn17) Recently, however, this hegemony has been challenged, and a degree of divisiveness has returned. Tax rhetoric and policy proposals have come again to be framed in class terms. A recent Pew Research Center Poll, for example, found that sixty-six percent of Americans believed there were "very strong" or "strong" conflicts between the poor and the rich-an increase of nineteen percent since 2009.(fn18) The definitions of tax "fairness," equality, and opportunity, which were bitterly contested in state legislatures, elections, Congress, and the streets from the 1880s to the 1920s and which seemed settled during the bulk of the 20th century, have again become contested. Tax politics in the last five years have been set in the context of increasingly polarized debates over inequality and the role of government, as evidenced by the Tea Party's revolt against big government, the 'Occupy' Movement's protests against the "hyperconcentration of economic gains,"(fn19) and the debates around President Obama's tax proposals.

These often bitter debates reflect increasing public dissatisfaction with the distribution of wealth in America, and with the redistributive aspects of income tax policy. A December 2011 Poll by the Pew Research Center found that thirty-eight percent of the public viewed the federal tax system as unfair, with fifty-nine percent considering that so much was wrong with the system that Congress ought to "completely change" it-up from fifty-one percent and fifty-two percent respectively in 2003.(fn20) Significantly, the survey found that "the focus of the public's frustration"(fn21) with the...