Balkinization: Fiscal Policy and Economic Inequality

Fiscal Policy and Economic Inequality

Guest Blogger

For the Symposium on the Constitution and Economic Inequality

Ajay K. Mehrotra

Thanks to Jack Balkin for hosting this blog post and to Joey Fishkin and Willy Forbath for organizing the Texas Law Review Symposium on “The Constitution and Economic Inequality.” I’m looking forward to the conference and I’m honored to be a part of such a distinguished group of constitutional law scholars and historians.

As one of the members of the panel on Constitutional Political Economy, my task is to explore the constitutional dimensions of fiscal policy and economic inequality. In my presentation, I’ll be drawing on a collaborative project that I’ve been working on with my good friend, political historian Joe Thorndike (Tax Analysts/Northwestern Law). Joe and I have been exploring the origins and development of what we refer to as “The Long Twentieth-Century American Commitment to Progressive Taxation.”

We began collaborating on this project for a conference on “Beyond the New Deal Order,” hosted last fall by labor historian Nelson Lichtenstein and others at UC-Santa Barbara. Incidentally, more than a few participants at the Santa Barbara conference will also be in attendance at the University of Texas symposium.

The central aim of the New Deal conference was to revisit Steve Fraser and Gary Gerstle’s seminal 1988 edited volume, The Rise and Fall of the New Deal Order. Joe and I took on the task of questioning and trying to explain why Fraser and Gerstle’s pivotal historiographical intervention overlooked the importance of fiscal policy and particularly FDR’s commitment to progressive taxation. In the process, we were contesting the prevailing view that New Deal tax policy was mainly about symbolic politics rather than substantive fiscal reform.

A central part of our argument was that the New Deal’s commitment to progressive taxation was deeply rooted in American history, stretching back to the turn of the twentieth century if not earlier. It was during the Gilded Age and Progressive Era and into World War One that our modern system of direct and graduated taxes first took permanent shape. More directly, we contended that today’s federal tax system is a lineal descendant of the fiscal regime established during the first half of the twentieth century. Defined by a commitment to progressivity in general and the income tax in particular, this long regime survived the conservative ascendancies of the 1920s, 1950s, and 1980s. Indeed, we believe these were periods of consolidation rather than fragmentation for the long 20^th century regime of progressive taxation.

In making this claim, we are challenging a dominant view of American constitutional and legal historiography. Just as an earlier generation of New Left historians disparaged FDR’s tax policies as “a triumph of form over content,” so too have constitutional historians asserted that the progressive era origins of our graduated income tax reflect a form of sophisticated conservatism – a conservatism designed to blunt more radical calls for wealth redistribution. Thus, we are told, by Morton Horwitz that the tax jurisprudence of “Classical Legal Thought” was animated by a desire to solidify an “anti-redistribution principle” into the “very essence of the constitutional law of a neutral state.”

Similarly, legal historian Robert Stanley has argued that the progressive income tax movement was infused with a “centrist” logic that permitted relatively autonomous lawmakers to become the “trustees” of the capitalist system. We are led to believe that the reform movement that culminated with the ratification of the Sixteenth Amendment, which permitted the direct taxation of incomes without apportionment, was “not an expression of real economic democracy … but a rejection of the far more fundamental institutional change advocated by intellectuals and street dissidents of both left and right.” In sum, standard accounts of the origins of American progressive taxation hold that if this was a period of fiscal revolution, it was mainly a palace revolution – an era of pretense with little fundamental transformation.

The dominant narrative of hypocrisy and disappointment is misleading. It hinges on a narrower version of the famous Werner Sombart query about socialism: Why no highly redistributive taxation in America? When stripped of the normative bias inherent in that implicit query, however, the long-twentieth century of progressive taxation seems less about “centrism,” “anti-redistribution,” and “symbolic politics,” and more about substantive change, especially when we treat the twentieth century – from the Progressive Era through the New Deal and into the post-war period – as a single period.

In conclusion, my coauthor and I are trying to argue that the Progressive Era and the New Deal order made graduated taxation a pillar of the modern American fiscal state. Indeed, taxation is one of the most durable legacies of the American political tradition; while the rest of the Progressive and New Deal order may have ended with Ronald Reagan’s election in 1980, the progressive tax regime is with us even today. In 2015, the United States relies more on progressive taxes – and less on regressive ones – than any of its peer nations. It imposes no broad-based consumption tax, standing firmly against the global popularity of value-added levies. But it makes ample use of corporate and graduated individual income taxes—touchstones of progressive politics for more than a century.

This fiscal exceptionalism is a legacy of the long twentieth century of progressive reform. Tax arguments from the dawn of the century through the 1970s were not simply the instrumental invention of master manipulators in Congress or the White House, or merely a convenient distraction from more important disputes over labor, social welfare, and business regulation. Rather, fiscal arguments were part of a broader, longer debate that put progressive taxation at the center of larger questions about social justice, state-building, and citizenship.

Ajay K. Mehrotra is Director and Research Professor at the American Bar Foundation. You can reach him by e-mail at akm at abfn.org

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