Issue #32, Spring 2014

Brother, Can You Spare a Tax Cut?

It’s no surprise that the 1 percent would fight against high taxes. But how do they get so many 99 percenters to fight at their side?

Rich People’s Movements: Grassroots Campaigns to Untax the One Percent By Isaac William Martin • Oxford University Press • 2013 • 304 pages • $29.95

The passage of the Sixteenth Amendment, allowing for a federal income tax, has been described as “the colossal mistake in the annals of this government, and one that reverberated throughout the nations of the earth.”

This kind of fiery rhetoric could have come from a Fox News pundit or Tea Party candidate, but the line was uttered 75 years ago. The quote is from J.A. Arnold, an anti-tax organizer who spent the 1920s and ’30s traveling the country drumming up opposition to progressive taxation. Arnold was not a wealthy man, but his work helped ensure the passage of the Revenue Act of 1926, a law that reduced income tax rates on rich Americans more than any other tax legislation in the country’s history. And, like the Tea Party organizations of today, Arnold’s “tax clubs” achieved major policy victories at a time when economic inequality was at record highs.

I was introduced to Arnold by Isaac William Martin’s engaging new book, Rich People’s Movements, which tells the story of the twentieth-century campaigns in support of lower taxes for America’s wealthiest citizens. For anyone interested in understanding the history of American anti-tax activism, this book is essential reading.

“Rich people’s movements,” Martin explains, have been a puzzlingly regular feature in twentieth-century American politics. These are not simply movements that included rich people or were led by them—a definition that would include many civil rights, labor, and environmental campaigns. Instead, Martin scrutinizes movements that “defined the rich as the constituency they sought to benefit.” These campaigns were often led, or at least bankrolled, by America’s wealthiest citizens, yet had substantial numbers of middle- or upper-middle-class supporters.

As Martin notes, “the most surprising thing about rich people’s movements is that they feel they must bother.” If your usual method of political engagement is a round of golf with a Senate committee chairman, what could convince you to organize a noisy street protest? More amazing still, why would any middle-income people attend? It’s like asking someone to chip in for her boss’s Christmas bonus. And yet Martin finds no fewer than five grassroots campaigns that repurposed the tactics of the poor on behalf of the rich, with the goal of cutting top income or estate tax rates, or abolishing the taxes altogether.

The book could hardly be better timed. “Grassroots Campaigns to Untax the One Percent,” as the subtitle of Martin’s book puts it, have experienced a remarkable resurgence during the Obama presidency. As the Tea Party continues to roil national politics, campaigns to repeal state income taxes have received the support of governors in Kansas, Louisiana, Nebraska, and North Carolina. What explains America’s periodic outbursts of anti-tax sentiment? Martin’s book helps make clear that the answer is not some intrinsic American opposition to taxation. Instead, a handful of wealthy people have devoted substantial resources to building movements to oppose progressive taxation. They succeed, Martin argues, when they can find allies outside of their own narrow economic stratum, often by taking advantage of windows of political opportunity written into the tax code itself. Rich people’s movements have been adept at using middle-class frustrations with particular tax provisions as a weapon in their own century-long crusade against progressive taxation. The result is a persistent pattern of political upheaval. The income tax, it seems, both underwrites and undermines the American welfare state.

The study of tax revolts is nothing new to Martin, a sociology professor at the University of California, San Diego, and one of the foremost scholars of tax opposition in America. Rich People’s Movements develops the themes of his previous work, The Permanent Tax Revolt, on the late-1970s campaign to cap the property tax in California. In that book, Martin revealed the tax revolt’s progressive roots. For homeowners, property tax breaks served as a kind of government protection against the vagaries of the California housing market; the tax revolt was intended to protect these long-standing privileges. Ironically, what began as a local demand for social protection escalated into a national campaign against “big government.” Martin’s new book shows that the tax revolt was no anomaly in this regard: Anti-tax campaigns have frequently drawn from left-wing traditions, and redirected middle-class anger at specifics of the tax code into broader campaigns against progressive taxation.

Martin covers a lot of historical ground, and his tone can be uneven, with some chapters more accessible for a general audience than others. Nevertheless, he combines a sharp eye for character—describing a young Grover Norquist dressed like a “60-year-old Rotarian”—with a deep understanding of how policy can shape and reshape political alliances. These are useful skills for a book about anti-tax campaigns, which tend to feature both arcane policy details and somewhat eccentric political activists, and Martin’s work would be valuable even if it only traced the colorful history of income-tax opposition. But Martin has a broader and more interesting project in mind. His case studies correct major misunderstandings regarding the sources and success of rich people’s movements, and raise important questions about why America is so prone to anti-tax activism in the first place.

J.A. Arnold’s campaign for the “Mellon Plan” is illustrative. Even though he was an “itinerant clerical worker” raised on the prairie at the height of the Populist Era, Arnold held the political opinions of a stereotypical Wall Street tycoon. His belief that “income and wealth taxes unjustly punished success” got him hired as the secretary of the Chamber of Commerce in Beaumont, Texas, despite being both a “mediocre typist” and “slovenly record keeper.” From this stroke of luck, Arnold found his calling, and he spent the rest of his life organizing on behalf of business interests. As Martin notes, Arnold’s employment strategy was simple: “[S]eek out a rich patron, turn the conversation to politics, profit.”

At the time, income and wealth taxes mostly affected the East Coast elite, so Arnold’s goals were no easy sell in the rural South. But in 1924, Arnold hit upon a campaign that could rally middle-class people (or at least upper-middle-class people) to the cause of the very rich. In Washington, Treasury Secretary Andrew Mellon was spearheading a plan to slash top tax rates, an enormous boon targeted at less than 3 percent of the population. Mellon’s plan had widespread support among Eastern industrialists, of course, but faced opposition in Congress from progressive representatives from the South and West. Arnold approached Mellon with an offer to organize Southern businessmen on behalf of his plan. Mellon had ignored Arnold’s earlier advances, but this time responded by introducing him to the wealthy industrialists who would bankroll his efforts, including “a representative of the du Pont family, and executives of General Electric, General Carbon and Carbide, Eastman Kodak, and the Swift meat packing company.” With $5,000 in support from these corporate elites, Arnold would convince thousands of people, people who were often well-off but certainly not rich enough to be paying the top tax rates, to lobby their congressmen in support of the Mellon Plan.

The key to his mobilizing efforts, Arnold realized, lay in an obscure banking bill that had passed a few years earlier. Intended to make credit more readily available to farmers, the law created a new kind of bank, the “land bank,” that could issue mortgage-backed securities that were exempt from taxation. Being able to offer tax-free investments was an immense advantage over other financial institutions. With investors fleeing to the new land banks, the owners and directors of traditional banks were, predictably, extremely unhappy.

And here is where Arnold’s genius for organizing came in. He convinced these bankers that if they could not repeal the land-bank legislation, they should mobilize for the next best thing: tax cuts for the rich. Lower tax rates for investors, Arnold argued, meant that tax-exempt securities would be less appealing, which would level the playing field between traditional and land banks. Though not top-rate taxpayers themselves, the local bankers were convinced. Across the South and the Midwest, bankers formed “tax clubs” and lobbied their legislators to lower the top tax rates. The surprise campaign convinced key legislators to reverse their opposition to the Mellon Plan, which became the Revenue Act of 1926. Thanks in no small part to the tax clubs, “the top bracket was dropped from 46 percent to 25 percent,” “the gift tax was eliminated entirely,” and the maximum estate tax rate was cut in half.

Historians have traditionally explained the tax clubs as a case of propaganda, in which local activists were duped or paid off by East Coast financiers. Martin corrects the story. While “a handful of the country’s richest capitalists did indeed give seed money” to the tax-club campaign, local activists were not bought off; once mobilized by Arnold, the local elite could afford to fund their tax clubs themselves. What Mellon offered to Arnold, even more than money, however, was simply his endorsement. “Mellon’s prestige among bankers was such that his name worked magic in local organizing drives,” Martin concludes. Nevertheless, local bankers were not blind to the implications of the legislation. They saw a tax cut for the extremely wealthy as a way of rebalancing their own economic competition with other local elites, and so they supported it.

From his case studies, Martin answers two crucial questions about rich people’s movements. First, he shows when these movements are initiated; that is to say, when the wealthy are obliged to organize outside of their usual political channels. Second, he explains under what limited circumstances wealthy people were able to use their new political tools effectively. Thus, Martin’s analysis tells us both why the income tax has been so regularly under attack, and how it has withstood a century of well-funded opposition.

In each instance of mass activism, Martin argues, the anti-tax forces are responding not to a change in partisan or economic fortunes, but to a specific “policy threat.” Sometimes these threats are quite explicit, as in the case of Huey Long’s “Share Our Wealth” campaign for a maximum income, which inspired a countercampaign to repeal the income tax entirely. Other policy threats might be better described as policy opportunities: changes in tax law that brought a new ally to the side of the rich. In the 1920s, it was the land-bank tax exemption. After World War II, it was tax reforms intended to discourage wives from working. These policies, penalizing the lower earner in a two-income household, roused women’s anti-tax organizations.

Given that policies assisting the very rich necessarily have only a few beneficiaries, the recruitment of larger constituencies has been a crucial tactic for rich people’s movements. In each case, however, the policy goal was not shaped to directly address the needs of the allies—for instance, by removing the tax advantage given to the land banks. Instead, the anti-tax activists channeled political momentum into a policy intended to benefit America’s wealthiest citizens.

To manage this sleight of hand, the wealthy relied on a handful of social-movement entrepreneurs, like Arnold. Martin notes that these activists often trained in progressive campaigns before working on behalf of wealthy people. Arnold, for instance, had worked with farmers’ organizations before he turned to organizing anti-tax clubs. Vivien Kellems, leader of the postwar women’s anti-tax group the Liberty Belles, drew tactical inspiration from the suffragettes. With a handful of experienced organizers leading the way, the wealthy had, by the late twentieth century, developed their own movement tradition, a set of institutional memories and protest strategies that continue to define such campaigns.

Rich People’s Movements is engrossing in part because of its obvious resonance with today’s political fights. The Tea Party has clearly been influenced by the traditions developed in the twentieth century’s rich people’s movements. At the grassroots and elite level, the Tea Party uses rhetoric that echoes earlier generations of income tax foes and provides a home for Sixteenth Amendment repealers and flat-tax proponents of various stripes. Representative Jim Bridenstine of Oklahoma, a Tea Party favorite, recently introduced legislation to repeal the Sixteenth Amendment and abolish the IRS, arguing that it “effectively negates” the Fourth Amendment’s protections against search and seizure. Such a sentiment would surely have received the support of Kellems, who compared the Treasury Department to the Gestapo.

But it isn’t just elites who adopt this kind of rhetoric. Free-market language also pervades the Tea Party at the grassroots level, where local activists numbered as many as 250,000 at the peak of the movement. At one rally I attended, a Tea Party member was doing a brisk business in shirts labeled, “Proud Capitalist.” An Arizona Tea Party activist described herself to me as a “social Darwinist”—which, for her, meant that the rich had earned what they had. Her argument was remarkable given that her own business had failed during the recession. This kind of language, insisting on the moral worth of the rich, is a rhetoric developed and spread by anti-tax activists, including Kellems, who spoke of the income tax as a civil rights violation and wore her “mink coats with pride.”

But while the Tea Party shares some commonalities with past rich people’s movements, it is important to note that there are limits to the resemblance. Rather than campaigning to lighten the tax load of the rich, the grassroots Tea Party is more interested in fighting the culture wars. Since 2010, Republican state representatives elected with Tea Party support have worked to pass new abortion regulations in Virginia, Kansas, Utah, and Pennsylvania, and to ban abortions after 20 weeks in at least ten states. And the fixation on social and cultural issues is not limited to abortion. In California, the Redlands Tea Party Patriots want to repeal a law protecting transgender students from discrimination. The Greater Boston Tea Party encourages its members to attend events like “Islam and Jihad: Understanding the Threat.” The idea, popular back in 2009, that Tea Partiers were free-market ideologues was a libertarian fever dream; most Tea Party activists are committed social conservatives.

Issue #32, Spring 2014
 

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