Tag Archives: income tax

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Texas Taxpayers Unite

John Knott was a cartoonist from Austria-Hungary, famous for his work illustrating American political cartoons.  For decades his works were published in the Dallas Morning News (John Knott Wikipedia).  In his 1932 piece, “Arousing the Countryside,” a man is depicted riding horseback, trying to spread the word for a cause he supports.  The man symbolizes the members of the State Taxpayers Association of Texas, an organization against income taxation that only consisted of 600 members (Taxpayers Complain).  The Association’s main goals at the time were to “exempt from taxation homesteads up to a certain assessed valuation” and to shift “the tax burden from… real estate to other forms of wealth through a State income tax (The Taxpayers Meet).”  Though many citizens of Texas favored a removal or lowering of the property tax, the Association struggled in rounding up support for the idea. In his illustration, John Knott used intense patriotism, through powerful imagery and strong wording, to display the State Taxpayers Association of Texas’s disgust for their state government’s spending of the people’s taxes, in order to encourage reform and try to save the worsening economic status of the poor.

The editorial, “Taxpayers Complain,” published in the Dallas Morning News on January 29, 1932, that goes along with the cartoon, seemed to have a bias toward the cause, discussed the Association’s recent rally in Fort Worth, Texas. A day earlier an editorial titled “Drive to Slash Levies Begun By Taxpayers,” went into more detail about the rally in Fort Worth and cited the President of the Association, D.M. Jones, saying that the rally was a success and that thousands of Texas citizens were exposed to the Associations demands. The Association was mostly composed of real estate owners who looked for relief from the heavy real estate tax that existed at the time (Taxpayers Complain).  According to Jones the members of his organization were considered “economic pioneers” of their time (Drive to Slash Levies Begun By Taxpayers). This helped open the minds of people who were willing to sacrifice their time and efforts to step forward and gain momentum for their movement. The State Taxpayers Association of Texas viewed Lone Star State spending as too lavish and not focused on what its citizens needed. Even though the poor tried to vote the burden of their taxes onto the rich, because the rich had all the power at the time, they ended up evading many of the taxation responsibilities they should have born (Taxpayers Complain).  

John Knott implemented many artistic devices into his cartoon to foster awareness among his readers.  He added powerful words like “war, waste, and extravagance” to display how important the issues were to people at the time.  These words serve as an example of soft propaganda that the State Taxpayers Association of Texas used to rally support for their cause.  The words produced emotions in readers, in order rally them to the cause.

In Knott’s cartoon a man is depicted on a strong horse, pointing ahead and shouting.  He represents the members of the Taxpayers Association and their hope for a future with better tax reform.  The Paul Revere-esque image of the man is designed to spark patriotism in the reader. He is depicted riding down the street spreading the word of the organization, similar to Revere’s ride around Boston warning of Britain’s attack at the start of The Revolutionary War.

Knott’s depiction of angry looking citizens further advances the cause of the Association, and demonstrates how they were practically ready to run into battle to support their beliefs.  The cartoon was intended to imbue the readers of the Dallas Morning News with a sense of patriotism by drawing a parallel between the ragtag militia and the Revolutionary War, when the citizens demanded a change.  Knott also added more concerned looking citizens peering down on the scene from a second story window. These people represent the many citizens who were unfairly taxed, but not yet apart of the cause.  The Association is self-described as militant, and were referred to as a powerful front that was not afraid to be vocal about their beliefs.

At the time of the cartoon’s publication, the rich thought that the only way the poor should escape their poverty was through hard work, common sense, and saving.  The poor, on the other hand, looked for relief through tax reform. The State Taxpayers Association of Texas existed to help combat the upper class’s ability to avoid as much taxation as possible (Taxpayers Complain).  The Association believed the correct way to go about this was to get rid of the high real estate taxes, and instead to pay income taxes which would target the rich.

The State Taxpayers Association of Texas was determined to help bridge dramatic differences in income between the rich and the poor that existed in 1932; however, the Association was unsuccessful because of the Great Depression.  Ironically a stronger support for the cause of tax reform could have lessened the effects of the Great Depression.

 

Works Cited

“Drive to Slash Levies Begun By Taxpayers.” Dallas Morning News, 28 January. 1932.  Editorial. Section 1, page 1.

“John F. Knott.” Wikipedia, Wikimedia Foundation, 6 May 2018, en.wikipedia.org/wiki/John_F._Knott.

Knott, John. “Arousing the Countryside.” Cartoon. Dallas Morning News, 29 January. 1932: Section 2, page 2.

“The Taxpayers Meet.” Dallas Morning News, 28 April. 1932. Editorial. Section 2, page 2.

“Taxpayers Complain.” Dallas Morning News, 29 January. 1932. Editorial. Section 2, page 2.

 

Ending Income Tax Exemptions

An income taxpayer struggles to carry the expenses of government by himself while a public job holder, not bearing and tax burden, looks on while smirking blithely
An income taxpayer struggles to carry the expenses of government by himself while a public job holder, not bearing and tax burden, looks on while smirking blithely

Clearly stated in Article I, Section VIII, Clause I of the Constitution of the United States of America is the power of Congress to levy taxes to raise funds for the nation. The sixteenth amendment to the U.S. Constitution, passed in 1913, gives Congress the power to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration” (“The Constitution”). Starting that year, U.S. citizens had to pay income taxes in addition to the income tax in their own state if any were levied (“The Constitution”). A national controversy arose after the passage of the 16th amendment; government employees at both state and federal levels were not required to pay income taxes like the rest of the American public. Income tax exemptions for federal employees was a precedent set from the Mccullough vs. Maryland case in 1819 in which the Supreme Court decided that taxing of the federal government (or in this case its employees) might inhibit its ability to “exercise federal powers” (Patch). The controversy over federal income tax exemptions for governmental employees eventually caused President Roosevelt and Congress to take action after the Supreme Court made an unsatisfactory case decision in 1937.

In John Knott’s political cartoon titled “How About Sharing the Load?” published April of 1937, Knott compares the overburdened American public to a relaxed public job holder. In this cartoon, a skinny man with the tag “income taxpayer” on his shirt struggles to walk down the road while carrying an enormous bundle on his back labeled “expenses of government.” A carefree public job holder walks along side him, carrying an “income tax exemption”. The income taxpayer holds his hand out toward the public job holder as if to ask for help to carry the obviously heavy and overbearing load while the latter smokes his cigar with a grin on his face (Knott). The Dallas Morning News published Knott’s cartoon and the accompanying editorial titled “Income Tax Exemption” on April 10, 1937. The editorial supports ending the exemptions by stating that government employees “should be the last to object to contributing to the support of the public services” (“Income Tax Exemption”).

The national controversy over income tax exemptions arose as a consequence from the Whitlock vs. Foster Wheeler LLC Supreme Court decision in early 1937. The Federal government attempted to withhold tax funds from the salary of William Whitlock Brush, the chief engineer of New York City’s water supply system. The Court determined that the federal government could not require state employees to pay federal income taxes. This decision allowed over 200,000 public jobholders to qualify for an income tax exemption (“Supreme Court Ends Income Tax”). Allowing public jobholders to have the exemption placed great financial burden on the American public that was still struggling due to the immense economic downturn of the Great Depression in the 1930’s. The dissent from the public pushed the exemptions to become a national controversy.

The issue of exemptions eventually became such a big problem that President Franklin Delano Roosevelt intervened. In April of 1938, FDR submitted a letter to Congress in which he expressed his disappointment in the Court’s decision to not end income taxes in the 1937 Whitlock decision (“Text of the President’s Tax Message”). FDR encouraged Congress to pass legislation to end the exemptions, but many legislators favored the idea of passing an amendment to the constitution. For example, Senator William King of Utah expressed that ending the exemptions could only “be accomplished by a constitutional amendment”. FDR believed that an amendment would be a “cumbersome and… unnecessary”. (“President Aims at Wealth”). The Supreme Court, responsible for interpreting the law, determined in their 1937 ruling that Congress did not have the power to levy income taxes against public jobholders except under a constitutional amendment (“Supreme Court Ends Income Tax”). This created confusion for Congress in deciding how to actually put an end to the exemptions. This debate further delayed the ending of the exemptions; however, FDR’s interest ensured that the exemptions would remain a leading issue on the national agenda.

On February 8, 1939, the Dallas Morning News released a poll that showed much support from the American public for the ending of the exemptions. When asked if people who work for the government should pay income taxes, eighty-seven percent of respondents answered “yes” (Gallup). This sentiment reflects the depiction of the disgruntled “income tax payer” in Knott’s cartoon. The accompanying editorial to Knott’s cartoon points out the “psychological advantages” of ending the exemptions. According to the editorial, ending exemptions would not only address and resolve the grievances of the overburdened public, but also make public jobholders tax conscious (“Income Tax Exemption”). The Dallas Morning News also reported that while public jobholders opposed ending the exemptions, many of them understood the public’s desire for the exemptions to end (“Plugging Tax Loopholes”). Knott’s cartoon does not reflect this sentiment through its grinning and smug “public jobholder” figure.

Support for ending the exemptions from both FDR and the public encouraged other governmental officials to take action. In August of 1938, Treasury officials produced a report for the Secretary of the Treasury at the time Henry Morgenthau. The report supported FDR’s request of action through Congressional legislation to end exemptions (“Treasury Asks State”). In January of 1939, four Federal officials appeared before the Senate Committee and requested a statute be made to end exemptions. This took place a few days before FDR submitted another request to Congress which reiterated his support for ending exemptions (“Tax Exemption Elimination”). These actions by officials ensured that the government would address the public’s grievances; however, the Supreme Court actually took action before Congress could enact new legislation to end the exemptions.

In March of 1939, the Supreme Court ruled that states could withhold taxes from governmental employee salaries. This decision opposed the previous precedent that the court set with their ruling to extend exemptions to more public jobholders in 1937 (“Text of The Supreme Court’s Decision”). Because of increasing pressure from the public, the president, and the likelihood of a statute by Congress, the Supreme Court decided to end exemptions by breaking its previously established precedent. This resolved the national dilemma of exemptions and ensured that the public would no longer struggle to pay the expenses of government on its own.

John Knott’s “How About Sharing the Load?” humorously depicts how average Americans felt that they alone were being forced to carry the expenses of the federal government. Knott’s cartoon and the editorial that accompanied it in The Dallas Morning News in 1937 exemplify how publicized the issue of exemptions became. Repealing the exemptions on federal taxes for public job holders would have been much more difficult without regular Americans voicing their dissatisfaction over the exemptions. In 21st century America, however, public dissatisfaction is sometimes not enough to cause change in policy because the federal government has grown significantly in its power since the late 1930’s.

Works Cited:

“The Constitution of the United States: A Transcription.” National Archives and Records Administration, National Archives and Records Administration, https://www.archives.gov/founding-docs/constitution

Patch, W. B. “Exemptions from Income Taxation.” CQ Researcher by CQ Press, library.cqpress.com/cqresearcher/document.php?id=cqresrre1937061700.

Knott, John. “How About Sharing The Load?” Dallas Morning News 10 April 1937, sec 2: 2. Print.

“Income Tax Exemption.” Editorial. Dallas Morning News 10 April 1937, sec 2: 2. Print.

“Supreme Court Ends Income Tax on Salaries of More City Officials.” New York Times (1923-Current file), Mar 16, 1937, pp. 1, ProQuest Historical Newspapers: The New York Times

“Text of the President’s Tax Message.” New York Times (1923-Current file), Apr 26, 1938, pp. 2, ProQuest Historical Newspapers: The New York Times

“President Aims at Wealth Now Tax-Free.” Dallas Morning News, City ed., 26 Apr. 1938, p. 1.

George Gallup. “Wages Favored in Poll.” Dallas Morning News, 8 Feb. 1939, p. 4.

“Plugging Tax Loopholes.” Dallas Morning News, 7 Sept. 1938, p. 2.

“Treasury Asks State, Federal Salary Taxes.” Dallas Morning News, 8 Sept. 1938, p. 2.

“Tax Exemption Elimination Wins Support.” Dallas Morning News, 19 Jan. 1939, p. 9.

“Text of the Supreme Court’s Decision Permitting a State to Tax Federal Pay.” New York Times (1923-Current file), Mar 28, 1939, pp. 16, ProQuest Historical Newspapers: The New York Times

 

1937: Social Security Taxes Come to Life

Caught in the Web
American man tangled in a “web of taxes” imposed by several levels of government.

Almost a decade after the start of the United States Great Depression, income tax rates in 1937 rose to a record high 79% for the top-earning bracket (“1937”). The head of the economy at the time was Franklin Delano Roosevelt (FDR), our 32nd President of the United States. When FDR took office in 1933, the economy was coming out of the Great Depression. However, people don’t realize the economy took another downturn in that decade, obviously not as severe, between late 1936 and early 1937. In the 1937 state of the union address, FDR declared a tax crisis (Roosevelt). At the time, income tax rates, corporate tax rates, and capital gain taxes all skyrocketed. Not only were regular taxes high, but direct “use” taxes on gasoline, alcohol, tobacco also soared with the government fiending for extra money to put towards social security (Roosevelt). Social security was one of the most pressing issues of the time, as funds were not enough to support retirees to the end of their lives. To change this, local, state, and national government taxed American citizens. Americans began to feel tangled in a ‘web’ of continuous taxes from every direction.

On tax day (April 15) in 1937, John Knott’s political cartoon, “Caught In The Web,” was published in the Dallas Morning News. In the cartoon, a working-class American is depicted being tangled up in what appears to be a spider web. Within the web is written “FEDERAL, STATE, LOCAL TAXES.” The web has a very complex structure.

The web was supposed to represent the series of taxes imposed on citizens at the time, especially on tax day, by all levels of government. There was a clear meshing of federal, state and local governments, which represents the lack of strong federalism at the time. The man in the web conveyed the message that Americans had no way of escaping the ‘web’ of taxes they were entrenched in. Also, the man was extremely small in comparison to the web, again showing that Americans were overpowered by taxation. However, there’s irony here in that some of these taxes paid by the Americans caught in the web were going towards their own government-made retirement fund: social security. In other words, they were being forced to shrink themselves in a way. In addition, the fact that the web was so intricate and complex also suggests that the tax system at the time was extremely complicated, making it even more difficult for taxpayers to evade the system. Although paying taxes was a fact of life and a necessity for the survival of the nation, the 1930s tax collection system was inefficient. FDR was the first to suggest a consolidation in the tax system to reduce payments for hard-working people but still get the most out of the money collected.

In 1937, personal income tax rates reached an all-time high of 79% for the most wealthy Americans (those earning more than $750,000 per year). For reference, those earning more than $420,000 per year today (the top tax bracket) pay 39% (“1937”). To display the difference between these two rates, a person earning $1,000,000 today would pay $390,000 in taxes versus someone earning that same million dollars in 1937 paying $790,000! In 1913, the top-income tax rates were 7% (“1937”). A 66% rise in taxes occurred in just over 20 years to 1937. Something needed to be changed in the tax system.

President Franklin D. Roosevelt decided to call for a government-wide tax consolidation effort. This would mean one level of government, federal, state, or local, would take charge of their respective tax categories like health care for the federal government or education for the states. This idea would avoid overpayment of taxes by citizens. Federalism, the division of power between the national government and the states, played a major role in this process. Although this system does bring in less tax revenue, it is actually more effective on the economy because decreased taxes increases buyers’ demand for luxury goods. Unfortunately, Roosevelt could never get the consolidation effort moving during his time in office, so therefore tax consolidation had to wait to be taken care of in the future.

As tough as high taxes were for American citizens, they were collected in large part due to insufficient social security funds. The inadequate social security system was described in the Dallas Morning News editorial alongside Knott’s cartoon. At the time, when income rates in specific were sky-high, many taxpayers tried to evade taxes, which was a federal offense. However, because of the huge amount of perpetrators of tax evasion at the time, it was almost impossible to enforce. This caused a problem for social security because the program depended on taxpayers’ money to fund retirement for older working people (Albright).

Social security was a seemingly perfect system. Young people pay towards others’ retirement and they get their retirement paid towards by the future generation of young workers. With tax evaders reducing tax revenue, social security suffered due to its low priority among government programs. Social security was an integral part of the American economy, and without it, people were forced to work longer, hurting business and housing markets that benefit from retirees. Overall, without full social security benefits for citizens, the entire economy began to collapse. To make up for this loss in revenue, many states began to increase already exorbitant income and property tax, but also add sales taxes, “use” taxes, and even additional taxes on gasoline, tobacco, and liquor, all very commonly used products at the time (Roosevelt).

President Roosevelt eventually steered the economy out of the doldrums after several years of frustrating tax levels. Income taxes lowered to standard, pre-Depression levels, and social security returned in full to the federal government. FDR was in charge of the economy when this mini economic depression took place. Due to its proximity to the Great Depression, it is often overlooked in American history. Social security and America’s complex tax system are the main issues displayed in John Knott’s cartoon “Caught in the Web.” Both of these issues remain contested to this day.

 

Works Cited

Admin. “US Inflation Calculator.” US Inflation Calculator, www.usinflationcalculator.com/.

Albright, Robert C. “‘Little Man’ Income Tax Threat Spurs Relief Slash.” The Washington Post (1923-1954),

Apr 16, 1937, pp. 1, ProQuest Historical Newspapers: The Washington Post, http://ezproxy.lib.utexas.edu/login?url=https://search.proquest.com/docview/150926167?accountid=7118.

Knott, John. “Tangled Tax System.” Dallas Morning News, 15 Apr. 1937.

LEFF, MARK H. “Taxation.” Encyclopedia of the Great Depression, edited by Robert S. McElvaine, vol. 2, Macmillan Reference USA, 2004, pp. 963-967. Gale Virtual Reference Library,

go.galegroup.com/ps/i.do?p=GVRL&sw=w&u=txshracd2598&v=2.1&id=GALE%7CCX3404500507&it=r&asid=cbba5683633e9fbba863222b15ab9ecc. Accessed 18 Oct. 2017.

Roosevelt, Franklin D. “President Roosevelt Proclaims the End of Prohibition.” Prohibition, edited by Sylvia Engdahl, Greenhaven Press, 2013, pp. 73-78. Perspectives on Modern World History. Gale Virtual Reference Library, go.galegroup.com/ps/i.do?p=GVRL&sw=w&u=txshracd2598&v=2.1&id=GALE%7CCX2073900016&it=r&asid=9f5464026dea42d48de293eca499b11a. Accessed 18 Oct. 2017.

“1937 Federal Tax Rates.” Rate Limited, federal-tax-rates.insidegov.com/l/22/1937.