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When the pressures of war eased, the principle of progressive tax rates came under heavy attack. "It is a punishment of the rich man because he is rich," cried Ways and Means Chairman Thaddeus Stevens; and James Garfield, later President of the U.S., called progression "unethical, unsocial and unconstitutional." The progressive aspect was removed in 1867, and in 1872 the income tax itself expired.
Bypassing the Court. Faced with dwindling federal revenues because of a recession, Grover Cleveland tried to revive the income tax in 1894. Rich New York Socialite Ward McAllister threatened to leave the country if the tax was enacted. Thundered Democrat William Jennings Bryan: "If 'some of our best people' prefer to leave the country rather than pay a tax of 2%, God pity the worst!" The bill passed—but the Supreme Court, by a vote of five to four, declared it unconstitutional.
To get around the conservative Supreme Court, Congress in 1909 lopsidedly passed a joint resolution calling for a constitutional amendment authorizing an income tax. When a new income tax law went into effect in 1913, the top effective rate was 7%, but it soared to 77% due to World War I. The rates fell steeply during the 1920s but rebounded during the Great Depression, and have remained high ever since.
But Not the Underwear. Back in 1913, rich Republican Senator Elihu Root complained that the new income tax statute, a mere dozen pages then, was too complex. "No one understands the income tax law," he said, "except persons who have not sufficient intelligence to understand the questions that arise under it." But the opponents of complexity had not seen anything yet. High tax rates inevitably brought incessant demands for ways of escaping them. Ignoring Lincoln's implied warning that the task was inherently impossible, Congress over the years has kept trying to accommodate every pressure group of taxpayers with a claim to special relief.
Examined separately, many of the deductions and other types of exception seem fair and sensible. But each relief provision indirectly increases the taxes of those not covered by it, and every attempt to provide equity for a special group makes for new inequities elsewhere in the tax code. The double exemption for blind taxpayers is a humane provision, but it creates a special privilege not shared by taxpayers who suffer other kinds of disabilities. The deductibility of mortgage interest fosters socially desirable home ownership, but it gives the home owner a special advantage over the renter, whose rent includes a share of the land lord's interest costs.
Enforcement of the tax laws constantly involves the IRS and the Tax Court in absurdities, contradictions and quibbles. The IRS ruled that a Hollywood actress could deduct the cost of her expensive wardrobe on the ground that a movie star is required to look well-dressed; but, added the taxmen, she could not deduct the cost of undergarments, because the public did not see them. The Tax Court ruled that a particular taxpayer could deduct termite damage (not ordinarily deductible) as a casualty loss because the infestation was sudden; the Court thereby created an absurd anomaly by which one man's termite damage is deductible from his taxable income and another's is not.