Contemporary American History, 1877-1913

by Charles A. Beard

Senator Hoar, who claimed that he was the author of the Sherman anti-trust law, says, however, that the act was not directed against all combinations in business. "It was expected," he says, "that the court in administering that law would confine its operations to cases which are contrary to the policy of the law, treating the words 'agreements in restraint of trade' as having a technical meaning, such as they are supposed to have in England. The Supreme Court of the United States went in this particular farther than was expected.[32] ... It has not been carried to its full extent since, and I think will never be held to prohibit those lawful and harmless combinations which have been permitted in this country and in England without complaint, like contracts of partnership, which are usually considered harmless."

The immediate effects of the Sherman anti-trust law were wholly negligible. Seven of the eight judicial decisions under the law during Harrison's administration were against the government, and no indictment of offenders against the law went so far as a trial. During Cleveland's second term the law was a dead letter. Meanwhile trusts and combinations continued to multiply.

The Income Tax Law of 1894

In the debates over tariff reduction, silver, and paper money, evidences of group and class conflicts were almost constantly apparent, but it was not until the enactment of the income tax provision of 1894 that political leaders of national standing frankly avowed a class purpose—the shifting of a portion of the burden of national taxes from the commodities consumed by the poor to the incomes of the rich.

The movement for an income tax found its support especially among the farmers of the West and South and the working classes of the great cities. The demand for it had been appearing for some time in the platforms of the agrarian and labor parties. The National or Greenback party, in its platform of 1884, demanded "a graduated income tax" and "a wise revision of the tariff laws with a view to raising revenues from luxury rather than necessity." The Anti-monopoly party, in the same year, demanded, "a graduated income tax and a tariff, which is a tax upon the people, that shall be so levied as to bear as lightly as possible upon necessaries. We denounce the present tariff as being largely in the interest of monopolies and demand that it be speedily and radically reformed in the interest of labor instead of capital." The Union Labor convention at Cincinnati in 1888 declared in its platform: "A graduated income tax is the most equitable system of taxation, placing the burden of government upon those who can best afford to pay, instead of laying it upon the farmers and producers and exempting millionaire bondholders and corporations."

In the campaign of 1892, the demand for an income tax was made by the Populist party and by the Socialist Labor party. The former frankly declared war on the rich, proclaiming in its platform that, "The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind; and the possessors of these, in turn, despise the republic and endanger liberty." Among the remedies for this dire condition of things the Populists demanded "a graduated income tax." The Democrats, at their convention of that year, denounced the McKinley tariff law "as the culminating atrocity of class legislation," and declared that "The Federal government has no constitutional power to impose and collect tariff duties except for the purpose of revenue only."

When it was discovered in the ensuing election that the Democratic party, with its low tariff pronunciamento was victorious, and that the Populists with their radical platform had carried four western states and polled more than a million votes, shrewd political observers saw that some revision in the revenue system of the Federal government was imperative. President Cleveland, in his message of December, 1893, in connection with the recommendation for a revision of the tariff, stated that, "the committee ... have wisely embraced in their plans a few additional revenue taxes, including a small tax upon incomes derived from certain corporate investments." It is not clear what committee the President had in mind, and Senator Hill declared that the Ways and Means Committee had not agreed "upon any income tax or other internal taxation"; although it had undoubtedly been considering the subject in connection with the revision of the tariff.

When the tariff bill was introduced in Congress, on December 19, 1893, it contained no provision for an income tax, and it was not until January 29 that an income tax amendment to the Wilson bill was introduced in behalf of the Committee. In defending his amendment, the mover, Mr. McMillin, declared that the purpose of the tax was to place a small per cent of the enormous Federal burden "upon the accumulated wealth of the country instead of placing all upon the consumption of the people." He announced that they did not come there in any spirit of antagonism to wealth, that they did not intend to put an undue embargo upon wealth, but that they did intend to make accumulated wealth pay some share of the expenses of the government. The tariff, in his opinion, taxed want, not wealth. He was impatient with the hue and cry that was raised, "when it is proposed to shift this burden from those who cannot bear it to those who can; to divide it between consumption and wealth; to shift it from the laborer who has nothing but his power to toil and sweat to the man who has a fortune made or inherited." The protective tariff, he added, had made colossal fortunes by levying tribute upon the many for the enrichment of the few; and yet the advocates of an income tax were told that this accumulated wealth was a sacred thing which should go untaxed forever. In announcing this determination to tax the rich, Mr. McMillin disclaimed any intention of waging a class war, by declaring that the income tax, in his opinion, would "diminish the antipathy that now exists between the classes," and sweep away the ground for that "iconoclastic complaint which finds expression in violence and threatens the very foundations upon which our whole institution rests."

The champions of property against this proposal to tax incomes in order to relieve the burden upon consumption summoned every device of oratory and argument to their aid. They ridiculed and denounced, and endeavored to conjure up before Congress horrible visions of want, anarchy, socialism, ruin, and destruction. J. H. Walker, of Massachusetts, declared that, "The income tax takes from the wealth of the thrifty and the enterprising and gives to the shifty and the sluggard." Adams, of Pennsylvania, found the income tax "utterly distasteful in its moral and political aspects, a piece of class legislation, a tax upon the thrifty, and a reward to dishonesty." In the Senate, where there is supposed to be more sobriety, the execrations heaped upon the income tax proposal were marked by even more virulence. Senator Hill declared that, "The professors with their books, the socialists with their schemes, the anarchists with their bombs, are instructing the people of the United States in the organization of society, the doctrines of democracy, and the principles of taxation. No wonder if their preaching can find ears in the White House." In his opinion, also, the income tax was an "insidious and deadly assault upon state rights, state powers, and state independence." Senator Sherman particularly objected to the high exemption, declaring, "In a republic like ours, where all men are equal, this attempt to array the rich against the poor, or the poor against the rich, is socialism, communism, devilism."

In spite of this vigorous opposition, the House passed the provision by a vote of 204 to 140 and the Senate by a vote of 39 to 34. In its final form the law imposed a tax of two per cent on all incomes above $4000—an exemption under which the farmer and the lower middle class escaped almost entirely. Cleveland did not like a general income tax, and he was dissatisfied with the Wilson tariff bill to which the tax measure was attached. He, therefore, allowed it to go into effect without his signature.