The Bailey Bill of 1909, and the Creation of the Federal Income Tax

By Douglas V. Gibbs

Progressivism was on the rise in the United States around the turn of the 20th Century.  Americans were concerned about the large national debt that remained with the United States as a result of the Spanish-American War, and the growing social inequality between the rich and the poor.  The idea that there should be a tax that “soaks the rich” began to take root among progressives of both major parties.  The Democrats took to progressivism more than the Republican Party, and the liberals of the Democrat Party were looking for a way to embarrass the conservative arm of the GOP so that they could gain some traction in the next election.

With social unrest rising among the population, a democrat proposed The Bailey Bill with the express intention of enabling the Republicans to reject it.  The theory was that after the Republicans rejected the bill, the democrats could then point a finger at the Republicans and claim for political purposes that the Republicans were in cahoots with the corrupt wealthy corporate types, and their rejection of the Bailey Bill, which would have imposed an income tax on the rich, was proof of such an alignment between the Republicans and the wealthy.

The conservative Republicans knew what the progressives of the Democrat Party were up to, and launched a counter move.  They proposed a constitutional amendment that would impose an income tax on the rich, and when the States refused to ratify the amendment, the Republicans would use that failure to ratify the amendment as proof that the people, through their State legislatures, were against the idea of a new income tax.  In turn, that would defeat the Bailey Bill, for how could Congress approve an income tax against the rich through the Bailey Bill after the people and States rejected a constitutional amendment that would have done the very same thing?

The proponents of the 16th Amendment promised that if it were to be ratified (and remember, it was fully expected not to be ratified) the income tax would only be imposed on the top 5% wage earners, it would be voluntary, and it would be temporary.

The progressives of the Republican Party, however, rallied behind the proposed amendment, and the Secretary of State announced the amendment was ratified on February 12, 1913.

Progressives, happy to see the 16th Amendment ratified, hoped to use it to tax the rich.  In fact, in the beginning, only 5% of the people were required to submit tax returns.  Many of the rich, however, avoided the tax with charitable deductions, and other creative strategies.

During World War II Franklin Delano Roosevelt saw the income tax as a way to vastly increase revenue, and initiated a policy of withholding from “all” wages and salaries, not just the highest incomes enjoyed by the rich.   Rather than the rich paying the tax at the end of the year, the tax was collected at the payroll window before it was even due to be paid by the taxpayer. This style of collection shifted the tax from its original design as a tax on the wealthy to a tax on the masses, mostly on the middle class.

So let this be a lesson to you. When the politicians say they only want to tax the rich, first of all it never works as they plan, and second of all the tax is always eventually extended to everyone.

-- Political Pistachio Conservative News and Commentary