The
modern federal income tax turns 100 this year, and historians are already
holding special events to commemorate the anniversary. But if we really want to
understand just what the federal income tax has accomplished — and failed to
accomplish — over the last 100 years, the best place to start just might be a
majestic century-old mansion in Santa Barbara.
This
California mansion and the federal income tax both came into the world the same
year, 1913. The mansion reflected the prodigious wealth of America’s Gilded Age
plutocracy. The income tax represented an attempt to shrink that plutocracy
down to democratic size. That effort succeeded, but only for a few decades.
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| Frederick Forrest Peabody |
Frederick
Forrest Peabody would be pleased.
A
century ago, Peabody ran the company that manufactured Arrow shirts — one of
America’s most recognizable brand names. He rated as one of America’s richest
tycoons. He spent like one, too. In 1906, he bought 40 ocean-view acres in
Santa Barbara, for a sunny vacation getaway. A few years later, he dotted his
new acreage with 7,000 eucalyptus trees.
In
1913, Peabody would begin building the home of his dreams amid the eucalyptus,
a palace he would call Solana. He filled his 22,000 square-foot edifice with
hand-carved mahogany and 17th century French oak paneling. Money would be no
object — because Peabody didn’t have to worry about sharing any of his money with
Uncle Sam. The first federal income tax enacted in 1913 amounted to no more
than a minor inconvenience.
Progressives
in Congress had pushed for a steeply graduated tax that subjected income in the
top brackets to rates as high as 68 percent. The legislation finally adopted
set that top rate at just 7 percent.
This
top rate would bounce up during World War I, but then sink to 25 percent in
the 1920s. By that time,
Frederick Peabody was entertaining as many as 150 guests at a time at his
increasingly famous Solana. In 1926, his mansion would be a stop on the annual
tour of the posh Garden Club of America.
Peabody
wouldn’t live to host another tour. He died in 1927. His widow carried on. But
her plutocratic world was changing, and the income tax was rushing that change
along. In the 1930s, under the pressure of growing mass movements for economic
justice, tax rates on America’s highest incomes would begin to rise.
By 1944,
the tax rate on income over $200,000 had soared to 94 percent. The top federal
tax rate would hover near that level for the next 20 years.
In
this tax-the-rich environment, mansions and their huge annual maintenance costs
had a hard time finding private buyers. The great palaces of America’s
plutocracy would soon, in the years after World War II, make way for suburban
subdivisions.
Solana,
for its part, sold in 1959 for just $283,000 — a fraction of the estate’s
former value. The buyer: the Center for the Study of Democratic Institutions, a
nonprofit led by former University of Chicago president Robert Hutchins. His
Center, Hutchins announced, would serve as an “early warning system” for
American democracy.
But
political thinkers like Hutchins never saw the danger to democracy that could
come from a re-emergent plutocracy. Stiff taxes on the rich, they assumed, had
become a permanent fixture of American life. They would be wrong.
By
the mid 1980s, the high tax rates that helped make Solana such a hard sell in
the 1950s had faded away — and America’s plutocratic order had begun to
reappear. By 2011, the share of America’s income going to our top 0.1 percent
had tripled since the 1950s.
In
other words, the realtors now hawking Solana — for $57.5 million — won’t have a
hard time finding a buyer.
OtherWords columnist Sam
Pizzigati is an Institute for Policy Studies associate fellow. His latest book
is The Rich Don't
Always Win: The Forgotten Triumph over Plutocracy that Created the American
Middle Class.
OtherWords.org