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The Origins of the American Income Tax: The Revenue Act of 1894 and Its Aftermath

Author(s):Joseph, Richard J.
Reviewer(s):Brownlee, W. Elliot

Published by EH.NET (September 2004)

Richard J. Joseph, The Origins of the American Income Tax: The Revenue Act of 1894 and Its Aftermath. Syracuse: Syracuse University Press, 2004. xv + 205 pp. $45 (cloth), ISBN: 0-8156-3021-2.

Reviewed for EH.NET by W. Elliot Brownlee, Department of History, University of California — Santa Barbara.

In this monograph, Richard J. Joseph, who is a senior lecturer in federal income taxation at the University of Texas at Austin, explores “the social origins of the American income tax” (p. xiii). He does so with an admirable degree of methodological self-consciousness. He devotes a great deal of space (by my count, roughly 45 of his 158 pages of text and endnotes) to analysis of various approaches to the history of taxation, including one that I have favored and described as “democratic institutionalism.” He proposes, as an alternative to earlier views of the history of the income tax, an approach that he labels “socioinstitutional,” which he describes as “at once institutional, sociohistorical, Weberian, and materialistic in nature” (p. 29).

Joseph explains that, within this ambitious framework, his first step was to investigate the enactment in 1913 of what became a permanent tax on individual incomes. He concluded, however, that the debates in 1913 revealed “relatively little” of “why Congress wanted to shift “to a new tax base” because the debates focused instead on “the degree to which tax rates should be progressive.” He decided to study, instead, the short-lived income tax enacted in 1894. The debates over this tax seemed to have had more to do with a shift in tax base and thus, he believed, had the potential to reveal more about the “original intent” of the modern income tax in the United States (p. xiii).

The resulting book focuses on the Congressional passage of income tax provisions in the Revenue Act of 1894. The outlines of this income tax legislation and its Congressional history are well known. Moreover, other historians, in tracing this legislative history, have surveyed the salient economic and social changes that set the context for the tax, as Joseph does in an introductory chapter. And, they have mined the leading newspapers of the day and the Congressional Record — the sources that Joseph relies on most heavily. Furthermore, these historians have tended (with the major exception of Robert Stanley [1]) to agree with Joseph that the 1894 tax sought to shift the “tax burden from the working poor to the wealthy” (p. 75) and to tax the income earned from the ownership of what was then known as “intangible” wealth. Nonetheless, Joseph refines our understanding of the legislation’s intent and the rationales that its proponents and opponents invoked to support their positions. In the process, he succeeds in establishing his account as the best we have on the history of the enactment of the 1894 tax. (Joseph includes a brief chapter on the repeal of the tax in 1895 by the Supreme Court in Pollock v. Farmers’ Loan & Trust Company, but the chapter does not advance the discussion of the issues beyond the work of Sidney Ratner, Robert G. McCloskey, Arnold Paul, Robert Stanley, and Morton J. Horwitz.)

Most important, Joseph provides a careful analysis of the language and debates surrounding various amendments in the House and Senate. His analysis highlights and clarifies some of the important but lesser-known aspects of the 1894 income tax. (To assist in this effort, he provides extensive appendices that include the texts of income tax provisions of the Revenue Act of 1894, the majority opinion in the Pollock case, and the Internal Revenue forms for the new individual and corporate taxes.) He points out, for example, that its proponents wished to tax not only wages and profits (above the exemption of $4,000) but also “any accretion to wealth,” including gifts and inheritances (pp. 64-65); that Congress wished to tax the incomes of “the growing number of Americans residing abroad,” and to do so under a benefit theory of taxation; and that the Congress taxed corporate income in order “to tap corporate wealth and check corporate abuse” (p. 75). The corporate tax, Joseph tells us, reveals that Congress had come to regard the U.S. corporation as having shifted from “‘a font of income’ taxable to its owners to an ‘economic unit’ taxable in its own right” (p. 71). Joseph elaborates on the last point in a chapter (entitled “What Is a ‘Corporation’?”). This is perhaps the best in the book, and it ought to be required reading for historians of corporations and corporate taxation. As Joseph declares, “The Populist-Democratic view of the U.S. corporation as a taxable entity,” embodied in the 1894 legislation, “would be handed down from one generation to the next, the legacy of nineteenth-century statesmen would be permanently enshrined in twentieth-century laws and institutions, and the essential ideas formulated in the debates of 1894 would lay the foundation for our modern system of corporate taxation” (p. 86). The evidence Joseph presents in this chapter, and in his larger discussion of the intentions of the framers, poses significant difficulty for Robert Stanley’s view that the key architects of the “income tax law of 1894” were “centrist lawmakers acting as trustees on behalf of the status quo, using that law as a key stabilizing element” (Stanley, p. 103).

Joseph goes beyond an analysis of the intent of the framers, and of their opponents, to ask: “What was the rationale for the system, and on what grounds was it opposed?” (p. 89). In asking and answering this question, he makes a distinction between what he calls “the subjective aims of historical actors” (“intent”) and “justification in terms of ethical norms and policy aims” (“rationale”) (p. 102). This is a useful distinction, and Joseph provides a valuable inventory of the reasons the proponents and opponents offered up to support their positions on the 1894 tax. On the one hand, the proponents claimed, variously, that the new measure taxed according to the “ability to pay,” or to the value of benefits received, or to the principle of “equality of sacrifice.” On the other hand, the opponents employed, according to Joseph, roughly eight distinct arguments.

The wide range of the arguments on both sides of the debate is striking, and Joseph has made an important contribution by highlighting the diversity. Unfortunately, he does not help us a great deal in understanding either the relative importance of the different ideas in explaining the behavior of legislators or the aggregate force of the ideas. Part of the problem is that he makes it difficult for the reader to integrate the discussions of intent and rationale by taking them up separately, in two different chapters. This relaxation of chronological discipline would not necessarily be a major difficulty except that many of the proponents and opponents whom Joseph quotes at length in the chapter on “the rationale” do not appear in the earlier chapter on intent. In addition, few of the key actors identified in the earlier chapter on intent appear in the later chapter to explicate their “rationales.” Compounding this problem is that Joseph provides little in the way of rigorous analysis of partisan politics in shaping the behavior and ideas of the legislative architects of the 1894 tax. He might have, for example, employed roll-call analysis, as Robert Stanley has done. Likewise, he might have taken into account the important study by Charles V. Stewart of the relationship during the 1890s between tax issues and partisan realignment [2]. A final problem is that Joseph seems not to have undertaken any research in the personal papers of the various legislators he discusses. Consequently, Joseph is not entirely persuasive in claiming that: “In the end, arguments in favor of the tax carried the day, as much for their cogency as for the power of the men who propounded them” (p. 100). More remains to be said about how ideas, particularly with regard to tax equity and justice, shaped the behavior of the legislators who enacted the 1894 legislation.

The long run institutional effects of the 1894 income tax is also worthy of further study. Joseph confirms the commonly held view that Cordell Hull and the other drafters of the 1913 income tax drew heavily on the 1894 legislation. However, he offers only a cursory discussion of how and why the discussion of tax issues shifted, between 1894 and 1913, from the structure of the tax base to the progressiveness of the income tax. Joseph does not discuss, for example, how the single-tax movement, which underwent a revival in 1909, might have shaped the public discussion of tax issues. Moreover, he does not evaluate a number of important works in the history of American income taxation, presumably because they focus on the period since 1913. In addition, he does not address the methodological issues bound up in evaluating the role of national crises (e.g., World War I, the Great Depression, and World War II) in shaping institutional development.

I agree fully with the suggestion, which Joseph proposes at the end of his epilogue, that in the early twenty-first century the question of whether or not to abolish the income tax is “not just a question of statutory repeal” or “tax simplification.” It is also, as Joseph puts it, “a question of deinstitutionalization and disallocation” (p. 127). The “institutionalization” of the income tax, however, was a consequence not only of the powerful social forces that were reflected in the enactment of income taxes in 1894 and 1913 but also of the subsequent national emergencies, which deepened the American commitment to progressive income taxation. I would suggest that, without those crises, the major consequence of the income tax measures in 1894 and 1913, regardless of the intentions of their architects, might well have been the protection of the regime of consumption taxation inherited from the Civil War.


1. Robert Stanley, Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861-1913 (New York: Oxford University Press, 1993), especially 100-135.

2. Charles V. Stewart, “The Federal Income Tax and the Realignment of the 1890s,” in Realignment in American Politics: Toward A Theory, edited by Bruce A. Campbell and Richard J. Trilling (Austin: University of Texas Press, 1980), 263-287; and Charles V. Stewart, “The Formation of Tax Policy in America, 1893-1913” (PhD Dissertation, University of North Caroline at Chapel Hill, 1974).

W. E. Brownlee is Professor Emeritus in the Department of History, University of California, Santa Barbara and Adjunct Professor, School of Public Policy, Pepperdine University. His latest books are The Reagan Presidency: Pragmatic Conservatism and Its Legacies (Lawrence, KS: The University Press of Kansas, 2003), which he co-edited with the late Hugh Davis Graham, and Federal Taxation in America: A Short History, second edition (Cambridge: Cambridge University Press, 2004). The former book contains an essay by Brownlee and C. Eugene Steuerle on the history of taxation during the Reagan years, and Brownlee’s current research topics include the Reagan administration’s conduct of fiscal policy.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):19th Century