Friday, September 21, 2012


John Bonanno Painting, The Dive

Mitt Romney's screed on the 47% of the people who are "freeloaders" because they do not pay the income tax is most revealing about Mitt and his true constituency. His error was letting the cat out of the bag, even if it was among friends at a hoity-toity fundraiser. A more intelligent plutocrat would have been more careful with his words, even among peers. 

The income tax was presented as and sold to the people of the United States in 1910 as a tax that would ONLY affect the rich. The average pay at that time was 22 cents an hour, about $500 a year. When the income tax started, only 4% of the population was subject to it since there was a $3,000 exemption with an additional $1,000 for married couples.  So the first $4,000 for most people was not taxed.   Income over that exemption, up to  $453,292 a year, huge money back then, was taxed at only 1%.
I went to to calculate what a $4,000 income in 1913 is worth today.  

"In 2011, the relative value of $4,000.00 from 1913 ranges from $69,500.00 to $1,540,000.00.

A simple Purchasing Power Calculator would say the relative value is $93,700.00. This answer is obtained by multiplying $4000 by the percentage increase in the CPI from 1913 to 2011.

This may not be the best answer.

The best measure of the relative value over time depends on if you are interested in comparing the cost or value of a Commodity , Income or Wealth , or a Project . For more discussion on how to pick the best measure, read the essay "Explaining the Measures of Worth."

If you want to compare the value of a $4,000.00 Commodity in 1913 there are three choices. In 2011 the relative:
real price of that commodity is $93,700.00
labor value of that commodity is $381,000.00(using the unskilled wage) or $546,000.00(using production worker compensation)
income value of that commodity is $481,000.00

If you want to compare the value of a $4,000.00 Income or Wealth , in 1913 there are three choices. In 2011 the relative:
historic standard of living value of that income or wealth is $93,700.00
economic status value of that income or wealth is $481,000.00
economic power value of that income or wealth is $1,540,000.00

If you want to compare the value of a $4,000.00 Project in 1913 there are four choices. In 2011 the relative:
historic opportunity cost of that project is $69,500.00
labor cost of that project is $381,000.00(using the unskilled wage) or $546,000.00(using production worker compensation)
economy cost of that project is $1,540,000.00"

Any way you slice it, back in 1913, the income tax was a rich man's tax. You had to be making the equivalent in today's dollars anywhere from $70,000 to $1,500,000 a year, depending on how you look at it, to even start paying a 1% tax on everything over that. As Willie Sutton said, he robbed banks because "that's where the money is." 

You tax the rich for the same reason...and that is true now more than ever. But you have to hand it to the greedy bastards that they have been able to confound the meanings of Income and Wage and Salary. Traditionally wages were paid for labor by the hour, day, or week. Income was money received via gain, profit, or interest. Salaries were paid monthly for professional or non-manual work. Now they are all considered as equivalents by the IRS.  It was universally thought that labor or low salaries (such as those endured by women paid a "pittance" in the Chinese factories Mitt so admires) should not be taxed. And it wasn't then. But it is now. 
It was universally thought that money received by leisure class coupon clippers for bond interest and stock dividends was the fairest game for taxation. But no so much now.

This page at  has an interesting chart on tax rates through the years since the Income Tax began in 1913 after the 16th Amendment was purportedly passed in 1910, making income tax, which had been  first imposed in 1862 during the Civil War, legal. When first tried it was  soon abandoned in 1872 and then declared unconstitutional in 1894. The IRS was founded in 1862, with the income tax, but unfortunately it was not abandoned with the tax. Later on in 1913, on December 23, the Federal Reserve system was created. All in all it was a very bad year for most of the people and a wonderful year for the financiers and the war profiteers. 

So it is indisputable that the income tax was meant to only apply to the rich and it would never have passed if half the people had to pay it. It is frightfully honest of Romney to decry all the "freeloaders" who don't pay income tax as if Mitt would trade places with those lucky freeloaders who don't have to pay the income tax. This is pure projection, of course. Most of the population was supposed to be free of income tax. 

The rich have labored endlessly and successfully to get as much as possible of the income tax onto the backs of the working people and the middle class and away from the holders of true wealth. They have used pliable politicians, who are nothing but their public whores, to ensure that the income tax rates were not indexed to inflation and to create more and more esoteric deductions for the wealthy who are the only ones able to afford the accountants and bag men necessary to keep track of tax loopholes, understand enough to take advantage of them, and lobby for more. In fact, the rich are the "freeloaders" who do everything they can to avoid paying a fair price to flourish in the United States. This safe haven without peer in the world spends inordinately to protect the rich and all their possessions, property and corporate masks. If this were a poorer land we would not have to spend so many trillions fighting spurious wars, gathering intelligence on our own populace not to mention the world, and buying expensive superfluous weapons from the military industrial complex (owned by those same wealthy elites) to "defend" the country and invade countries that look at us cross-eyed while sitting on mineral wealth. The money the government spends propping up the interests of the wealthy is enormous compared to the pittance spent on welfare programs for the poor.

Beardsley Ruml

A lot of people in the lower tax brackets effectively avoided income tax before some genius (his name was  Beardsley Ruml and he was chairman of the New York Federal Reserve Bank’s board of directors) invented tax withholding on income during WWII. It was thought that 5,000,000 million people a year were avoiding taxes at that time as inflation and income tax increases for the war gently prodded the tax charts into swallowing up more and more middle income wage earners who had never paid the income tax before. The IRS had mostly gone after out of favor fat cats and criminals like Al Capone in search of tax evasion.   Federal withholding was a godsend for the IRS. It put a torrent of  money in government coffers before the workers ever saw it and the poor and middle class had to jump through hoops to get it back, much of it over a year after it was earned. At the same time,  the wealthy, who collected dividends and interest while sitting on their asses got the quarterly "pay as you go" treatment. Withholding also enabled the IRS to avoid the unpleasant publicity of bringing criminal tax evasion charges against average working and middle class Americans.

The point is, you had to be really really rich to pay income tax at the beginning. Inflation and corrupt politicians over the years gradually shifted the burden on to the middle class. The middle class noticed it at the beginning no more than a lobster tossed into a cold pot of seawater notices the moment the gas valve is opened and the flame is lit. 

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