Ajay K. Mehrotra

The thunder of history: The origins and development of the new fiscal sociology

Scholars have long recognized the importance of taxation to the study of modern society. In recent decades, a new and innovative wave of multidisciplinary scholarship on the sources and consequences of taxation has begun to emerge. In this introductory chapter, we chronicle the historical roots, recent developments, and future promise of this emerging field, which we call the new fiscal sociology. More specifically, in our introduction we crystallize the developments in this recent scholarship. We argue that new comparative and historical perspectives provide several innovative insights about taxation. First, that economic development does not inevitably lead to a particular form of taxation, but rather that institutional context, political conflicts, and contingent events lead to a diversity of tax states in the modern world. Second, that taxpayer consent is best explained not as coercion, predation, or illusion, but as a collective bargain in which taxpayers give up resources in exchange for collective goods that amplify the society’s productive capacities. And, third, because taxation is central not only to the state’s capacity in war, but in fact to all of social life, the different forms of the tax state explain many of the political and social differences between countries. The essays in this collection, written by leading scholars from a variety of disciplines, showcase the new fiscal sociology. The contributors explore the many ways in which the relations of taxation are pervasive, dynamic, and central to modernity. The specific chapters address the social and historical sources of tax policy, the problem of taxpayer consent, and the social and cultural consequences of taxation. They trace fundamental connections between tax institutions and macro-historical phenomena – wars, shifting racial boundaries, religious traditions, gender regimes, labor systems, and more. (Contributors include: Charles Tilly, Isaac William Martin, Ajay K. Mehrotra, Monica Prasad, Joseph J. Thorndike, Andrea Louise Campbell, Fred Block, Christopher Howard, Evan S. Lieberman, Eisaku Ide, Sven Steinmo, Naomi Feldman, Joel Slemrod, Robin L. Einhorn, Edgar Kiser, Audrey Sacks, Beverly Moran, Edward McCaffery, W. Elliot Brownlee, and John L. Campbell.)

Making the Modern American Fiscal State by Ajay K. Mehrotra

At the turn of the twentieth century, the US system of public finance underwent a dramatic transformation. The late nineteenth-century regime of indirect, hidden, partisan, and regressive taxes was eclipsed in the early twentieth century by a direct, transparent, professionally administered, and progressive tax system. This book uncovers the contested roots and paradoxical consequences of this fundamental shift in American tax law and policy. It argues that the move toward a regime of direct and graduated taxation marked the emergence of a new fiscal polity - a new form of statecraft that was guided not simply by the functional need for greater revenue but by broader social concerns about economic justice, civic identity, bureaucratic capacity, and public power. Between the end of Reconstruction and the onset of the Great Depression, the intellectual, legal, and administrative foundations of the modern fiscal state first took shape. This book explains how and why this new fiscal polity came to be.

More Mighty than the Waves of the Sea: Toilers, Tariffs, and the Income Tax Movement, 1880-1913

In the early decades of the twentieth century, the progressive income tax gradually came to dominate the U.S. system of public finance. The move to a direct and progressive tax regime had it roots in the social movements of the time period. This article examines organized labors attitudes towards taxation at the turn of the century. It explores the pivotal role that members of the Knights of Labor and the American Federation of Labor played in facilitating this historic shift in U.S. tax policy. By examining what national leaders and rank-and-file members of organized labor said and did about taxation, this article contends that the American labor movement played a significant - though halting - part in helping establish a fairer and more effective, modern system of taxation.

Lawyers, Guns & Public Monies: The U.S. Treasury, World War One, and the Administration of the Modern Fiscal State

The First World War was a pivotal event for American political and economic development, particularly in the realm of public finance. For it was during the war years that the federal government ended its traditional reliance on regressive import duties and excise taxes as principal sources of revenue and began a modern era of fiscal governance, one based primarily on the direct and progressive taxation of personal and corporate income. Like other aspects of war mobilization, this fiscal revolution required an enormous infusion of national administrative resources. Nowhere was this more evident than within the corridors of the U.S. Treasury Department – the executive agency responsible for creating, managing, and defending wartime fiscal policies. This article examines the vital role that Treasury department lawyers played in constructing, administering, and defending the emerging fiscal polity during the Great War. It contends that these attorneys relied on their social and professional networks, their technical legal skills and their practical experiences as social and economic intermediaries to shape the administrative foundation of the rising modern American fiscal state – a state that contained significant limits as well as achievements.

From Seligman to Shoup: The Early Columbia School of Taxation and Development

In 1949, the Columbia University economist Carl Sumner Shoup helped lead a post-World War II tax mission to Japan. One of the principal goals of the mission was to assist in the reconstruction of the Japanese fiscal system. As part of this mission, Shoup brought with him not only his experience as an academic economist and longtime advisor to the U.S. Treasury Department, but also his deep intellectual commitment to fundamental tax reform. Throughout his career Shoup applied economic ideas about public finance to the practical issues of improving fiscal, political, and administrative institutions in redeveloping and lesser-developed nation-states. In many ways, though, Shoup was the culmination of a multi-generational tradition of research, scholarship, and policy guidance that can be described loosely as the Columbia school of taxation and development. This essay, which is a chapter in a forthcoming edited volume on the Shoup mission to Japan, provides a brief intellectual history of the Columbia school. More specifically, this chapter traces the genealogical connection between the type of economic institutionalism that was prominent at Columbia in the early twentieth century and Shoup’s specific ideas about taxation and development. The aim is to provide some historical perspective on the principles and proposals that were central to the many Shoup tax missions and to his overall vision of a “prescriptive” or “political economy” branch of public finance.

The intellectual foundations of the modern American fiscal state

the U.S. system of public 1⁄2nance underwent a dramatic structural transformation. The late-nineteenth-century system of indirect national taxes–associated mainly with the highly partisan tariff and regressive excise taxes on alcohol and tobacco–was eclipsed in the early twentieth century by a professionally administered, graduated income tax that soon accounted for more than half of all federal tax revenue. This seismic shift toward direct and progressive taxation marked the emergence of a new 1⁄2scal polity, one guided not simply by the functional need for revenue, but by social concerns about justice, fairness, and the equitable distribution of 1⁄2scal obligations. The intellectual debates and political struggles that took place a century ago inform our current discussions about “fundamental” tax reform. In recent years, American scholars, policy analysts, and lawmakers have decried the failings of the present U.S. tax system. At the same time, commentators have identi1⁄2ed how the recent rise in inequality has signaled the arrival of a new Gilded Age in the United States. In an attempt to confront this increasing concentration of wealth and power, some present-day reformers have vowed to make profound changes to our existing progressive income and wealth-transfer taxes. A century ago, during a similar period of rising inequality, serious structural reform was not only envisioned but also achieved, and we would do well to recall the social and economic conditions, as well as the political will, that made that fundamental 1⁄2scal reform possible. In the early twentieth century, the modern American 1⁄2scal state turned to direct and graduated taxes to reallocate the economic responsibilities of 1⁄2nancing an emerging regulatory and administrative, social-welfare state. But the reformers who sought to usher in a new 1⁄2scal order intended to use tax laws and policies for much more: to rede1⁄2ne the meaning of modern citizenship; to facilitate a fundamental change in existing political arrangements; and, perhaps most important, to help underwrite the expansion of the American liberal state. To do all of this, tax activists understood that they needed to lay an intellectual foundation in support of direct and progressive taxation. Among the critical reformers, a particular group of academic experts played a

“From Contested Concept to Cornerstone of Administrative Practice”: Social Learning and the Early History of U.S. Tax Withholding

The process of establishing a stable and effective system of taxation is a hallmark of nearly all modern states. Among the many modern administrative innovations adopted to facilitate effective tax compliance in the United States, arguably none has been more significant than the use of third-party reporting and tax withholding. Yet, like most administrative achievements, the effective implementation of information reporting and tax withholding did not occur quickly or easily. The evolution of withholding and third-party reporting thus raises a series of important historical questions: how did a contested administrative concept become an accepted and celebrated method of tax collection? What were the pivotal periods of administrative reform during this seemingly path-dependent process? Why were activists, commentators, and lawmakers opposed to the growth of this administrative practice? And, how did reformers and government officials overcome this hostility during critical junctures in the development of this important administrative achievement? One of the principal aims of this article is to attend to the early U.S. history of income tax withholding and third-party information reporting. Building upon earlier studies, this article contends that examining the pre-1943 adoption of income tax withholding is critical not only to a deeper historical understanding of how information reporting and withholding were transformed from a contested concept to an administrative cornerstone, but also to our future expectations of administrative and bureaucratic reform.

The Public Control of Corporate Power: Revisiting the 1909 U.S. Corporate Tax from a Comparative Perspective

The origins of U.S. corporate taxation are often associated with the 1909 corporate excise tax. Scholars who have investigated the beginnings of this levy have mainly focused on the legislative history of the 1909 corporate tax to argue that it was either an expression of the Progressive Era impulse to regulate large-scale corporations or an attempt to use corporations as remittance devices to collect taxes aimed at wealthy shareholders. This Article broadens the conventional historical accounts of the emergence of American corporate taxation by revisiting the 1909 U.S. corporate tax from a comparative perspective. The aim is to look both below and beyond the American nation-state to determine how and why U.S. state governments and other Western industrialized nations tried to tax corporations at the turn of the twentieth century. This Article investigates a small slice of subnational and transnational comparative examples: corporate tax laws and policies in a few representative nineteenth-century industrializing American states, and in turn-of-the-century England and Germany. Building on the well-known insights of comparative business history, this Article contends that historically-determined political interests, social ideas, and cultural beliefs help explain the American obsession with disciplining large-scale business corporations through the use of nominally punitive tax laws and policies. Comparative-historical analysis shows how differences in the organizational structures of big businesses across place and time have led to variations in political economy that were ultimately expressed in the legal ideas and cultural attitudes toward corporate capitalism. These variations, in turn, shaped the transnational distinctions in corporate tax law and policies. Greater attention to the comparative-historical development of law and political economy may help us understand the stubborn persistence of American corporate taxation, particularly in the face of recent global changes and the relentless economic critiques of the double taxation of corporate income.

Anger, Irony, and the Formal Rationality of Professionalism

One of the challenges in writing about the history of American law and political economy is determining the proper amount of historical context necessary to make sense of past institutional and organizational change. Where to begin and end a historical narrative and how much to include about the broader social, cultural, political, and economic conditions of a particular place and time are, of course, questions that accompany any attempt to reconstruct the past. How one addresses these issues invariably shapes the motives and intentions that can be ascribed to historical figures. In their eloquent and thoughtful comments, Christopher Capozzola and Michael Bernstein have urged me to think more carefully about these issues, about where my story begins and ends, about the broader social, political, and material circumstances that animated World War I state-building, and about the seemingly apolitical ideas and actions of the Treasury lawyers who are the center of “Lawyers, Guns, and Public Moneys.”