Income tax depression 1893-98

Republican Senator Justin Smith Morrill of Vermont was the same congressman who wrote the protective tariff act passed in May of 1860–five months before Abraham Lincoln was elected. To States that had nullified the “Tariff of Abominations” in 1828, the Morrill tariff was casus belli for secession and Civil War.

Fast-forward 33 years into the major monetary crisis caused by excessive coinage of silver. In 1892, fully 8.5% of the popular vote went Populist, and elected 3 congressmen who were in effect communists. Elder statesman Morrill, surrounded by economic collapse tried in 1893-4 to stave off the advancing “British income tax” phalanx while repealing the accursed Silver Purchase Act and assuaging Chinese fears of mass deportation. Yellow fever at the Panama Canal works had France in a panic; Italy was shaken by stock fraud, and an armed revolt, complete with naval warship shellings, rocked Brazil. Morrill first warned against the income tax–passed in England to make up for insufficiency of revenue under “free trade”–as an example of “desperate schemes of taxation, which here under a republican form of government are odious and endurable only in an overmastering exigency of a great national war.” But President Cleveland had in 1888 shocked global mixed economies by mentioning the “communism of combined wealth and capital… which insidiously undermines the justice and integrity of free institutions.” Populist tax advocates snarled.

Morrill snarled back at the revenue-only tariff and pointed out that in warlike Europe, following the French Terror:

“Pitt introduced the British income tax during the Napoleonic war. After the peace it was repealed on the ground that it ought to be exclusively reserved for times of war; and when re-imposed in 1842 it was promised that it should be only temporary.”**

He made apologies for the 1862 Civil War income tax, but called it “the most of obnoxious of all the war taxes.” Morrill pointed out that of the $347 million it raised, only $11 million were collected in the Confederate States. This, of course, only amplified Southern appreciation of an income tax they themselves had never felt.

Morrill remarked

 “The income tax bill will first levy 2% on all dividends of railroads, and second will levy the same amount of tax upon their indebtedness, that is, upon the interest due to be paid on their mortgage bonds. (…) The income tax bill, by its proposed seizure of so many important objects of taxation upon which the several state governments have hitherto been largely dependent for a considerable part, in some states for the whole of their annual support, will prove a serious invasion of the sources upon which they now largely base their taxation. Nearly every state imposes a tax upon the real estate and personal property of its citizens, especially upon their stock in railroads and banks, mills and factories, and their coal, iron, copper, gold, and silver mines, their stone, slate and marble companies, their debts and bonds due and collectible. All these sources and all corporations which yield dividends or interest are now to be squeezed and stripped first by the national government, and then be subjected to a second stripping by the states.”

By his analysis,

“The small fish are to be caught in an income net from which the big fish can leap out. The widow’s mite as well as the sole income of the orphan is to be diminished by the government of 66 million people heretofore claimed to be the most prosperous of the world.”

Alas, the President in 1894 allowed the communist income tax to become law without his signature rather than invite the “communism of pelf” likely to result from a protective tariff. Nowadays we call all such things a “mixed economy,” shaken, not stirred.

The depression worsened, and the Supreme court was in desperation summoned to toss it out despite its mesmerizing influence on ignorant voters. The lesson in all of this for thoughtful libertarians is that “free trade” was Morrill’s epithet for a “revenue-only tariff.” No problems existed then that could not have been resolved by cutting spending, letting unproductive hands shift for themselves, and–in the case of England–forbearing from attacking China or Egypt. The individual income tax brings predatory and collectivized government coercion to bear on that smallest of all minorities–the human being.

To wean governments of the communist income tax it would perhaps be best to recognize that the revenue tariff is the familiar equivalent of a toll or user fee. A tariff makes possible Coast Guard inspection and quarantine of berserker terrorists plus naval exclusion of hostile nuclear and biological weapons. There ain’t no such thing as a free trade.  The exclusion of coercion from the marketplace is its necessary logical antecedent, and, like energy, involves a cost.

The tariff is a handy fallback position for repeal of income taxes until a less coercive solution can be fashioned. What history has taught us is that importing income taxes out of The Terror, the Opium Wars and The Communist Manifesto has not been a happy or noble experiment. It has led to panics, crashes and depressions, all of them harbingers of the ruin of nations caused by the visible and unproductive hands Adam Smith warned us against in 1776.

** The reader will carefully note the value of promises made by looter politicians, and kindly remember that in November. 

Get the complete story in Prohibition and The Crash on Amazon Kindle in two languages

I also produce books and articles in Portuguese, using Brazilian historical sources at http://www.expatriotas.blogspot.com or amigra.us

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