This month marks the 100th anniversary of the federal income tax. Break out the balloons. Well, maybe not.
But like Pepsi and Cheerwine, the federal income tax was, if not born in the Carolinas, at least midwifed here.
For that we can thank U.S. Sen. Furnifold Simmons, a Democratic and a Jones County tobacco and cotton farmer, who represented the state from 1900 to 1930. It was the longest run of any North Carolina senator until it was equaled by Republican Sen. Jesse Helms a couple of generations later.
Simmons – who was the powerful political boss of the state for several decades (the Democratic organization was called The Simmons Machine) – was regarded as a conservative for his day. He engineered the white supremacy campaigns of 1898 and 1900 that led to the era of Jim Crow laws, and he led the fight against giving women the vote. He was a reliable ally of the state’s big business interests.
Simmons, as the chairman of the Senate Finance Committee, was an ally of President Woodrow Wilson. Wilson, who had once lived in Wilmington and who attended Davidson College, was the first Southerner in the White House since before the Civil War.
In 1913, Congress reduced tariffs, which were the main source of federal revenues, and introduced an income tax. Congress had passed an income tax in 1894, but it had been struck down by the U.S. Supreme Court, which called it “a communistic threat” to property. Congress later passed a constitutional amendment allowing an income tax.
Simmons said the Underwood-Simmons Act targeted “the swollen fortunes of the rich” while reducing tariffs that disproportionally affected the poor.
“This bill is part of a legislative program of reform which will help the people and hit the trusts,” Simmons told the Senate. “It is part of the legislative program that will with one hand cut down the cost of living (for common people) and with the other hand cut down the unjust and unfair profits of monopoly and special privilege.”
Simmons pushed through a federal income tax of 1 percent on those making more than $3,000 per year ($70,871 in today’s dollars) and ranging up to 7 percent for those making more than $500,000 ($11.8 million in today’s dollars).
To finance World War I, Simmons later pushed through legislation expanding the income tax, raising the top rate for millionaires and extending the tax to most people.
That prompted one rich man to storm into Simmons’ office and complain that the North Carolinian had “gone stark mad” and to proclaim, “You are ruining us.”
“I told him that he could count himself fortunate if we merely took his income,” Simmons later recalled, adding that before the war was over, “a capital levy (on his life) might be necessary.”
“He thew up his hands and left. I believe strongly that patriotic duty requires every man, rich or poor, should pay his part.”
The North Carolina income tax was pushed through the legislature by Gov. Thomas Bickett (1917-1921) of Franklin County, a good but under-appreciated governor. The property tax was the state’s chief source of money, and Bickett pushed through the legislature a graduated income tax capped at 6 percent that was approved by the voters. It went into effect in 1921. This allowed the state to first reduce and then replace the property tax as its source of revenue.
There matters rested for the next 91 years, through 18 Tar Heel governors, until the election of McCrory and the GOP legislature.
The idea of a flat tax had been bubbling around for a few years. Former California Gov. Jerry Brown, a Democrat, ran for president on the idea in 1992. Republican presidential candidate Steve Forbes followed suit four years later. A number of Eastern European countries and seven states have also.
The flat tax became a favorite of the tea party movement – and so the flat tax became part of the tax changes passed by the legislature this year. The current tiered system of personal income taxes – now 6 percent, 7 percent and 7.75 percent – will go to a single rate of 5.8 percent in 2014 and to 5.75 percent in 2015. (It is not a pure flat tax because it will still allow a few deductions.)
In the earlier part of the last century, Tar Heel politicians may have worn straw boaters and spats. But even conservatives such as Simmons wrestled with the questions of whether the taxes the poor pay are “out of harmony with the amount the rich have to pay.”
In 2013, North Carolina politicians hardly ask those questions.
Christensen: 919-829-4532 or email@example.com