Remember all those glorious comparisons of President Obama to FDR?
Well, it turns out that they might possibly have even more in common soon: As Arthur Herman writes on National Review, the voters handed FDR a stinging rebuke to New Deal policies in the midterm elections of 1942. The Republicans in the new Congress did actually succeed in rolling back a great deal of the New Deal.
But Herman notes, they also made a fatal error, and the consequences are still with us:
In July 1943, they instated the first federal-income-tax withholding law, in the hopes that this would accelerate the flow of revenue into the defense effort. The goal was noble; the consequences monstrous. Over the decades more and more money would disappear from people’s paychecks without their noticing. Tax-and-spend Washington found its most valuable secret ally – given to them, ironically, by the Congress dedicated to getting government off people’s backs.
Amity Shlaes has a colorful description of how the withholding tax was created in her excellent book, The Greedy Hand.
The father of the modern American state was a pipe-puffing executive at R. H. Macy & Co. named Beardsley Ruml. Ruml, the department store’s treasurer, also served as chairman of the board of directors of the Federal Reserve Bank of New York and advisor to President Franklin Roosevelt during World War II. In those years Washington was busy marshaling the forces of the American economy to halt Japan and Germany. In 1942, not long after Pearl Harbor, lawmakers raised income taxes radically, with rates that aimed to capture twice as much revenue as in the previous year. They also imposed the income tax on tens of millions of Americans who had never been acquainted with the levy before. The change was so dramatic that the chroniclers of that period have coined a phrase to describe it. They say that the “class tax” became a “mass tax.” …
As March 15, 1943 neared, though, it became clear that many citizens still were not filing returns. Henry Morgenthau, the Treasury secretary, confronted colleagues about the nightmarish prospect of mass tax evasion: “Suppose we have to go out and try to arrest five million people?”
Ruml came up with the idea of using the withholding method-that way government would not have to actually ask for the money, and taxpayers would never even see the income. It was based on Macy’s billing method, allowing customers to pay a small amount on the bill every month. That way, they wouldn’t feel the pinch, and they’d keep shopping.
Taxes are so high today (at least, for the 60 per cent of the citizenry that pays them) that even this sly method doesn’t conceal Uncle Sam’s greedy hand. We all feel the pinch.
Arthur Herman’s warning is twofold: the new Congress should be very, very careful in passing new laws, especially intrusive ones, and perhaps it’s time to go back and rethink our whole system of taxation. Like 1942, this looks like a wave election. Don’t waste the wave, folks.