Source: http://taxhistory.org/thp/readings.nsf/ArtWeb/EB941FE0419B0DDC852570BA0048848C?OpenDocument
Timestamp: 2019-04-26 00:41:36+00:00

Document:
Ajay K. Mehrotra teaches tax and legal history at the Indiana University School of Law -- Bloomington.
Major portions of this article were previously published in "Envisioning the Modern American Fiscal State: Progressive-Era Economists and the Intellectual Foundations of the U.S. Income Tax," 52 UCLA Law Review 1793 (2005).
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Over a century ago, a group of political economists led the campaign for a fundamental transformation in the American system of public finance. Responding to the social and political conditions of their times, those professional economists helped build a new fiscal state -- one that was concerned not only about raising revenue, but also about the equitable distribution of fiscal obligations. By replacing the 19th century national structure of regressive indirect taxes with direct and graduated taxes on income and other forms of wealth, the emerging fiscal polity helped shift the burden of financing a modern, industrial democracy onto those segments of early 20th century American society that had the greatest taxpaying ability, namely wealthy citizens in the North and Northeast. That move -- that transformation toward a more transparent and fairer system of taxation -- was a qualified achievement. Although it did not go as far as some progressive reformers had envisioned, the new fiscal polity laid the foundation for, and held out the promise of, a new, more progressive American tax regime.
Among the forces that helped forge the modern American fiscal state, none was perhaps more important than the intellectual movement supporting the direct and graduated taxation of income. For that transformation in American public finance was guided by a paradigm shift in the legal and economic theories that undergirded tax policy. By leading the theoretical movement for a permanent, progressive income tax, those theorists became the architects or visionaries of the modern American fiscal state.
One of the chief visionaries of the new fiscal order was Edwin R.A. Seligman, a professor of political economy at Columbia University and the son of one of New York's most affluent banking families. This article explores how Seligman and his like-minded colleagues were able to apply their social and political theories to the development of American tax laws and policies. More precisely, this article contends that this particular group of academics played a pivotal role in supplanting the "benefits theory" of taxation, and its concomitant vision of the state as a passive protector of private property, with a more equitable principle of taxation based on one's "faculty" or "ability to pay" -- a principle that promoted an active role for the positive state in the distribution of fiscal burdens.
Of course, Seligman and other Progressive Era economists like Richard T. Ely and Henry Carter Adams did not invent the faculty theory. Neither the benefits principle nor the faculty theory was created or destroyed in the early 20th century.1 Rather, American public finance theorists, building on the works of other thinkers, attempted to delineate those rationales in an effort to question what they believed to be the antiquated social theory supporting the benefits principle.
At the same time, it was not disembodied ideas that fostered this fundamental change in American taxation. Instead, those ideas were supported by pivotal figures and groups who emerged from a particular social background and institutional context that compelled them to seek progressive reform. Using Seligman as a prism for understanding the spirit of the times, this article explores Seligman's personal background, his ideas, and his influence on the development of American tax laws and policies.
Amid those circumstances, a story about the intellectual foundations of the American income tax may provide some important, if humbling, lessons for our own time. Given the recent rise of inequality and the current rhetorical calls for tax reform, a tale chronicling the historical ideas and material conditions that gave birth to the current American income tax system should be seen as a modest reminder of the aims and circumstances that animated the theoretical support for a new system of taxation -- a reminder, that is, of the historical and institutional limits that constrain current policymakers.
Similarly, an intellectual history of the American income tax holds some sobering lessons both for those scholars who mistakenly assume, however implicitly, that the progressive income tax was originally meant to redistribute wealth and income in a dramatic way,3 and for those tax scholars who have recently suggested a return to benefits theory as a way to bolster our current tax system.4 This article thus attempts to tell the story of how one socially engaged and reform-minded academic helped lead a charge for a historic change in the American system of taxation -- a change that continues to resonate today.
The Progressive Era economists who brought the faculty theory to the fore were part of a new community of economic thinkers -- coming forward alongside the rise of the American research university -- seeking to change the constellation of beliefs, commitments, and values within their own emerging academic discipline. In the process, they were hoping to underwrite changes in tax policy that would help reallocate the fiscal burdens associated with modern, industrial capitalism.
For Seligman, the benefits principle and the ability to pay were contending principles with radically different underlying social and political theories. The benefits doctrine stood for the antiquated proposition that taxation was justified as a price paid for the goods and services provided by government in exchange for tax payments. Citizens, in essence, traded tax payments solely for the benefits they received from the state.
By contrast, the notion of faculty or ability to pay required that each citizen contribute to the common welfare of the state based on his taxpaying capacity. Although accurately measuring a citizen's capacity to pay taxes was a controversial issue that remained elusive -- then and now6 -- Seligman and the other progressive economists resolutely believed that their primary, pragmatic goal in advancing the income tax agenda was to demonstrate the social and political limitations inherent in the benefits principle.
Seligman and the other economists who led the campaign for an income tax at the turn of the 20th century were part of a larger cohort of academic social scientists. While that first generation of professionally trained academics did not agree on many issues, many of them were seeking to dismantle the orthodox theories of laissez faire that dominated classical and neoclassical visions of law and political economy. Reacting to the forces of modernity that had eroded notions of self-reliant individualism, that rising class of professionals sought to demonstrate, through their writings and teachings, the mutual interdependence of modern social relations.
From the beginning, the young generation of economists who founded the AEA sought to use their training to address the social concerns of the day. Calling themselves the "new school" of American political economy, many of those maverick intellectuals challenged the reigning system of economic thought.10 Eschewing timeless universalisms, those academics resolutely believed that economic relations were embedded in a larger social and institutional matrix -- a matrix that was often constituted by law and legal processes.
At first, it may appear ironic that the leading American intellectual on taxation at the turn of the 20th century would come from one of the most affluent families in New York City. Why would the scion of a prominent banking family -- one that built a financial empire catering to wealthy individuals and emerging corporations -- be interested in issues of public finance? Part of the answer rests with the early influence Seligman's family had on the young man's development. But Seligman's decision to become a scholar also rests with his individual intellectual passion, his desire to forsake wealth for wisdom. At a relatively early age, Seligman turned his back on family expectations and pursued his own interests in the life of the mind. Nonetheless, his family's focus on education and civic responsibility remained with Seligman throughout his life.
Edwin Robert Anderson Seligman was born in New York City in 1861 into a prominent German-Jewish family. Since young Edwin arrived soon after the start of the Civil War, his parents demonstrated their patriotism by bestowing their youngest of nine children with a middle name honoring the defender of Fort Sumter. Seligman's father Joseph, who immigrated to the U.S. from Bavaria in 1837, was a self-made businessman and financier who along with his brothers founded the house of J. & W. Seligman, a merchant banking firm that would one day rival the likes of J.P. Morgan.
The Seligman family was active in New York City's social and political circles, and young "Ed" (as he was called by his close friends and family) no doubt learned the importance of civic participation through the many activities in which his family was engaged. The elder Seligman, a Republican who advised government officials of both parties, served on the New York Board of Education, the Manhattan Railway Company, and several municipal reform committees.
While Seligman described his decision to earn a law degree as "giving him another feather in his cap," he was also attracted to law because of Burgess, his college mentor. Burgess himself was trained in law, having studied briefly with Lieber at Columbia before departing for Germany to study history and politics, and he conveyed to Seligman the importance of studying law and legal processes. Among Seligman's peers in law school was Charles Evans Hughes, the future New York governor and Supreme Court justice. Seligman and Hughes remained good friends throughout their lives, even when their differing views on the constitutionality of a federal income tax brought them to loggerheads.
Yet, his deepest institutional commitment was to his alma mater and the academy as a whole. His service to Columbia University, especially his editorship for many years of the Political Science Quarterly and Columbia's book series on political economy, helped establish the fledgling school of political science and the department of economics as leaders in their fields. As part of those duties, Seligman became the de facto translator of continental texts on public finance early in his career. He would later recount to Wesley C. Mitchell, one of his Columbia colleagues, that this "mere accident of departmental organization" would lead to his lifelong commitment to the study of taxation.29 Together with Mayo-Smith, he also developed and cultivated the graduate seminars that would become a hallmark of Columbia's doctoral program.
Though he was offered positions by other institutions, including Harvard, Seligman preferred to remain at Columbia and close to his extended family in New York City. In 1888 Seligman married Caroline Beer, the daughter of a wealthy New York tobacco trading family, and together they had three daughters and a son. The tragic deaths of two of his daughters may have influenced Seligman's decision to stay at Columbia, close to his boyhood home and extended family.
What united Seligman and many of the other ethical or proto- institutionalist economists were their personal backgrounds and the experiences of coming of age during the turbulent decades of the late 19th century. If his family background inclined Seligman toward social change, his observations of the harsh material realities of American life appeared to fortify his reformist tendencies. Not only did the late 19th century forces of rapid industrialization and urbanization heighten the disparity of wealth, the uneven development of modern American capitalism also fueled class conflict and labor unrest during that period.
The intellectual connection to Germany that the progressive economists shared was more than just a mere coincidence. Unlike some of their more conservative colleagues who also studied in Germany,37 Seligman and many of the reform-minded academics were deeply influenced by their German training. The more radical American students, in fact, became great admirers of the scholars who made up the German Historical School of Economics.
The American new school was not, however, a simple imitation of German historical economics. Suggesting that it was would belie the true lessons of historicism. Both "schools of thought" were rather a function of historically specific social and economic conditions. Thus, the message of the German historical school was a manifestation of an industrial era, and similarly, "the new school," Seligman explained, "is the product of the age, of the zeitgeist, not of any particular country; for the underlying evolutionary thoughts of a generation sweep resistlessly throughout all countries whose social conditions are ripe for change."
Tariff reform, however, was only one of the areas of fiscal policymaking that attracted the attention of the progressive economists. In fact, redirecting tariff policy was just one step in their agenda for an income tax. The more important task was to apply a form of historicist political economy to the underlying principles of taxation. In criticizing the benefits theory, new school economists, led by Seligman, singled out the anachronistic political implications of this principle.
In fact, Seligman, in no uncertain terms, condemned the social theory that buttressed the benefits principle. He argued that the benefits doctrine was based, at bottom, on an outmoded conception of modern citizenship.
Progressive economists also disapproved of the benefits doctrine because it was framed in an idiom of market relations. With their emphasis on the importance of ethical duty and social bonds, those theorists loathed how the benefits doctrine commodified the relationship between citizens and the state. Taxes are "one-sided transfers of goods or services, and are not mutual," Ely emphasized. "The citizen pays because he is a citizen, and it is his duty as a citizen to do so. It is one of the consequences which flow from the fact that he is a member of organized society. . . . Only an anarchist can take any other view."45 If citizens were part of a greater whole, taxation based on a notion of exchange or barter seemed wholly out of place. In sum, the progressive economists saw the benefits doctrine as misrepresenting the social obligations of citizenship.
When it came to applying the benefits theory to the structure of a tax system -- to the issue of whether the wealthy should pay more than the poor -- the progressive economists argued that the benefits principle was intrinsically incoherent. The "give-and-take theory," as Seligman called it, left the issue of degrees of taxation "inconclusive." In his 1894 treatise on progressive taxation, Seligman illustrated how advocates of the benefits principle could use this theory to defend both a progressive tax as well as a regressive one. Because "most of the public expenses are incurred to protect the rich against the poor," Seligman coyly noted, the benefits theory would dictate that "the rich ought to contribute not only actually, but relatively more."46 If the justification for taxation, under the benefits doctrine, was protection of private property, those with more property had more to protect and hence ought to have a larger tax burden.
Of course, the faculty theory, as Seligman acknowledged, had its own problems when it came to addressing the rate structure of a practical tax system. Nonetheless, whereas proponents of ability to pay could unambiguously support some form of a graduated rate structure, the benefits theory provided its advocates with an inconsistent rationale for setting practical tax rates. Indeed, Seligman claimed that certain individual payments for particular government services did not even deserve to be called taxes. He conceded that "some payments made by individuals for particular" government services "should represent as nearly as possible the cost of service to the government." But those payments, Seligman concluded, "are not taxes." They should be viewed, instead, merely as "fees or tolls."49 That distinction was critical. It suggested that Seligman and his like- minded colleagues still believed that the benefits theory had an important, although subordinate, role to play in public finance discourse. There was no other way to define a toll, a fee, or a special assessment accurately without some reference to the benefits conferred by the state.50 Yet when it came to financing those public goods and services that could not be divisible within a community, or at the individual level, the best justification for those "taxes" was the criterion of ability to pay.
Seligman combined his interests in comparative economic history and tax policy in charting the global development of the income tax. In one of his best-known treatises, which was published in several editions and translated into numerous languages, Seligman set out to demonstrate that an urban industrial democracy required a progressive income tax.55 Applying a crude type of economic determinism, Seligman argued that theories of taxation had evolved over the centuries to meet the changing functional needs of society. What remained constant during this historical evolution was the criterion used by the state to determine the basis of taxation. That criterion, according to Seligman, was the principle of ability to pay.
Conveniently ignoring how his own historical research demonstrated the long-standing coexistence of benefits and faculty theories, Seligman claimed that a variety of different levies over time embodied the faculty principle. The standard of faculty had undergone several manifestations from its origins in preliterate society to modern times, but it remained the benchmark by which leaders were able to shape tax laws and policies. Using an evolutionary theory of historical change reminiscent of Darwinian gradualism, Seligman illustrated how different stages of economic development led to different types of taxes embodying the ability to pay metric. In that stage analysis, Seligman used a highly functionalist perspective, focusing on how tax systems adapted to material changes, without emphasizing the contingency and vagaries of those changes.
Although Seligman claimed that the income tax was the "final" stage in the development of tax laws, he went to great pains to emphasize in his treatise that the income tax should not be viewed as the only accurate measure of tax-paying ability. The income tax, for him, was not without its faults. It left unanswered many thorny questions, such as what constituted income, whether all sources of income could be treated equally, and the all-important issue of "whether different amounts of income present identically the same criteria of ability to pay."56 In addition to those substantive questions, the income tax also posed a host of administrative concerns, not the least of which was whether it could be executed without being overly intrusive.57 In the end, Seligman admitted that, although a tax based on income was perhaps the final stage of fiscal evolution, a system of taxation that accurately gauged an individual's faculty or ability to pay would remain an ideal beyond the reach of practical politics.
Writing at a time when the future fate of the American income tax was still unclear, Seligman and his colleagues did not lose sight of their historicist methods. The income tax had come into its own as the necessary policy for a modern, industrialized nation. But that did not mean that an income tax was or should be sacrosanct. For the progressive economists to give it such timeless, transhistorical prominence would be to betray their own historicism. Instead, because the income tax seemed to correspond with the level of political and economic development that existed in turn-of-the-century America, Seligman and his reformist colleagues became vocal advocates for the implementation of a permanent federal income tax. Yet at the same time they recognized that conditions elsewhere and at other times might dictate other forms of fiscal policies.
In their attempts to influence policymaking, the progressive economists realized that the power of their ideas alone were often not enough to change the laws and institutions that undergirded the American tax system. They needed to take a more active role in the political and policymaking process by participating as consultants and part-time tax commissioners, and by capturing the attention of lawmakers.
As the economists and other social scientists were promoting their ideas, the American political system itself was undergoing a radical transformation. For it was during the turn of the 20th century that the state of "courts and parties" was giving way to a more fractured and pluralistic system of American politics. The 19th century dominance of party politics and patronage was being eroded by the rise of a more competitive political process, one that helped forge the modern American fiscal, regulatory, and administrative state.59 With that shift in politics, reform- minded economists joined organizations like the NTA and formed other coalitions, such as the New York Tax Reform Association, to provide an outlet for their ideas -- an outlet that, they hoped, could more directly shape tax policy.
To meet the challenges of the emerging political system, the progressive economists needed to defend their support for an income tax based on the faculty principle against opposition from both the political right and left. For political conservatives wedded to a classical "night watchman" view of the state, the move to a graduated income tax was equated with creeping socialism. The progressive economists observed, often to their personal detriment, the overwhelming power that the conservative critics held, particularly in delineating the bounds of academic freedom. Addressing those opponents, the progressive economists sought to demonstrate that support for graduated income taxes could be compatible with traditional American notions of equality and fairness.
The reform-minded economists faced a more amorphous, though equally formidable, kind of opposition from the political left. There the populist attraction to the single-tax ideas of Henry George appeared to distract important constituencies away from the income tax movement. In defusing that opposition, the economists sought to debunk the amateur economic analysis conducted by George and his disciples. They also attempted to unmask the "ultraconservative" social theory that underpinned George's call for a single tax on land.60 By navigating between the conservative critics who equated a progressive income tax with socialism and the populist reformers who advanced a seemingly more radical form of taxation, the progressive economists combined their theories with other prevailing economic ideas of the times, namely marginal utility analysis. Their aim in the end was to show that a progressive income tax was an assault on privilege that did not amount to a move toward state socialism.
Faced with critiques from the political right and left, the reform-minded economists attempted to navigate between those poles in advancing the income tax cause. The fundamental problem for Seligman and his colleagues was that many commentators and old guard political economists erroneously assumed that "progressive taxation necessarily implies socialism and confiscation." Citing explicitly to the work of David Wells, one of the leading conservative opponents of progressive taxation, Seligman argued "it is quite possible to repudiate absolutely the socialistic theory of taxation and yet at the same time advocate progression."61 Decoupling progressive income taxes from state socialism thus became one of the principal aims of the reform- minded economists.
While political pressures may have forced the progressive economists to temper their reformist inclinations, it is unlikely that they ever embraced the radically redistributive notions held by their German mentors and American socialists. The new school economists abhorred the radical individualism inherent in classical political economy, but many of them continued to believe that economic progress was driven mainly by private industry rather than state action. It was that allegiance to the productive powers of capital that led them to restrain their advocacy for a redistributive tax policy.
Put simply, the reform-minded economists believed that they could not defend the income tax and the principle of faculty without defending the need for some level of progressivity. Seligman did that by using his historicist perspective to combine traditional Anglo- American thinking on taxation with marginal utility analysis, an increasingly popular economic idea in the American academy.
In theoretical terms, Seligman believed that the principle of faculty required progressive rather than merely proportional taxes.
Using marginal utility analysis to defend the progressive income tax posed some theoretical problems, however. While most economic thinkers and perhaps even policymakers could agree that the last dollar held by the Astors or Vanderbilts was worth much less than the last dollar held by a common member of the working class, marginalism rested at bottom on a problematic interpersonal comparison of utility. Although it would not be difficult to make the case at the extremes, it was much more challenging to differentiate the subjective utility that different citizens within the middle class placed on their last dollar. Despite that theoretical challenge, the reform-minded economists maintained that adherence to the notion of faculty required a progressive rather than a simply proportional rate structure. If the problem of interpersonal comparisons of utility complicated the setting of optimal rates, it did not completely undermine, at least for the turn-of-the-century economists, the superiority of a progressive rate structure.
More practical constraints, however, tempered the progressive public finance economists' calls for progressive income taxes. Above all else, those economists were pragmatists, who were constantly concerned about how tax laws and fiscal policies would operate in concrete situations, how changes in tax law and other institutions would alter individual behavior. Not only did the individualistic beliefs of American political culture operate as one set of impediments, those German-trained theorists realized that the federal government in the United States lacked the national administrative capacity of its European counterparts.
More than any of his colleagues, Seligman was well aware of the administrative hurdles that a progressive income tax needed to overcome -- not the least of which was setting the degree of progression. "Theory itself cannot determine any definite scale of progression," wrote Seligman. "And while it is highly probable that the ends of justice would be more nearly subserved by some approximation to a progressive scale, considerations of expediency as well as the uncertainty of the interrelations between various parts of the entire tax system should tend to render us cautious in advocating any general application of the principle" of progressivity. Even when it came to defending one of the most fundamental applications of the faculty principle, Seligman could not abandon his faith in the importance of having tax laws and policies comport with social and institutional contexts. "It remains to investigate as to how far the principle" of progressivity "is applicable to the conditions surrounding us in America to-day," wrote Seligman in 1894. "But, in last resort, the crucial point is the state of the social consciousness and the development of the feeling of civic obligation."71 Ultimately, for Seligman, economic theory could not trump historically bound social conditions and political culture.
The progressive economists, therefore, were able to advance their vision of a new fiscal state only when social conditions were ripe. While Ely, Adams, and Seligman had been writing and lecturing for decades about the need for taxes based on the notion of ability, it was not until the tumultuous process of ratifying the 16th Amendment -- from 1909 through 1913 -- that they were able to see their ideas come to fruition at the federal level. By then, of course, Seligman had become the dominant academic voice calling for a moderately progressive income tax based on the notion of faculty. As the legal historian Herbert Hovenkamp has demonstrated, Seligman had a profound influence on judicial policymaking throughout the first half of the 20th century.74 But the professor had an equally important -- and even more direct -- role in establishing the legal foundation of the American income tax system.
By contrast, Seligman concurred with the government lawyers that a string of previous Court decisions had already analyzed the direct tax clause,79 holding that it applied only to land and poll taxes, not income taxes.80 Like the government lawyers, Seligman did not expect the Court to strike down the 1894 income tax law. When it did, a surprised Seligman turned his energies toward supporting a constitutional amendment that would overturn the Pollock decision.
Indeed, even before the decision was handed down, Seligman published an article in the popular journal Forum taking on the principal objections to the 1894 law.81 In a previous issue of that journal, Wells had recycled his earlier opposition to progressive income taxes.82 Graduated rates were a form of discrimination, Wells claimed, that was contrary to the notion of "uniformity" embodied in the Fifth Amendment. Responding directly to Wells, Seligman maintained that the constitutional restriction on uniformity applied not to the classification of a tax but to its geographical application. "Uniform throughout the United States," wrote Seligman, meant that "the same rate of taxation should be imposed on all the States."83 Because Seligman did not think that objections to the law based on the Constitution's "direct tax clause" were a serious consideration, he casually confirmed that the settled legal precedents and the economic analysis meant that any attempt "to declare the income tax unconstitutional" as a violation of the Constitution's direct tax was "foredoomed to failure."84 Seligman must have been aghast when he learned that the Court struck down the 1894 law precisely along those lines.
Despite those assurances, the income tax amendment could not survive the initial resistance of the Republican majority in the New York Assembly. The resolution was put to a vote in the Assembly three times during the 1910 session, and all three times the Republican majority resoundingly defeated it. Because New York was a pivotal state in the ratification process -- mainly because it was representative of the Northeastern wealth hostile to reallocating tax burdens -- income tax supporters realized that they would have to get New York's approval if they expected other states to ratify the amendment.90 That appeared to be a historical moment. According to Seligman and many other income tax advocates, New York lawmakers appeared to be oblivious to the ripening of social consciousness and public support for the amendment. As an ethical reformer operating at the threshold between the "old social necessity" and the "new social convenience," Seligman set out to neutralize the opposition to the income tax amendment.
Seligman peppered his second argument, the economic analysis, with a personal attack on Hughes. He explained that an income tax that taxed the interest from all bonds at equal rates would not harm the market for those securities. Emphasizing the illogic of Hughes's economic comments, Seligman concluded: "If any of my students at Columbia had made the same mistake as Governor Hughes, I should have flunked him dead."96 In rebuffing Hughes's earlier message, Seligman was able to help galvanize the pro-income-tax forces by lending them the prestige and prominence of a well-known expert in the field -- an expert who was not afraid to tell lawmakers and even a former governor what he believed. Indeed, Seligman's position against his old friend Hughes seemed to be vindicated several years later in the 1916 Supreme Court decision in Brushaber v. Union Pacific,97 where then-Justice Hughes assented to a unanimous decision that essentially refuted his earlier position on the general power of the 16th Amendment.
If Seligman's role in the ratification process was the most conspicuous example of the influence of progressive economic ideas on the making of tax law and policy, he and his like-minded educators left a lasting legacy of reform in other less obvious ways. For it was in their role as teachers that the progressive economists perhaps had their greatest effect on the development of American public finance. As instructors and writers, they helped mold the next generation of scholars, reformers, and policymakers. Students such as Robert Haig became tax experts in their own rights.
Haig, Seligman's most successful student, carried his mentor's historicist message to subsequent discussions about tax policy. After completing a dissertation on the history of the Illinois property tax, under Seligman's supervision,98 Haig remained in nearly constant contact with his old teacher, conducting empirical field research for him on the property tax in Canada, and the British excess profits tax of World War I.99 Toward the end of Seligman's career, Haig eventually joined him as a colleague at Columbia.
Haig modestly suggested that what would become his path-breaking definition of income was, in fact, a refinement of earlier theories. Haig defined income as "the money value of the net accretion to one's economic power between two points of time," and he declared that "it will be readily agreed that this definition . . . constitutes then the closest practicable approximation of true income."101 But lest one believe that Haig had forgotten the historicism of his mentor, Haig pointedly added that "the concept of taxable income is a living, mutable concept which has varied widely from time to time and from country to country with the conditions under which it has had to operate."102 Seligman could not have put it better himself.
By the 1920s, with the rise of the next generation of economists, the paradigm shift in tax theory initiated by the progressive, public finance economists began to crystallize. Toward the end of World War I, Seligman himself could proudly proclaim that in justifying a tax, as opposed to a toll or special assessment, "the criterion is always ability to pay."103 Over time subsequent generations of tax theorists echoed that claim, as the American system of public finance became increasingly reliant on the income tax. Indeed, by the 1950s not only did the graduated income tax appear to be entrenched as the principal source of federal government revenue,104 the notion of ability to pay had become axiomatic among many tax scholars, some of whom mistakenly presumed that its "universal acceptance" stretched back well before the turn of the century.105 Although some legal scholars have more recently come to question the substantive content of the notion of ability to pay,106 as well as the use of income as the proper tax base,107 even those theorists still resolutely adhere -- often implicitly -- to the notion of taxpaying ability as a compelling, albeit indeterminate,108 guide for policymaking.
The current self-evident nature of the principle of ability to pay is a result of the theoretical shift that fostered the turn-of- the-century structural transformation in American public finance. To be sure, the paradigm shift in ideas explains only part of that historic change; other salient factors, including popular social movements and institutional changes, helped usher in this new fiscal order.109 That transformation was brought about by a combination of material and idealistic forces. In the end, it was a fusion of the functional need for increased government revenue together with the desire for creating a fairer and more transparent system of taxation that eventually led to the theoretical ascendancy of the American income tax.
Indeed, throughout their efforts and achievements, the reform- minded public finance economists were concerned mainly about the equitable distribution of tax burdens, with what Seligman referred to as rounding "out the existing tax system in the direction of greater justice."110 Through their scholarship, teaching, and public lectures, those Progressive Era economists guided a paradigm shift in the theories that undergirded American taxation -- a paradigm shift away from the benefits theory toward the principle of faculty or the ability to pay.
In so doing, they helped inject a sense of redistributional reasoning into the prevailing fiscal order. Though they did not go as far as some of their German mentors, or other American reformers, in advancing radically redistributive, progressive taxes, they did bring a vigorous defense of justice and equity to an otherwise anemic American dialogue about taxation. In their unyielding support for tax reform, they demonstrated that contemporary political, social, and economic conditions dictated that the American system of fiscal governance required a permanent progressive income tax. In that way, those political economists became the visionaries or architects of the modern American fiscal state -- they drew the blueprints for a new, more equitable fiscal polity.
Recounting the intellectual history of the American income tax is not a story of mere antiquarian interest. Rather, at a time when national discussions about fundamental tax reform appear to echo the past, and when our current hybrid income tax system seems to be in some peril, the ideas and historical circumstances that gave shape to the initial creation of this system are highly relevant to the present.
By investigating how and why the notion of faculty or taxpaying ability came to dominate the justifications for a progressive income tax, this article has attempted to illuminate the ideas and events which, over time, combined to create the intellectual and institutional boundaries within which current tax laws and policies are made. In that sense, this historical study does not contain an explicit normative lesson for current scholars and lawmakers, nor is it an attempt to recapture the timeless origins of the modern American income tax. Instead, the more subtle aim has been to unearth the implicit historical forces that have shaped the institutional limits and possibilities that confront current policymakers. Some factors emerged in the recent past, such as the leveling of exemptions and the use of withholding; others are more remote. Together those factors are crucial for understanding contemporary issues.
This story about the intellectual construction of the American income tax, moreover, holds some humbling lessons for scholars, reformers and policymakers in our own time. For those historically minded scholars who have bemoaned the failure of the U.S. income tax to radically redistribute wealth,111 the efforts of Seligman and others to reform the 19th century system of indirect taxes should be seen as a modest reminder of what was accomplished by the establishment of an income tax. While redistributing wealth in a dramatic way through a combination of steeply progressive rates and government transfer payments was not the principal aim of the turn- of-the-century theorists, their ideas and actions did have an enduring effect on reallocating the fiscal burdens of financing a modern nation-state.
Similarly, for those current tax theorists who have attempted to revive the benefits principle,112 the intellectual debate that framed the creation of the American income tax may prompt some reconsideration of the political implications of the benefits theory. While the progressive economists, with their historicist leanings, would have been loath to suggest that either the benefits or faculty principles were timeless, transhistorical touchstones for tax policy, they might be surprised by the current use of the benefits principle to support the prevailing tax system. For in explicating the larger social and political theories that undergirded the contending principles of taxation at the turn of the 20th century, those economists sought to reveal how the benefits doctrine contained within it a rather narrow and limiting view of social citizenship -- a view that may ultimately belie the normative goals of current tax scholars who see in the benefits principle a potential bulwark for current tax policies.
To be sure, much has changed since Seligman and the Progressive Era economists mounted their assault on the old fiscal order. Given the current concerns about security, especially in a post-9/11 world, the benefits of protection provided by the state may have taken on a new valence, one that may justify a reexamination of the theories underpinning the benefits principle. Still, for Seligman and his colleagues, the intellectual project of advancing the faculty theory was based on restructuring the American system of public finance -- on transferring, that is, the fiscal obligations of financing a modern state onto those with the greatest taxpaying ability. In the process, those reform-minded academics were also attempting an even more fundamental transformation. Operating within the institutional constraints of American political culture, those theorists were also seeking to alter the meaning of social citizenship as they attempted to redefine the modern relations among state, society, and economy.
1 The continuous coexistence of the benefits and ability to pay rationales over time illustrates how the history of ideas is seldom about the complete victory of one concept over another. As the legal historian Neil Duxbury has noted, "Ideas -- along with values, attitudes and beliefs -- tend to emerge and decline, and sometimes they are revived and refined. But rarely do we see them born or die." Duxbury, Patterns of American Jurisprudence (1995), pp. 2-3.
2 For a sampling of the recent social and academic commentary identifying the rise of a New Gilded Age at the turn of the 21st century, see Kevin P. Phillips, The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath (1990); David Remnick, ed., The New Gilded Age (2001); Paul Krugman, "For Richer," The New York Times Magazine, Oct. 20, 2002; Thomas Piketty and Emanuel Saez, "Income Inequality in the United States, 1913-1998," 118 Quarterly Journal of Economics 1 (February 2003); "Ever Higher Society, Ever Harder to Ascend -- Meritocracy in America," The Economist, Dec. 29, 2004, at Special Report; Nathan Glazer, "On the American Indifference to Inequality," 132 Daedalus 111 (2003).
3 Robert Stanley, Dimensions of Law and the Service of Order: Origins of the Federal Income Tax, 1861-1913 (1993); John F. Witte, The Politics and Development of the Federal Income Tax (1985); Morton J. Horwitz, The Transformation of American Law, 1870-1960: The Crisis of Legal Orthodoxy (1992).
4 Deborah A. Geier, "Incremental Versus Fundamental Tax Reform and the Top 1 Percent," 56 S.M.U. Law Review 99, 119 (2003); Geier, "Time to Bring Back the 'Benefit' Norm?" Tax Notes, Mar. 1, 2004, p. 1155; Herwig J. Schlunk, "Double Taxation: The Unappreciated Ideal," Tax Notes, Feb. 16, 2004, p. 893; Schlunk, "I Come Not to Praise the Corporate Income Tax, But to Save It," 56 Tax Law Review 329 (2003).
5 Thomas S. Kuhn, The Structure of Scientific Revolutions (1996), p. 181. See also Theodore Porter, Trust in Numbers: The Pursuit of Objectivity in Science and Public Life (1995).
6 On the ongoing elusiveness of the ability to pay doctrine, see, e.g., Liam Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice (2002), pp. 20-31; Joseph M. Dodge, "Theories of Tax Justice: Ruminations on the Benefit, Partnership, and Ability-to-Pay Principles," 58 Tax Law Review (2005).
7 Daniel T. Rodgers, "In Search of Progressivism," 10 Reviews in American History 113, 122 (December 1982).
8 In charting the role that these economists played in laying the intellectual groundwork for the new fiscal order, this article is not meant to be a traditional history of disembodied ideas or a philosophical explication of the claims made by these historical figures. Instead, this article seeks to historicize the ideas that underwrote the emergence of the modern American income tax by placing these theories within their social, political, and economic context. The principal aim is to show how a multitude of historical forces combined to facilitate the paradigm shift in tax theories at the turn of the 20th century. The more normative task of uncovering the philosophical underpinnings of progressive income taxes, and revealing the tensions within tax theories, is left to others. See supra note 6; on the inherent philosophical tensions within the tax theory of ability to pay, see Stephen Utz, "Ability to Pay," 23 Whittier Law Review 867 (2002).
9 For more on the professionalization of the social sciences, see generally Thomas L. Haskell, The Emergence of Professional Social Science: The American Social Science Association and the Nineteenth Century Crisis of Authority (1977); Mary O. Furner, Advocacy & Objectivity: A Crisis in the Professionalization of American Social Science, 1865-1905 (1975); Dorothy Ross, The Origins of American Social Science (1991).
10 For more on the "new school" of American political economy, see generally Furner, supra note 9, chapter 3; Sidney Fine, Laissez Faire and the General-Welfare State: A Study of Conflict in American Thought, 1865-1901 (1964).
11 Furner, supra note 9, at 69-75; Fine, supra note 10, at 216-219. In drafting the initial charter of the AEA, Richard Ely explicitly proclaimed that the state should be viewed as an "ethical agency whose positive aid is an indispensable condition of human progress." "American Economic Association, Platform" quoted in Richard T. Ely, Ground Under Our Feet: An Autobiography (1938), p. 136. Ely's language for the charter led to an enormous controversy at the founding of the AEA that helped define the fault lines between the "new school" and the orthodox political economists.
12 Herbert Hovenkamp, "The First Great Law and Economics Movement," 42 Stanford Law Review 993 (April 1990); Barbara H. Fried, The Progressive Assault on Laissez Faire: Robert Hale and the First Law and Economics Movement (1998).
13 R. Rudy Higgens-Evenson, The Price of Progress: Public Services, Taxation, and the American Corporate State (2003), p. 78.
14 Dorfman, "Edwin Robert Anderson Seligman," Dictionary of American Biography, Suppl. 2 (1958), pp. 606- 609; Ross L. Muir and Carl J. White, Over the Long Term: The Story of J. & W. Seligman & Co. (1964), p. 24; Thomas Walek, "From Pack Peddlers to High Tech Funds: J. & W. Seligman & Co. and the American Experience," 67 Financial History 12-15 (1999); Seven Beckert, The Monied Metropolis: New York City and the Consolidation of the American Bourgeoisie, 1850-1896 (New York), p. 123.
15 William Weisberger, "Seligman, Joseph" American National Biography, vol. 19, eds. John A. Garraty and Mark C. Carnes (1999), pp. 623-625; Interviews with Eustace Seligman, Columbia Oral History Collections, Butler Library, Columbia University, New York. For more on the elder Seligman and his role in the New York Jewish community, see Stephen Birmingham, Our Crowd: The Great Jewish Families of New York (1967).
16 Edwin R.A. Seligman to Isaac Seligman, Mar. 14, 1905; Nicholas Murray Butler to Isaac Seligman, Mar. 31, 1905, Cataloged Correspondence, Edwin R.A. Seligman Papers, Butler Library, Columbia University, New York, (hereinafter ERASP).
17 Furner, supra note 9, at 56; Ross, supra note 9, at 103. For a recent account of how religion affected the institutional economists that more accurately excludes Seligman from the social gospel movement, see Robert William Fogel, The Fourth Great Awakening and the Future of Egalitarianism (2000), ch. 3.
18 Interview with Eustace Seligman, Sept. 3, 1974, Columbia Oral History Collections; Weisberger, "Seligman, Joseph" American National Biography, p. 625; Lee Livney, "Let Us Now Praise Self-Made Men: A Re-examination of the Hilton- Seligman Affair," 75 New York History 66-98 (1994); "Berthold Auerbach and the Hilton-Seligman Affair," 11 American Jewish Archives 184-187 (1959). Eustace Seligman also recounted that as part of his belief "in breaking down barriers between Jew and Christian," Edwin Seligman sent his children to Catholic grade schools on the Upper West Side of Manhattan. Interview with Eustace Seligman, Sept. 3, 1974, Columbia Oral History Collections.
19 Horatio Alger Jr. to Seligman, Feb. 21, 1876; May 7, 1876; Apr. 1, 1876, Cataloged Correspondence; "Seligman Report Cards," Box #58 -- Father, School, and College, ERASP; Carl S. Shoup, "Seligman," in David L. Sills, ed., International Encyclopedia of the Social Sciences (1968).
20 For a sampling of some of the courses Seligman took and the papers that he wrote during college, see Box #57 -- Father, School, and College, ERASP; Frank Rozwadowski, "From Recitation Room to Research Seminar: Political Economy at Columbia University," in Economists and Higher Learning in the Nineteenth Century, ed. William J. Barber (1993), pp. 188-197.
21 "Notebooks from Classes in Berlin," Box #86, Lecture Notes, ERASP; Cataloged Correspondences with Schmoller and Wagner, ERASP; Joseph Dorfman, "The Role of the German Historical School in American Economic Thought," 45 American Economic Review 2 (May 1955), 17-28; Jurgen Herbst, The German Historical School in American Scholarship: A Study in the Transfer of Culture (1965); Daniel T. Rodgers, Atlantic Crossings: Social Politics in a Progressive Age (1998), ch. 3.
22 Rozwadowski, "From Recitation Room to Research Seminar: Political Economy at Columbia University," p. 196. Seligman's decision to turn his back on the family business seemed to come at a high financial cost. He was effectively cut off from the family wealth, and was forced to live on his salary as a college instructor until 1888, when he married Caroline Beer, who came from a wealthy trading family. Eustace Seligman Interview, Jan. 21, 1975, Columbia University Oral History Collections.
23 Seligman, "Notebook From Burgess's Comparative Constitutional Law Class, 1883," Box #87 -- Berlin and French Lecture Notes, ERASP; Charles Evans Hughes to Seligman, Apr. 4, 1904, Cataloged Correspondence, ERASP; Edwin R.A. Seligman, Two Chapters on the Mediaeval Guilds of England (1884). Seligman admired Burgess so much that he sent his son, Eustace, to Amherst College mainly because that was where Burgess was a student. Interview with Eustace Seligman, Sept. 3, 1974, Columbia Oral History Collections.
24 Joseph Dorfman, "Edwin R.A. Seligman," in Dictionary of American Biography vol. 12; Supp. 2 (1958), pp. 606-609; Rozwadowski, "From Recitation Room to Research Seminary," pp. 197-198.
25 Seligman, "The Political Influence of Mental Culture," unpublished paper, Box #58 -- Father, School, and College, ERASP; Leon Fink, Progressive Intellectuals and the Dilemmas of Democratic Commitment (1997).
26 P.S. Allen, "Course Notes -- Economics 203- 4," Box #52 -- Seligman, Joseph Dorfman Collection, Butler Library, Columbia University, New York.
27 For a selected bibliography of Seligman's scholarship, see G. Findlay Shirras, "Edwin Robert Anderson Seligman," Economic Journal (September 1939), pp. 577-589; for a more thorough, yet still incomplete listing of his writings, see Milton Halsey Thomas and Howard Lee McBain, A Bibliography of the Faculty of Political Science of Columbia University, 1880- 1930 (1931); "E.R.A. Seligman, Economist, 78, Dies," The New York Times, July 19, 1939, p. 26. For his role in the consumer credit study, see Lendor G. Calder, Financing the American Dream: A Cultural History of Consumer Credit (1999). During his retirement, Seligman sold his personal library to Columbia University for roughly $250,000; the collection became the greater part of Columbia's holdings in the history of economic thought. Columbia Library to Seligman, date unknown, Box #54 -- Miscellaneous, 1932-7, ERASP; Dorfman, "Seligman," p. 607.
28 Laurence S. Moss, "Seligman, Edwin Robert Anderson," American National Biography, vol. 19, pp. 620- 621; Mary K. Simkhovitch (former Seligman student and social worker), "The Humanitarian," in Edwin Robert Anderson Seligman, 1861-1939: Addresses Delivered at the Memorial Meeting Held on December 13th, 1939, in the Low Memorial Library at Columbia University (1942); Jane Addams and many other progressive social reformers were close personal friends of Seligman's; see Addams to Seligman, Cataloged Correspondence, ERASP.
29 Wesley C. Mitchell, "Tribute," in Edwin Robert Anderson Seligman, 1861-1939, p. 60; "In Memoriam," 54 Political Science Quarterly 3 (September 1939).
30 Moss, supra note 28; Seligman helped build the Political Science Quarterly by reaching out to well-known public intellectuals such as Sidney Webb and Carl Schurz for article contributions, see Schurz to Seligman, Jan. 8, 1887; Feb. 22, 1888; Webb to Seligman, Jan. 9, 1891, Cataloged Correspondence, ERASP. On Seligman's role in academic freedom cases both at Columbia and elsewhere, see John Dewey to Seligman, May 12, June 9, 1915, Sept. 25, Oct. 3, Oct. 11, Oct. 15, 1917, Cataloged Correspondence, ERASP; E. Benjamin Andrews to Seligman, July 28, 1897; John H. Wigmore to Seligman, Apr. 1, Dec. 8, 1916, Cataloged Correspondence, ERASP; Metzger, Academic Freedom in the Age of the University.
31 Charles Evans Hughes, "Letter," in Edwin Robert Anderson Seligman, 1861-1939; Eustace Seligman Interview, Sept. 3, 1974, Columbia Oral History Collections; "E.R. Seligman, Economist, 78, Dies," The New York Times, July 19, 1939, p. 26.
32 See generally David Montgomery, The House of Labor (1987); Walter Licht, Industrializing America: The Nineteenth Century (1995); Melvin Dubofsky, Industrialism and the American Worker, 1865-1920 (1975); P.K. Edwards, Strikes in the United States, 1881-1974 (1981).
33 Seligman, Two Chapters on the Mediaeval Guilds of England; "Owen and the Christian Socialists," 1 Political Science Quarterly 206-249 (June 1886).
34 Carl S. Shoup, "Seligman," in David L. Sills, ed., International Encyclopedia of the Social Sciences (1968); Frank Rozwadowski, "From Recitation Room to Research Seminar: Political Economy at Columbia University."
35 Pearson, "Was There Really a German Historical School of Economics?" 31 History of Political Economy 547 (1999).
36 Rodgers, supra note 21; Ross, supra note 9; Furner, supra note 9.
37 Arthur Hadley and Frank Taussig, two contemporaries of the "new school" economists, also studied in Germany but came away from their experiences with a very different attitude toward historicism. Furner, supra note 9, at 54-55.
38 Seligman, "Change in the Tenets of Political Economy With Time," Science -- Supplement, Apr. 23, 1886, p. 381.
41 William J. Novak, The People's Welfare: Law and Regulation in Nineteenth-Century America (1996). For more on the politically charged nature of the tariff, see Richard F. Bensel, The Political Economy of American Industrialization, 1877-1900 (2000).
42 Francis A. Walker, "The Principles of Taxation," 2 The Princeton Review (July-December 1880), pp. 93-94.
43 Henry Carter Adams, Taxation in the United States, 1789- 1816 (1884). For more on how Adams applied his version of historicism in analyzing the protective tariff, see Mehrotra, "Envisioning the Modern American Fiscal State: Progressive-Era Economists and the Intellectual Foundations of the U.S. Income Tax," 52 UCLA Law Review 1793 (2005), at 1826- 1827.
44 Seligman, Essays in Taxation (1895), pp. 70, 72.
45 Ely, Taxation in American States and Cities (1888), p. 13.
46 Seligman, Progressive Taxation in Theory and Practice (1884), p. 82. This treatise was based on some of Seligman's previously published work. See Seligman, "The Theory of Progressive Taxation," 8 Publications of the American Economic Association (1893); "The Theory of Progressive Taxation," 8 Political Science Quarterly 220 (1893).
47 Seligman, Progressive Taxation in Theory and Practice (1884), pp. 83-84. Protection was not the only government benefit that the poor received in greater proportion. Seligman described how nearly every aspect of state services could be seen as inuring to the benefit of the poor more than the rich. "The rich man sends his children to private schools and colleges, the poor man has his family educated in public schools," wrote Seligman. "The rich man has his street swept by a hired laborer, the poor man has his cleaned at the expense of the city." Id. at 83.
50 See Seligman's contribution to the discussion, "Federal Taxes Upon Income and Excess Profits -- Discussion," 8 American Economic Review 36, 42-45 (March 1918).
51 Seligman, The Income Tax: A Study of the History, Theory and Practice of Income Taxation at Home and Abroad (1914, 2d ed.), p. 4.
52 Seligman, "The Income Tax," 9 Political Science Quarterly (December 1894), p. 610.
53 During his retirement, Seligman sold his personal library to Columbia University for roughly $250,000; the collection became the greater part of Columbia's holdings in the history of economic thought. Columbia Library to Seligman, date unknown, Box #54 -- Miscellaneous, 1932-7, ERASP. See also Joseph Dorfman, "Edwin Robert Anderson Seligman," in Robert L. Schuyler and Edward T. James, eds. Dictionary of American Biography, vol. 22, 2nd Supp. (1958), p. 606-607.
54 Seligman, Economic Interpretation of History (1902).
55 Seligman, The Income Tax, supra note 51.
57 In fact, the issue of fairly and accurately administering an income tax has been a dominant issue in tax policy since the American origins of the income tax during the Civil War. See generally Joseph J. Thorndike, "Reforming the Internal Revenue Service: A Comparative History," 53 Administrative Law Review 717 (2001).
58 Seligman, The Income Tax, supra note 51, at 18.
59 See generally Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877-1920 (1982); Richard L. McCormick, The Party Period and Public Policy: American Politics From the Age of Jackson to the Progressive Era (1986); Joel Silbey, The American Political Nation, 1838-1893 (1991). For a recent review essay challenging the continuing dominance of the "party-period" paradigm for 19th century American history, see generally Richard J. John, "Farewell to the 'Party Period': Political Economy in Nineteenth Century America," 16 Journal of Policy History 117 (2004).
60 Ely, supra note 45, at 16.
61 Seligman, "The Theory of Progressive Taxation," 8 Political Science Quarterly 220, 222 (1893).
62 Rader, The Academic Mind and Reform, ch. 6; Furner, supra note 9, ch. 7.
63 Henry C. Adams, Science of Finance: An Investigation of Public Expenditures and Public Revenues (1898), p. 285.
64 Seligman, "The Theory of Progressive Taxation," 8 Political Science Quarterly 220, 223 (1893).
65 Alfred Marshall, Principles of Economics (1890); John Bates Clark, The Philosophy of Wealth (1886). See also Ross, supra note 9, at 172-175. Joseph Schumpeter identified Clark as "the master of American marginalism." Joseph Schumpeter, History of Economic Analysis (1954), pp. 868-870. For more on the rise of marginalism, see generally "Papers on the Marginal Revolution in Economics," 4 History of Political Economy 503 (1972).
66 T.N. Carver, "The Ethical Basis of Taxation and Its Application to Taxation," 6 Annals of the American Academy of Political and Social Science (July 1895), pp. 97, 99.
67 Id.; F.Y. Edgeworth, "The Pure Theory of Taxation," 7 Economics Journal (1897), p. 550. For a comparison of Carver and Edgeworth and their views on progressive taxation, see Hovenkamp, supra note 12, at 1002-1008.
68 Seligman, Progressive Taxation in Theory and Practice, supra note 46, at 199.
69 Seligman, "The Theory of Progressive Taxation," 8 Political Science Quarterly 220, 245-246 (1893).
71 Seligman, supra note 46, at 200.
73 Seligman, supra note 54, at 131.
74 Hovenkamp, supra note 12, at 1008-1009. Since "Seligman's books on taxation read as much like legal treatises as economic texts," writes Hovenkamp, "they seemed to the courts to be as much 'law' as 'economics'." Id.
75 Seligman, "Is the Income Tax Constitutional and Just?" 19 Forum 48 (1895). Pollock has been both vilified by an older generation of scholars as an example of conservative constitutionalism, and acknowledged more recently by revisionist historians as a potential Jacksonian attack on congressional efforts at maintaining "state capitalism." For the former, see Robert G. McCloskey, The American Supreme Court (1960), pp. 140-144; Sidney Ratner, Taxation and Democracy in America (1967), pp. 193-214; Arnold M. Paul, Conservative Crisis and the Rule of Law: Attitudes of Bar and Bench, 1887-1895 (1969). For an example of the revisionist view, see Robert Stanley, Dimensions of Law, pp. 136-175.
76 Clarence Seward to Seligman, Jan. 22, Jan. 28, 1895, Uncataloged Correspondence, ERASP.
77 In his treatise on the income tax, Seligman subsequently wrote "there was no agreement at all as to the use or meaning of the newer term, 'direct tax,'" during the period leading up to the Constitution. "As a matter of fact, the term was scarcely employed at all before 1787." Seligman, The Income Tax: A Study of the History, Theory, and Practice of Income Taxation at Home and Abroad (1911), p. 561.
78 In their brief on behalf of the taxpayer, Seward and his colleagues claimed that "at the date of the Constitution, the words 'direct taxes' and 'indirect taxes' were household words. . . . They are to be found in the literature of the period. They had been used in Europe as meaning taxes which fell directly upon property and its owner, like a land tax, or a tax on incomes." Argument of Mr. Seward in the Income Tax Cases, 1895, in Phillip B. Kurland and Gerhard Casper, eds., Landmark Briefs and Arguments of the Supreme Court of the United States: Constitutional Law, vol. 12, Pollock v. Farmers' Loan and Trust Co. (1895) (1975).
79 James C. Carter to Seligman, Mar. 20, 1895, Uncataloged Correspondence, ERASP.
80 Hylton v. United States, 3 Dall. (3 U.S.) 171 (1796); Pacific Insurance Co. v. Soule, 7 Wall. (74 U.S.) 433 (1868); Veazie Bank v. Fenno, 8 Wall. (75 U.S.) 533 (1869); Scholey v. Rew, 23 Wall. (90 U.S.) 331 (1874); Springer v. United States, 102 U.S. 586 (1881).
81 Seligman, supra note 75.
82 David A. Wells, "Is the Existing Income Tax Unconstitutional?" Forum 18 (1895), p. 537.
83 Seligman, supra note 75.
85 Charles Evans Hughes to Seligman, Apr. 4, 1904, Cataloged Correspondence, ERASP.
86 Article XVI, U.S. Constitution.
87 In his speech, Hughes proclaimed that placing "the borrowing capacity of the State and of its governmental agencies at the mercy of the Federal taxing power would be an impairment of the essential rights of the State which, as its officers, we are bound to defend." State of New York, Senate, Special Message from the Governor Submitting to the Legislature Certified Copy of a Resolution of Congress Entitled "Joint Resolution Proposing an Amendment to the Constitution of the United States," Jan. 5, 1910, p. 3.
88 "Root on Income; Senator Upholds Levy in Letter to Albany Solons," The Washington Post, Mar. 1, 1910.
89 John Buenker, The Income Tax in the Progressive Era (1985), pp. 278-280.
91 Seligman, "The Income Tax Amendment," 25 Political Science Quarterly 193 (June 1910), at 214.
93 "Corrects Hughes on Income Tax," The New York Times, May 21, 1911, p. 12; "Says Hughes Made Mistake," The Washington Post, May 21, 1911. Buenker, supra note 89, at 286-288.
94 Buenker, supra note 89, at 288. During that same testimony, a Republican member of the Judiciary Committee attempted to impeach Seligman's expertise in taxation. Holding up a public finance text, he asked the professor whether he had read the whole book through. The question caused a great deal of amusement among onlookers, and some embarrassment for the legislator, when he realized that he was holding up one of Seligman's own treatises. Id.
95 Seligman, supra note 55, at 595-610.
96 "Corrects Hughes on Income Tax," The New York Times, May 21, 1911, p. 12; "Says Hughes Made Mistake," The Washington Post, May 21, 1911.
97 240 U.S. 1 (1924).
98 Robert Murray Haig, A History of the General Property Tax in Illinois (University of Illinois Studies in the Social Sciences, 3:2-3, March-June 1914).
99 Haig to Seligman, Aug. 1, Aug. 17, Sept. 6, 1917; July 22, July 30, 1919; Sept. 6, 1937, ERASP.
100 Haig, "The Concept of Income -- Economic and Legal Aspects," in The Federal Income Tax, ed. Robert M. Haig (1921), pp. 1-28.
102 Id. at 27 (emphasis in the original).
103 See Seligman contribution to "Federal Taxes Upon Income and Excess Profits -- Discussion," 8 American Economic Review 36 (March 1918). Despite conceding that the benefits principle could still explain the need for fees and special assessments, Seligman boldly proclaimed that the ability to pay theory had vanquished the benefits principle when it came to tax policy discussions. "No achievement of modern finance is more enduring and certain than the distinction that has been made by economists and lawyers alike between special assessments and taxes," wrote Seligman. "And nothing is more firmly established than the substitution of the ability theory for the old benefit theory in taxation." Id.
104 By 1954 individual and corporate income taxes accounted for more than 70 percent of total federal government revenue. Historical Statistics, p. 1105.
105 In 1955 Nicholas Kaldor took it for granted that "[t]axation according to ability to pay for the last hundred years or more has been a universally accepted postulate, not only among political and economic writers, but amongst the public at large." Nicholas Kaldor, Expenditure Tax (5th ed., 1969), p. 26.
106 Utz, supra note 8.
107 For the classic case for a consumption-based tax system, see, e.g., William D. Andrews, "A Consumption-Type or Cash Flow Personal Income Tax," 87 Harvard Law Review 113 (1974).
108 Utz, supra note 8, at 877 ("ability to pay, when disconnected from the utilitarian analysis of welfare, provides a compelling guide to at least some income tax issues, although on the whole its results are indeterminate").
109 The larger work in progress, from which this article is derived, explores the multitude of forces that affected the emergence of this new fiscal polity. For an earlier version of this project, see Ajay K. Mehrotra, Creating the Modern American Fiscal State: The Political Economy of U.S. Tax Policy, 1880-1930 (2003) (unpublished Ph.D. dissertation, University of Chicago).
110 Seligman, "The Income Tax," 9 Political Science Quarterly (December 1894), p. 610.
111 See, e.g., Stanley, supra note 3.
112 See supra note 4. Although a limited return to the benefits theory may be useful in retaining the current corporate income tax, a wholesale acceptance of the quid pro quo notion underlying the benefits principle would surely restrict the scope of the modern regulatory and administrative social-welfare state.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.