This is an outstanding book. Joseph Thorndike ambitiously summarizes over thirty years of proposed and enacted tax reforms, with particular focus on the policies of Franklin Roosevelt as governor and president. Thorndike traces the ideological origins and evolution of policies through their enactment and, in some cases, their eventual demise in Congress. The narrative is supported with a tremendous amount of historical scholarship. Thorndike also does his readers a favor by writing in the exact opposite style of the tax bills he summarizes; his clear, entertaining writing had this reviewer turning the pages quickly.
Thorndike analyzes FDR because he left perhaps the most lasting impression on the federal tax system of any president. This is not just because he was in office longer. FDR is said to have taken the federal income tax from “class tax” to “mass tax.” The “soak-the-rich” income tax from 1913 through Hoover featured high exemptions that had only 5 to 10 percent of Americans paying any income tax. The number of individuals filing tax returns went from around 5 million in the 1930s to around 45 million after the Revenue Act of 1942. FDR did this for a combination of reasons, but mainly, the government badly needed to raise more money and could do so with relative political ease during wartime. If soldiers abroad could give their lives for their country, those at home could pay a little income tax.
Of course, FDR didn't have to include the masses via the income tax. The vehicle could have been excise taxes or a national sales tax. And there were a variety of excise taxes. Thorndike explains the balance between all of these approaches quite masterfully. The narrative includes the words of members of Congress, the Treasury Department, the White House, as well as business leaders, labor groups, and newspapers. Impressively, Thorndike, whose background is in history, includes the opinions of economists at the time, as well as evolved opinions today. This is particularly important when discussing the perceived link between deficits and growth in the years following the crash of 1929. Economists had varying opinions at the time, as they do today, but Thorndike writes that preferring higher debt over higher taxes in the short run was a very new idea. Top economists often openly wondered about questions of tax incidence when they would be less puzzled today. FDR and these economists also struggled with the conflict between using broad-based sales or excise taxes to promote a sense of inclusion in the nation's tax system, and the regressive nature of these taxes. It is difficult to think of any viewpoint or influential factor that Thorndike's storytelling is missing.
Storytelling is the main element of the book. No model of optimal taxation and no analysis of behavioral response appear, or whatever else you might expect from an economist. This is not a fault. Economists are always in search of the great natural experiment, and books like these will shed light on possibilities. The Revenue Act of 1924 featured a showdown between Beardsley Ruml, New York Federal Reserve director and Macy's executive, and FDR. Thorndike's account of this is good fun to read. Before this tax bill, there was no withholding of income taxes; whatever was owed in one year was paid in the next. This would be changed to provide revenue from increased rates and lowered exemptions to the Treasury more quickly, among other reasons. Ruml did not oppose this, but he did want the taxes of 1942 forgiven, so that taxpayers would not be taxed twice in one year. FDR contended that they would not be taxed twice in one year; it was just a movement forward. Ruml countered that this revenue would only be missed by the government from the vantage point of Judgment Day, and that the taxpayers owing money would be unable to pay in that instance anyway (p. 255).
That being said, the book's omission of any tables, graphs, or figures is both strength and weakness. Thorndike correctly understands that a table of top marginal rates over the first half of the twentieth century is not tax history. But since Thorndike's work is so comprehensive, covering enacted and failed proposals, it becomes difficult to remember the tax system in effect at the time of the next proposed reform. While income, excise, and estate taxes are among the major sources of federal revenue, it is hard to understand the scale of these taxes, both in relation to each other and to total national income. But it is not as if these figures are unavailable elsewhere. Tax analysis has a reputation for being a collection of boring tables in heavy volumes, and you can have those volumes at your side for reference as you wander Thorndike's beautiful prose uninhibited.
These small omissions probably make the book more accessible to the public. FDR wanted as many citizens as possible to feel connected to their nation's revenue raising apparatus. Thorndike provides them with a nonpartisan book will help them understand just why it feels the way it does.
