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Wednesday, June 11, 2014

Making the Modern American Fiscal State, Central Themes and Claims


First, let me begin by thanking Matt Bodie and the other folks at PrawfsBlawg for hosting this online book symposium, and the readers for their insightful commentaries.  Many of the readers/commentators have seen this book project evolve over time and I’ve learned immensely from their earlier feedback and their own scholarship.  I’ve also enjoyed reading the other book club posts at this blog, and I’m honored and delighted to have the opportunity to discuss my new book with PrawfsBlawg readers.

With this initial post, I thought I’d try to address some of the book’s more general themes and central claims – many of which have already been eloquently summarized by several of the commentators.  I’ll follow up soon with a second post addressing some of the more, historically-specific questions posed by the readers and comments.

So, let me begin by addressing two key issues drawn from the commentators’ posts: (1) the political consequences of the rise of the modern fiscal state – intended and unintended; and (2) the importance of crisis and contingency – as they relate to theories of historical change.

Political consequences – intended and unintended.  Steve Bank accurately notes that the reformers and state-builders who are the key protagonists of my story were seeking to create a moderate fiscal state.  Although there were calls from the far left for more radically redistributive taxes, it was the middle-ground progressive activists, thinkers, lawmakers and administrators who ultimately prevailed.  One reason they did so, as Matt Lindsay notes in his commentary, is because they had to work within the confines of an American political culture that was suspicious of centralized state power.  The existing historiography tends to overemphasize, in my view, the strength of this anti-statist strand of American politics.  And thus one of the main objectives of my book is to show that turn-of-the-century progressive reformers were able to take advantage of economic crises and national emergencies to overcome conservative resistance and create a more social-democratic fiscal state.  Indeed, Thomas Piketty seems to agree that the United States in the early twentieth century was pioneer in adopting direct and graduated taxation.

In this sense, I do not believe that many of the historical actors in my account intended the new tax regime to be a temporary or fleeting part of the revenue system.  To be sure, they advocated graduated income and wealth-transfer taxes as a counter-balance to the regressive incidence of the existing regime of national tariffs and excise taxes – at a time (the first Gilded Age) when American society was riddled with massive economic inequalities.  But many of my historical characters contended that this new tax system would be essential for much more than just raising revenue or recalibrating the distribution of tax burdens.  They sincerely believed that taxes, as part of the social contract, could also reconfigure notions of civic identity – or what I refer to as “fiscal citizenship.”  Many of them also came to see direct and progressive taxes as a way to shape political institutions by building a vital administrative infrastructure, as Nick Parrillo has observed in his comments, and as he has argued in parts of his recent book.  These were the intended consequences of the progressive fiscal state-building agenda.

But there were also several unintended consequences.  Indeed, one of the great ironies that frame the book is how the so-called “success” of the “ability-to-pay” logic supporting the progressive income tax may have forestalled a more holistic American understanding of the tax-and-transfer process. In the book, I argue that by rejecting the “benefits theory” of taxation and exalting the “ability to pay” rationale, reformers severed the link between state spending and revenue generation. By stigmatizing nearly all consumption taxes as regressive and outdated expressions of the benefits principle, they limited the imagination of future American tax theorists and reformers.  By defining fiscal justice exclusively by the progressivity of a tax system based on ability to pay, reformers created what I refer to as a kind of “fiscal myopia” that foreclosed the consideration of broad-based, European-style consumption taxes as a means to finance modern social-welfare spending.  Thus, one of the “presentist” upshots of my book, as Susie Morse and Reuven Avi-Yonah note, is to explain how the origins of our current tax system may partially explain why the U.S. tax system, which lacks a value-added tax (VAT), is such an outlier compared to its OECD counterparts.  Incidentally, in the book’s introduction, I gesture toward how intellectual currents may have contributed to other causes explaining why the U.S. has not adopted a VAT.

Matt Lindsay acutely notes another irony or unintended consequence in my story.  By referencing the recent “you didn’t build that” controversy, Matt makes a great case for how “the defeat of the benefits theory a century ago has made it possible to deny any element of reciprocity, and thus to assert a kind of fiscal atomism that’s more strident than ever.”  I think he is absolutely correct.  But I’m not sure if this is a legacy of the progressive period, or whether it is a representation of a more recent fiscal transformation.  As I try to explain in the book’s conclusion, I believe that since the 1960s, we have entered a new fiscal epoch – one in which there is a diminished sense of social responsibility and democratic obligation.  Whether we refer to this period as an era of Bowling Alone or as Age of Fracture, there’s no denying that we’ve witnessed the growing disintegration of the social.  In this sense, my book is really about a lost moment in American history – a moment when progressive reformers, thinkers, lawmakers, administrators and ordinary citizens believed in social solidarity and collective obligations.

Crisis and contingency – theories of historical change.  In his thought-provoking commentary, Nick Parrillo has pushed me to elaborate on my theory of American political development, or more broadly on my understanding of historical change.  Nick and Susie both correctly observe that WWI is in some ways the climax or linchpin of my story, but that I’m also resistant to the conventional account of war as the handmaiden of state-formation (a la Charles Tilly, et al.).  Indeed, just as I am skeptical of the existing literature’s overemphasis on American anti-statism, I have been equally uncomfortable with the claims of historical social scientists that “war makes states” (Tilly 1985).  Thus, the book tries to show that war is not simply an exogenous variable that ineluctably determines the size and shape of nation-states.  In contrast to this Darwin logic of natural selection, I try to show how social movements, political activists, public intellectuals, power lawmakers, and key government administrators all engaged in a highly contested, contingent, and uncertain battle over the ideas, laws, and institutions that would come to define the new fiscal polity.

Still, one may wonder, as Nick does, whether my account would have been dramatically different if the United States had not adopted the intellectual and legal foundations for direct and progressive taxation before the national crisis of the Great War.  Nick poses just such a counterfactual.  This is an intriguing question.  And as Nick no doubt knows historical counterfactuals can be both illuminating and dangerous.  If I had to guess, I would think that the U.S. would have adopted a more moderate and perhaps temporary income tax, based on the Civil War precedents, to raise the revenue to wage a global war.  The other options seem less likely. 

All this, of course, raises the central question whether my historical narrative is in tension with my theory of historical change.  Susie and Nick have both pushed me to re-examine whether war is or is not the explanatory variable.  To answer this critical question, I think one needs to draw a distinction between fundamental causes of historical change versus triggering or catalytic events.  As I see it, the fundamental causes of the fiscal transformation I have set out to explain were afoot well before the war emergency: the pre-crisis conceptual shift, which itself was rooted in the rise of industrialization and a more interdependent society; a constitutional amendment (16th); a new legislative basis; and the beginnings of an administrative apparatus – all these were the drivers of the fiscal revolution.  The war was mainly a triggering event that accelerated a process that had begun much earlier.  I’m not sure if I make this distinction between causes and triggers clear in the book, but this might be one way to reconcile my historical account with my theory of American political development.

In my next post, I hope to take on the more specific questions raised (or yet to be raised) by my thoughtful interlocutors and any other commentators.


Posted by Ajay Mehrotra on June 11, 2014 at 04:40 PM in Books, Tax | Permalink


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