When lawmakers met progressives. Debating the American federal income tax of 1894

Abstract

In 1894 the American Congress passed a 2% tax on incomes over 4,000 US dollars, as part of a bill seeking to reduce tariffs. Transformations in the American society after the Civil War triggered an increasing role of the State, calling for a tax reform. Concerned for tax justice, progressive economists sponsored a tax system grounded on ability to pay, demanding an income tax. Farmers and the working class joined this demand, feeling that American tax system was harmful to them. The decade of 1890 consolidated this opinion, leading a majority of lawmakers at the House to embrace the idea of a federal income tax. Even if struck down by the Supreme Court, the federal income tax of 1894 was an economic milestone in the Progressive Era, mirroring new social concerns. This paper examines the debates on the income tax in the House, with a twofold conclusion. First, representatives accepted the arguments of progressive economists for tax reform and used them in the discussion. Second, political economy played a central role in the debate as an instrument to confer legitimacy and reputation to representatives’ arguments for the income tax, and crucially aided in the building of consensus for the reform.