75 Pages Posted: 2 Aug 2005 Last revised: 13 Jun 2013
At the turn of the twentieth century, the U.S. system of public finance underwent a dramatic, structural transformation. The late nineteenth-century system of indirect taxes, associated mainly with the tariff, was eclipsed in the early decades of the twentieth century by a progressive income tax. This shift in U.S. tax policy marked the emergence of a new fiscal polity - one that was guided not simply by the functional and structural need for government revenue but by concerns for equity and economic and social justice. This Article explores the paradigm shift in legal and economic theories that undergirded this dramatic shift in U.S. tax policy. More specifically, this Article contends that a particular group of academic economists 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 ability to pay - a principle that promoted a more active role for the state in the distribution of fiscal burdens. In facilitating this structural transformation, these theorists were able to use the growing concentration of wealth and the ascendancy of new economic ideas as justifications for using a progressive income tax to reallocate the burdens of financing the burgeoning American regulatory, administrative, and welfare state.
Keywords: American history, tax policy, history of economic thought
JEL Classification: B15, K34, N41
Suggested Citation: Suggested Citation
Mehrotra, Ajay K., Envisioning the Modern American Fiscal State: Progressive-Era Economists and the Intellectual Foundations of the U.S. Income Tax. UCLA Law Review, Vol. 52, p. 1793, 2005; Indiana Legal Studies Research Paper No. 30. Available at SSRN: https://ssrn.com/abstract=772724