Thank Goodness for FDR's Tax Cut

0:00My topic today is a little curious. It's called, Thank Goodness for FDR's Tax Cut. That's a little bit more than curious, because FDR never actually had a tax cut. So this is going to take some explaining to do, but eventually I'll get around to it. to it. And actually, I do have a couple of journal articles that if you're really interested more in the topic, from the Journal of Libertarian Studies, which really go into this issue that I'll be dealing with here today, in much greater depth. Now, one of the reasons we're all here, of course, is that the constant harp from state, county, local and federal officials and federal officials for more taxes, they need more revenues, the federal government needs more revenues for these problems and more revenues for social security, more revenues to fight this war, that war and the next war, and of course the same thing at the state level, we don't have enough money for education and welfare and blah blah blah blah blah, and at the local level you hear the same thing, every year, every cycle, local, county, town officials are calling for some form of revenue

1:21New Enhancement, so that they get to spend more of your money. Well the body of my talk is going to be really a look at two American tax revolts. When Americans said enough is enough, we've been overtaxed and we're going to do something about it, we're going to take this into our own hands. But first I want to take a minute and look specifically at the trouble with taxation. Why is taxation trouble? These public officials and special interest groups don't view taxation as trouble. They view it as the solution to all of at least their problems.

2:10They view it as a great thing. If we can just transfer resources to the public sector, we can make society much better off. And from the Austrian point of view, that's just simply not correct. There is real trouble with taxation. Really with all taxation, it's just the more taxes there are, the more trouble there is in society, and I think this is, of course, one of the great lessons of Charles Adams. The first point that we want to make is that taxation is theft. Now, a lot of people like to cover that over. A lot of people like to excuse the fact that taxation is theft. A lot of people think it's okay if they get a piece of the pie or if they get a vote in the matter. And that's all. You can think whatever you want. But you cannot erase or or resolve the problem that all taxation is theft.

3:10It involves a coercive activity where one person's resources are being taken and given to someone or some other group to use for their own purposes. Whether or not that purpose is good or not is another matter. And the fact that, as suggested last night by Thomas DiLorenzo, that 45% of all the dollars In our country, go through this process of taxation and redistribution is a problem. The fact that our society has become 45% coercive is a real problem for what is otherwise supposed to be a free society.

3:57I was in a government bureaucracy this week and I overheard the bureaucrats who were supposed to be helping me, I'm going to talk about the IRS and the IRS and the IRS. The IRS was one of the first people to have come to help me. They were really interested in helping me, but were really more interested in what they were doing on their personal lives. One of them said something to the effect that the IRS is going to help you out. And that really caught my attention. And it must've been some boondoggle for state employees, I'm sure. And I turned to him and I nodded yes. That's exactly what they do. They help you out of your money. And there's an underlying systemic problem with that sort of society.

4:43The second point that I like to raise with regard to taxation is what I call Thornton's Law. And this is an economic law which says that taxation discourages the production of everything that they are placed on. So if you tax labor, you get less work. If you tax savings, you get less wealth creation. If you tax investment, you get less capital investment, and so on. So that the more taxes we have, the less real goods and services, the less food, clothing, Walter, transportation, medical care, we have, okay, and I was describing this in my Principles of Economics class, and I said that this is a law of economics, and the first thing they wanted to know is what's it called, because in my Principles of Economics class, I talk about economics as the law of economics, the law of supply, the law of demand, Say's law, and so on.

5:54and I also have a lot of test questions on anything that's a law. They have to know what it's called, how it works, why it always works, and so on. And so they immediately raised their hand and said, well, what's this law called? And so I said, at that point, I said, it's called Thornton's Law. And I have homesteaded this and have not been challenged for over five years so it's permanently mine and I think it's important to become famous one of these days but it is important I mean if you realize the fact that it's not just taking one of your dollars and giving it to the government no there's an incentive have effect there, so that it's not just a transfer, but there's fewer resources in society.

6:51It's like if the government needs a car, the government takes two cars, cuts them in half, puts them one together and throws the other half away. We're losing resources in this process. Waste and Distortion. Waste and distortion, you all know about the time and trouble involved in doing your taxes, the distortion of our choices regarding housing, regarding borrowing and savings, inheritance, shipping jobs overseas now, there's really no end to the type of distortions in our decisions and the simple fact that we're not free to make the types of decisions that we'd like to about where we live, how we live, how many children we have and so on.

7:49It's ridiculous for the government to be involved in that kind of thing. And taxation is really a major fulcrum on which our decisions are biased and altered. And then we also have to raise the point, is it worth it? What is it that the government does that's so essential? What is it some people consider government indispensable, but what exactly is it that it does so well or would not be done by the private sector in the absence of government? Public education was considered indispensable and now it's completely falling apart.

8:35Education and literacy in the United States is both falling as a result of widespread public education. National defense, the United States spends gazillions of dollars and the simple fact The fact is that this country really doesn't face any real military invasion type threat that requires a half a trillion dollars of expenditures. Regulations were just exposed and this really comes about every week. We don't really, I'm just going with the sort of the thing of the week. The FDA, we find out that they've been protecting drug companies who are basically, they're giving the good housekeeping seal of approval on drugs, where the cost and dangers and risks are greater than the benefits, and the FDA has basically been keeping that from us and covering it up.

9:36And now we're told by experts and even the president that Social Security is in serious of Bankrupting the Country. So something that was supposed to provide for our social security now. Most experts agree we face a bankrupting of our nation out about 20 years. So the conclusion here that we basically come to is that taxes make us poor over time. Okay, and all that this clamor for more taxes and new taxes is really a clamor for more poverty and more problems and that's the way it should be viewed. And whereas taxes make us poor, tax cuts, tax cuts actually leads to prosperity.

10:27Tax cuts or eliminating types of taxes leads to higher standards of living. When this all gets to the matter of the thesis of Charles Adams, who has brought so much attention and evidence to these points, is that taxes have an important impact on the course of our civilization. In the last lecture, for example, about Thomas D. Lorenzo, Lincoln and the tariff war and the civil war, and then ultimately what happened to this country as a result of the civil war is a prominent example there. But Charles Adams also tells us that tax rebellions or tax revolts are really one of the keys to American civilization and American freedom.

11:20This country was born of a tax revolt and it has continued with a series of tax revolts and yet history has basically, those aspects of tax revolts have been erased from the history books and it's all been rewritten so that the American Revolution wasn't really about taxes, it was about democracy and the Civil War wasn't about tariffs, it was about slavery and all of these other tax revolts were just silly nonsensical, you know, people getting out of control, drinking too much and fighting No. Charles Adams shows that they were real, that they were important, that they were effective. And that's what I'm going to talk about today, a tale of two American tax revolts.

12:07The first one is centered right here. In Charlottesville, Virginia is really what I consider the epicenter of one of the most important tax revolts in our history. but again one that was covered up. This is one that was mentioned by DeLorenzo. It's called the Whiskey Revolt of the 1790s. Now I know the standard story has it that the Whiskey Revolt occurred in four Western counties in Western Pennsylvania on a given month in a given year, but that's actually not the case. The whiskey revolt revolution was actually in a number of states including Western New York, Western Pennsylvania, Virginia and West Virginia, what is now West Virginia, Kentucky, Tennessee, North Carolina, North Georgia, and North South Carolina. So it was widespread throughout the entire backwoods country of America.

13:17It was in opposition to the excise tax on alcohol imposed by the federal government. It had a very big impact, but it was almost entirely one of a nonviolent nature. Tax revolts are very often of a nonviolent nature of one of civil disobedience. It's just that in most of these places, the public officials went along with the revolt. They didn't even try to collect the taxes. So the official story has this rebellion occurring in four counties in western Pennsylvania, but actually it was only, that's only because in the Pittsburgh area, public officials were willing to try to collect the tax.

14:08That was the only place in the backwards areas of the United States, which is where the alcohol was being produced. Were they willing to even try to get that alcohol? The rebels harassed the public officials who tried to collect the tax. They sacked their houses and in a few cases, tarred and feathered the officials. This led Alexander Hamilton to suggest to President Washington that he lead an army into western Pennsylvania to crush the rebellion. Rebellion raised an army of over 13,000 soldiers and led it into Western Pennsylvania. To give you some idea, Murray Rothbard calls this the largest army ever assembled on the North American continent up until that time.

14:57Thirteen thousand would have been greater than the number of militia-aged males existing in the entire Western Pennsylvania area. The rebellion did melt away, a few rebels were arrested, two were tried, none were convicted or punished. But this show of force didn't lead to the collection of any excise taxes. So this big show of force didn't actually crush the revolt. It set it down while the soldiers were there, but as soon as the soldiers were gone, people The whole thing turned out to be quite a scam. It turned out very well for President Washington, who was the largest landowner in the western territories, as before the American Revolution, he was a western surveyor, and he would periodically go out and claim huge areas of land for himself.

15:59One story has it that at one point he waved his hand at the edge of the Ohio River and claimed all of the area west of the Ohio River for his own personal property. That didn't work, but he did have a lot of land and the soldiers had a lot of money out there. I mean, after all, they were spending almost all of the Federal Treasury to get this army The Coincidence was certainly a pro-pipitous one for his finances, and Washington himself said that this event, having happened at the time it did, was indeed fortunate.

16:49Okay, so while the army was a failure, the rebellion had another big impact. It turned Americans against government in huge numbers. And this again brings us back to Charlottesville. Not only was it the geographic epicenter of this revolt, but it was in a sense the political outcome as well, because the Anti-Federalist Americans, the back country Republicans of America turned out against the Federalist Party that imposed this tax. And so in the election of 1800, the Democratic Republican Party crushed the Federalist Party out of existence, basically, and that all hinged on the fact of these excise taxes and the whiskey revolt. It's considered a tight election. Jefferson was number one in the voting, Aaron Burr was number two, and it took 21 votes in Congress to actually decide who was going to be president and who was going to be vice president. So the history The history books sort of picture this as a close election, but it was actually quite decisive because Jefferson and Burr were in the same party.

18:16So the Federalists didn't even come in second place. They were all down in third and fourth place in this election. So Jefferson destroyed the Federalist party, and when he got into office he wiped out the excise tax on alcohol. Law, in fact he wiped out almost all internal taxes, all excise taxes, wiped out most of the debt, he wiped out most of government cut back military spending and the people loved it and the economy benefited greatly as a result. The biggest problem of course was that the impact of the tax revolt had been lost in our history books. Now, with FDR we have an entirely different story and I guess I come at this issue with the puzzle of why everybody liked Franklin Delano Roosevelt.

19:14I come from New York State and he was a beloved figure and still is in New York State. He was the governor of New York and of course is really an icon and then when I moved to Auburn, Alabama, I found out that not everybody really likes FDR. So this is a big shock, a very big shock, but I've come around to the more southern view on this. As a matter of fact, at our last conference, there was somebody with a bumper sticker there FDR, no longer the worst president in American history It's too bad they weren't for sale And everything that FDR is known for, World War II, the New Deal, and the Great Depression The Great Depression, you know, everybody points to that's why he's so great, but those three things are really bad things.

20:18I mean, we didn't get out of World War II until after he died. The New Deal is all bad from an economic point of view. And, you know, everybody says he got us out of the Great Depression, but, I mean, we were in the Great Depression for his entire presidency. and we didn't really get out of the Great Depression until after he died, so I have a hard time believing that those were the reasons, you know, for his fame with the American people. So, but what I have found is some interesting, I think some interesting information.

21:08David Bito published a book in 1989 published by the North Carolina University Press called Taxpayers in Revolt, Tax Resistance During the Great Depression, in which he showed that America was basically up in arms after the stock market crash in 1929 till 1933. Taxpayer resistance groups got started all over the country. People were refusing to pay their property taxes in cities and counties across the United States. People refused to have their properties foreclosed. Sheriffs would come out and people would have guns and all All their friends with their guns and the sheriff would say, I'm supposed to foreclose and they would say, well, try.

21:59And even when they did allow to have their property foreclosed, everybody in the area would basically agree that one of their friends would buy the property for a dollar and give it back to them at the auction. So that even if they did foreclose, you know, they would ultimately get the property back for a dollar and all their tax bills would be absolved. So people were in cahoots against the government and against taxes. And then in Vito's book in 1933, the tax revolt simply vanished, almost without a trace. attacks another tax revolt that vanished down the memory hole of American history.

22:46The author Beto attributes this to a lack of organized and a lack of ideological backbone in the American people. This, of course, is a true problem of all tax revolts, the lack of organization and the lack of an ideological backbone, I don't think that explains why everybody would lose their backbone all at the same time in 1933. The way I try to explain this is looking at the public finance of the age. Local government grew extremely fast during the 1920s, financed almost exclusively with the property tax. Tax. The Great Depression hit and taxes on the American population doubled as a percentage of their income. Their income was falling, taxes were continuing to rise, and so you can imagine taxes at the local, state, and federal level doubling over a four-year period.

23:51So there's good reason for a tax revolt. Tax delinquency on property taxes increased from 10% to 30%. There was increases in bankruptcy by the American people and so there's good reason for these tax protest groups to form spontaneously around the country in the hundreds of groups containing very often thousands and thousands of members, urban and rural but no national leader. Incomes Prohibition. Incomes the issue of Prohibition and FDRs, ultimately what I call his tax cut. The income tax allowed Congress to abandon the alcohol tax via Prohibition.

24:41In other words, as the income tax came in during the 19-teens and started generating and Revenue. By 1920, Congress had enough revenue so that they could abandon alcohol taxes, which made up a substantial portion of federal, state and local revenues.

25:05The income tax revenue continued to soar. It covered the foreign war, the alcohol war and Big Government. When the Great Depression hit in 1929, 1930, the income from the, excuse me, the revenue from the income tax fell by 60 percent. FDR, in the campaign of 1932, was forced to convert from a dry, or somebody who supported Prohibition to Becoming a Wet, and he did this apparently in a hotel room in Chicago, was forced by his advisors, and at that point he got the nomination for, the Democratic nomination for president, and he won, and he supported repeal of prohibition.

25:55Notice that prohibition of alcohol also wipes out all local and state revenues from alcohol, and it's hard to imagine but a huge portion of our government was actually financed by alcohol. Local government for example received excise taxes and sales tax revenues for both local and county so when repeal of prohibition went into effect the coffers of local governments started to fill up again from these alcohol revenues. State governments also had liquor taxes and they also had Liquor Monopolies and this helped fill up state coffers with revenue and states actually began turning over some of this money to local governments and then of course the federal government also has alcohol taxes so all three levels of government when prohibition was repealed started to getting new sources of funds so what I'm arguing here basically is that repealing prohibition was one way of helping to put down the tax revolt because every all levels of government were strapped for funds people were opposed to more taxes repealing

27:18prohibition and taxing alcohol was a way out there's a way to solve all problems at Once, and this ultimately is one of the things that made FDR so popular. In the area of property taxes and the tax revolt, local governments suspended property tax collections, they cut back rates, they had tax holidays, and they lowered assessment levels. So, in all these areas where there were tax revolters, in 1933, 1932 and 1933, they got tax relief. For alcohol consumers, it was a big boon as well. The price of alcohol was as much as 400% higher during Prohibition as before.

28:09So by repealing prohibition and putting alcohol taxes in place, they helped out both the alcohol consumer and local state and federal government at the same time. That fall in price, for example, generated what would in effect be a tax cut equal to 2.5% of gross domestic product. Well is that important in the overall picture of the economy back then as well as today that if you reduce the price that greatly by 100% in effect or excuse me by 50% in effect, you give the economy a 2.5% tax cut.

28:57Today that would be the equivalent of about $275 billion or about $4,000 per household. So it's a significant tax cut in that sense. And the third aspect of the victory was that there were many property tax limitations put into place around the country. In other words, states would adopt constitutional amendments which would restrict the ability of State and Local Governments to increase property taxes or to put upward limits on what those property taxes could be. And actually revenues from property taxes fell in a number of states. So we see that this was an important tax event, a tax revolt, except in this case Instead of bringing Thomas Jefferson to the presidency, it brought Franklin Delano Roosevelt to the presidency.

29:58And there were other drawbacks. States adopted sales taxes and income taxes in order to avoid the property tax. Local governments became dependent upon the federal and state governments for their grants and aid. The cities were strapped for cash so the state and federal governments started giving them money to make up for some of these programs and city governments or local governments have become dependent upon the upper levels of government and Glenn Fisher, one of the big experts in this area, said that the overall government as a result has become more centralized And of course, the worst of all side effects of this tax revolt were FDR's popularity.

30:50I attribute a lot of FDR's popularity to the fact that he solved this tax revolt for government and he ended prohibition of alcohol. Comparing and contrasting these two tax revolts, one of the things we find is that tax revolts have gone down the historical memory hole. They're not in the textbooks, and if they are in the textbooks, they're not described as tax revolts. And what we need to do is show that tax revolts are very important in American history. This loss of historical is a loss of real historical patriotism. Patriotism that is essentially nonviolent.

31:39Most of these tax revolts were nonviolent. And one of the things that we definitely find in looking at tax revolts is that the big problem is that they are not ideologically and intellectually rigorous. They are driven from the fact that A lot of people involved find taxes too high, they find them unfair, and they want to do something about it. And what really needs to happen is that they need to have a better ideological and intellectual foundation. And what I conclude from looking at these tax revolts in American history, especially FDR's so-called tax cut, is that the future of American society depends on the success of tax revolts and that they really do need to be more intellectually and ideologically rigorous. Thank you very much.