The origins of American tax policy

Tax reform is at the forefront of contemporary policy debate. US citizens pay taxes at lower rates than their European counterparts, and a growing number of researchers agree that progressive taxes on wealth and income have the potential to rectify inequality. The historically less progressive nature of American tax policy is commonly explained as a product of the colonies’ early opposition to “taxation without representation,” as well as the large population of immigrants, the absence of traditional aristocracy, and the ubiquity of “country party republican” ideology which characterized the country’s formation.

In an essay accompanying the publication of her 2006 book, historian ROBIN EINHORN introduces a new factor into the debate: the impact of domestic politics around slavery on early American state-building. From the piece:

“Americans are right to think that our anti-tax and anti-government attitudes have deep historical roots. Our mistake is to dig for them in Boston. We should be digging in Virginia and South Carolina rather than in Massachusetts or Pennsylvania, because the origins of these attitudes have more to do with the history of American slavery than the history of American freedom. In 1776, Congress was talking about slavery because its members were framing a national government for the new nation—what would become the Articles of Confederation. Trying to figure out how to count the population to distribute tax burdens to the various states, the members inevitably faced the problem of whether to count the population of enslaved African Americans. Since slaves were 4% of the population in the North and 37% of the population in the South, this decision would have a huge impact on the tax burdens of the white taxpayers of the northern and southern states.

Slaveholders developed three solutions to this general problem. First, they tried to guarantee that they dominated the legislative process by manipulating the representation rules. Second, they demanded weak governments that would make few of the decisions that provoked discussions of slavery. Third, they insisted on constraining the tax power through constitutional limitations on its use. Yet the real slaveholder victory lay in a fourth strategy—persuading the nonslaveholding majorities that the weak government and constitutionally restrained tax power actually were in the interests of the nonslaveholders themselves. Slaveholders persuaded many of their contemporaries that expansions of slavery are expansions of ‘liberty,’ constitutional limitations on democratic self-government are defenses of ‘equal rights,’ and the power of slaveholding elites is the power of the ‘common man.’ In the topsy-turvy political world we have inherited from the age of slavery, the power of the majority to decide how to tax became the power of an alien ‘government’ to oppress ‘the people.'”

Link to the essay, and link to a 2000 academic article by Einhorn which presents the argument in greater historical detail.

  • “The growth in cash transactions was critical to the evolution of the modern income tax. Because the market’s cash nexus permitted more and more individuals to derive a greater portion of their income and wealth from the sale of their labor services, lawmakers were able to more easily measure and tap the growing tax base. Consequently, the national tax structure began to shift away from a reliance on indirect levies, namely import duties and excise taxes on alcohol and tobacco, toward more direct and graduated taxes on income and wealth transfers.” Ajay Mehrotra looks at the economic developments behind the passage of the 16th Amendment in 1913. Link.
  • In a new paper, Lucy Barnes links tax progressivity to the strength of capital-labor coalitions in European countries prior to World War I. Link.
  • A 2017 paper by Raymond Fisman, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu offers the first ever evidence on the taxation preferences of US citizens, finding that Americans are more likely to support taxes on wealth than on savings. Link. See also this 2016 paper by Naidu, Felipe González, and Guillermo Marshall on the role of slave property rights in promoting early American economic development. Link.

New Researchers

Selective admissions in the nursing home industry

Assistant Professor of Strategy at UCLA Anderson ASHVIN GANDHI looks at the practice of private healthcare providers—in particular, nursing homes in California—selecting for the most profitable patients.

From the abstract:

“Do healthcare providers pick their patients? This paper uses patient-level administrative data on skilled nursing facilities in California to estimate a structural model of selective admission practices in the nursing home industry. I exploit within-facility covariation between occupancy and admitted patient characteristics to distinguish admission patterns attributable to selective admission practices from those attributable to heterogeneous patient preferences. In spite of anti-discrimination laws, I find strong evidence of selective admission practices that disproportionately harm Medicaid-eligible patients with lengthy anticipated stays. Counterfactual simulations show that enforcing a prohibition on selective admissions would increase access for these residents at the cost of crowding out short-stay non-Medicaid patients from their preferred facilities.”

Link to the full paper, link to Gandhi’s website.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way:


  • New on the Phenomenal World: Jerome Hodges and Maya Adereth interview the eminent John Roemer on his early political activity, the development of analytical Marxism, the function of modeling for theoretical advancements, his recent work on Kantian optimization, and the relationship between theory and political practice. Link.
  • “Disparities in who enrolls in college, and where they enroll, results in a higher education landscape that remains highly stratified by socioeconomic status (SES). About 41% of low-SES and 27% of middle-SES high school graduates did not enroll in any form of postsecondary education, whereas only 8% of high-SES recent graduates did not.” Sara Adan discusses how perceived affordability shapes college attendance in the US. Link. ht Laura
  • A new paper by C. Y. Kelvin Yuen and Ping Wang models the relationship between minimum wage hikes and employment levels. Link. (See also this widely read paper by Doruk Cengiz, Arindrajit Dube, Attila Lindner, Ben Zipperer on minimum wages and low-wage jobs.)
  • In the Future Perfect newsletter this week, Dylan Matthews selects his top 5 papers of the past decade, the most recent of which is an evaluation of evidence-based policy: “Using the Results from Rigorous Multisite Evaluations to Inform Local Policy Decisions.” Link. For an ungated draft version, click here.
  • Morris M. Kleiner and Evan J. Soltas analyze the welfare effects of occupational licensing, finding that it “raises wages and hours but reduces employment.” Link. ht Sidhya
  • At LPE Blog, Sanjukta Paul on economic coordination rights in constitutional law. Link.
  • Rutvica Andrijasevic, Devi Sacchetto, and Ngai Pun “investigate the transfer of work and employment practices from Foxconn’s manufacturing headquarters in mainland China to its subsidiaries in Czechia,” highlighting the importance of local bargaining institutions for understanding patterns of internationalization. Link.
  • “While early research found the low-wage occupation share to be rising beginning in at least the 1980s, our recent research has found it to be rising only from 2002–2012, too late to reflect the introduction of relevant technology.” Jennifer Hunt and Ryan Nunn examine the decline of middle-wage jobs and rising inequality. Link.
  • “We find that states with laws prohibiting collective bargaining for teachers and states with lower union dues per teacher made substantially larger cuts to overall educational expenditures after the Great Recession.” Walker Swain and Christopher Redding on union strength and budget cuts. Link.
  • A law journal article by Kate Engold looks at the “investment imperative” that shapes human capital development in the United States. Link.
  • Modeling the $15 minimum wage in DC, along with the the EITC: “The higher minimum wage will produce significant income gains for most of the city’s low-wage workers, with relatively few job losses.” By Fahad Fahimullah, Yi Geng, and Bradley Hardy. Link.
  • “By relying on primary sources across the Italian peninsula, France, Flanders and Britain and for the early modern period across German-speaking regions into Russia, this article shows that the plethora of late medieval revolts were rarely, if ever, confined to a neighborhood or bounded by local religious congregations or family ties. Instead, they were citywide and north of the Alps fused alliances with the peasantry and other cities. With popular protest pushing eastward in the early modern period, these long-distant dimensions became more extensive, crossing linguistic boundaries and thousands of kilometers. In addition, this article raises new questions, such as why peasants and urban rebels in Italy, in contrast to northern Europe, resisted cross-mural alliances, and to what extent late medieval popular insurrection differed from those of the early modern period.” Samuel Kline Cohn Jr. on medieval protests. Link.

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