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Monthly Archives: January 2014

How Tax Law Made America Modern

Ajay Mehrotra’s new book, Making the Modern American Fiscal State, describes how the United States in the late nineteenth and early twentieth centuries transformed the way it taxed its citizens and thereby laid the foundation for new forms of governance and new sensibilities about the network of civic obligations that bound the nation together. This is a truly impressive work of legal historical scholarship—thoroughly researched, well written, and powerfully argued. Mehrotra also offers a masterful demonstration of scholarly synthesis, artfully weaving together an intricate tapestry of economics, politics, law, and social history.

At the heart of Making the Modern American Fiscal State is a revolution in American tax practices. Prior to the twentieth century, the national government raised revenue through a system of import duties and regressive excise taxes that were “indirect, hidden, disaggregated, and partisan.” (P. 6.) By the end of the story, in the wake of World War I and on the cusp of the New Deal, a much different taxing regime was in place. It was a progressive system that was “direct, transparent, centralized, and professionally administered.” (P. 6.) While prior forms of taxation drew on a premise of a quid pro quo exchange between citizen and government—citizens put money into the system and received certain benefits in return—the new form of taxation challenged this atomistic “benefits” theory and emphasized instead a thicker sense of national community and responsibility. Taxes were assessed on a principle of one’s “ability to pay.” This approach, Mehrotra explains, “promoted an active role for the positive state in the reallocation of fiscal burdens, the reconfiguration of civil identity, and the rise of administrative authority.” (P. 10.) The rise of the modern fiscal state, built on this transformation in taxing policy was, in Mehrotra’s account, a radical change in policy with lasting effects on American statecraft and society.

This is an ambitious book. Mehrotra crafts a richly textured history of the tax reform movement, with an ensemble cast of characters. There are populist social activists, whose calls for tax reform were a part of their larger challenge to the prevailing economic arrangements of industrial capitalism and the stark societal inequities that resulted. There are progressive political economists, such as Richard T. Ely, Henry Carter Adams, and Edwin R. A. Seligman—the “visionaries or architects of the modern American fiscal state.” (P. 87.) Their ideas “drove the intellectual transformation in tax law and policy, paving the groundwork for the subsequent legal and popular acceptance of a new fiscal order.” (P. 146.) There are the lawyers who crafted legal rationales to justify progressive taxation, a task that took on added urgency when, in 1895, the U.S. Supreme Court struck down the federal income tax. There are the lawyers in the Treasury Department who, during World War I, created the institutions that would administer the new tax system. And there are several generations of lawmakers and government officials who debated and eventually passed and then had to implement this novel approach to tax policy. The focus of the book is on national-level tax battles, but Mehrotra also gives considerable attention to the roughly parallel developments on the state level. It is a mark of Mehrotra’s skill as a historian and writer that he is able to pull all these strands together into a coherent, highly readable narrative.

In a book filled with well-crafted analyses of key turning points in the rise of progressive taxation, particularly fascinating is Mehrotra’s account of the background and aftermath of the Supreme Court’s 1895 decision in Pollock v. Farmers’ Loan & Trust Company striking down the federal income tax law. Ultimately, the ruling proved only a temporary setback for reformers. Indeed, it became powerful rallying point for the entire progressive tax movement. The year following the Court’s decision, the graduated income tax was in the Democratic Party’s platform. Although a Republican victory in 1896 sapped some of the reform movement’s momentum, it steadily gained strength in the opening decade of the twentieth century. Congress passed a corporate excise tax in 1909, the same year it approved the Sixteenth Amendment, which overturned Pollock and granted Congress the power to create an income tax. When it became part of the Constitution four years later, Congress quickly took advantage of its new power.

Another critical turning point in Mehrotra’s story was World War I. It was during the war years that the federal government dramatically expanded its new tax regime. It was during the war that the modern American fiscal state took form. “Although the wartime tax system may not have gone as far as some activists had hoped,” Mehrotra writes, “the unprecedented turn toward a system of steeply graduated taxes fundamentally altered the distribution of economic obligations, the meaning of fiscal citizenship, and perhaps most significantly the burgeoning powers of the administrative state.” (P. 295.) The book includes a wonderfully crafted chapter on the lawyers who worked to create the new administrative apparatus of the modern fiscal state during World War I.

One of the lessons learned for reformers in Pollock’s aftermath was that they had to do a better job of selling their agenda to the nation. Reformers increasingly advocated a more moderate version of progressive taxation, one that was “more about reallocating the burdens of financing a modern state, and less about radically redistributing income or wealth,” one that aligned with “traditional American values and institutions.” (P. 183.) Rather than a tool of redistribution, reformers promoted progressive taxation as a way to protect industrial capitalism, albeit in more humane, equitable form. The lawyers who designed the administrative structures that would effectuate the new tax system during the war years followed in their footsteps. The particular form of progressive taxation that took shape in the United States, Mehrotra concludes, both made possible the emergence of the modern fiscal polity and ultimately limited its redistributive potential.

This book serves as a model for legal historians who are looking to integrate fine-grained, nuanced analyses of historical events and actors with the kind of big-picture ideas that most readily engage our fellow legal scholars. This is a book that illuminates a fundamental transformation of the American state, a transformation in whose shadow we obviously live today. This is also a book that takes ideas quite seriously. (Mehrotra begins one of his chapters with John Maynard Keynes’s quotation about “[p]ractical men” unknowingly being “the slaves of some defunct economist.”) But this book is not, in the end, a work of intellectual history or political theory. It is history in which ideas are important because they moved the machinery of politics and law. Understanding the roots of the policy changes examined in this book requires careful attention to the larger ideas that made the policy seem so urgent and necessary. We are thus witnesses to the complex interplay of ideology, legal development, politics, and social activism. Out of all this, as this book so effectively and smartly demonstrates, arose a new set of legal norms, political expectations, and societal sensibilities.

One of the most important contributions of Making the Modern American Fiscal State is the way in which Mehrotra conceptualizes the very idea of taxes. Taxing, in Mehrotra’s account, was not just a tool for raising revenues to fund whatever policy the government in power favored. It was not just a neutral means to a contested, ideological end. Taxing policy was itself a statement of substantive ideology; it was a discourse through which Americans could talk about their vision of government and civic responsibility. “Fiscal citizenship” is the nicely evocative label Mehrotra attaches to this idea. This is a rich, compelling, and convincing framework through which to think about taxing. And it is a perfect vehicle for telling the story of the rise of progressive taxation and thus the formation of the modern American state.

Cite as: Christopher Schmidt, How Tax Law Made America Modern, JOTWELL (January 31, 2014) (reviewing Ajay K. Mehrotra, Making the Modern American Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877-1929 (2013)),

Gay Rights in the Workplace

Katherine Turk’s recent article, ‘Our Militancy is in Our Openness’: Gay Employment Rights Activism in California and the Question of Sexual Orientation in Sex Equality Law, offers a deeply researched history of gay rights activism in California—“the epicenter of the gay employment rights movement” (P. 426)—that engages important questions about the benefits and limits of different legal strategies. In this detailed local history of the gay employment rights movement, Turk discusses the work of a number of advocacy organizations in the state—including the ACLU of Southern California, the Los Angeles Gay and Lesbian Center, the Metropolitan Community Church, the Society for International Rights, the Committee for Homosexual Freedom, the Committee on Rights within the Gay Community, and the National Gay Rights Association—through which activists pressed for equal rights in the workplace. Although this movement was dominated by gay men, Turk makes clear that it is not a story of a fractured movement. Instead, activists throughout the gay community understood the prosaic importance of employment rights, and the employment nondiscrimination litigation at the center of her narrative “embodied some of the most universal and consistent claims at the heart of the modern gay rights movement.” (P. 428.)

Activists called for a new model of workplace rights, as they sought legal protections that combined the equality arguments used by women and people of color with gay liberationist arguments that embraced sexual orientation. In doing so, they contended “that a worker’s gender and sexual orientation were irrelevant to his or her ability to perform a job, but that the freedom to signal those identities was an essential element of workplace equality.” (P. 426.) Thus, the gay employment rights movement rejected equality arguments based in sexual privacy, “which assumed that people could—or should—leave their sexual identity behind at the office door.” (P. 435.)  Instead, activists argued, gay and lesbian workers should be able to participate in the workplace in the same way their heterosexual colleagues did—as workers with professional skills and rich personal lives.

However, as Turk demonstrates, gay employment rights arguments were met with a cool reception.  Complicating the traditional rights-affirming narrative of Title VII of the Civil Rights Act of 1964, she demonstrates that the statutory and judicial landscape of the 1970s was not open to employment discrimination claims based on sexual orientation. The limitations of Title VII, which activists tried—and failed—to use to their own benefit, are particularly apparent in the story of the litigation involving Pacific Telephone & Telegraph (PT&T), one of California’s largest employers. Although plaintiffs offered evidence that PT&T was actively hostile to gay and lesbian workers, judges refused to accept arguments that sexual orientation deserved inclusion under Title VII’s ban on sex discrimination. As a result, “courts effectively severed sex from gender and sexual orientation before the law and reinforced notions of sex as biological and natural, unlike gender and sexual orientation”; judges’ insistence that sexual orientation, unlike sex, was not an immutable category meant that gay men and women were unable to draw on the sex-discrimination language in federal law. (P. 430.)

The judicially defined limits of Title VII led to two different paths to employment rights. Individuals bringing claims of discrimination on the basis of race, ethnicity, or sex were able to seek remedies in federal courts, while individuals facing discrimination due to their sexual orientation were limited to state and local remedies. The latter did offer some protections; Turk makes clear the variety of ways in which activists successfully worked pressured public and private employers to change their hiring policies, and won city and state-level bans on discrimination in municipal hiring. However, these victories resulted in “a piecemeal set of provisions that substituted voluntary corporate action, interest group pressure, and scattered local laws and court decisions in place of strong, uniform protections from discrimination.” (P. 460.) It also “accelerated the divergence between the movement for gay rights and those of other minorities.” (P. 431.) This divergence made discrimination claims harder to remedy; it also meant that these protections remained partial once conservatives fought back against the gains of the gay rights movement and once the AIDS epidemic pushed gay rights activists away from efforts to achieve broad workplace rights.

Turk’s article does an excellent job combining local history with an important story about the use of law for social change. The article makes clear the very real successes that the gay employment rights movement achieved at local levels, and indicates the amount of effort such successes required. (Crucially, it also describes how private-sphere efforts complemented legal ones.) At the same time, Turk shows how these protections nonetheless often fell short of their goals. Most importantly, she indicates that the gay employment rights movement offered paths not taken—both for gay and lesbian employees, but also for Title VII claimants more broadly. This was a particular loss for women; as she concludes, gay activists’ emphasis on free expression “represented a profound challenge to the regime of gender conformity and masculine privilege that still structures the typical American workplace.” (P. 469.)

Cite as: Joanna Grisinger, Gay Rights in the Workplace, JOTWELL (January 6, 2014) (reviewing Katherine Turk, “Our Militancy is in Our Openness”: Gay Employment Rights Activism in California and the Question of Sexual Orientation in Sex Equality Law, 31 Law & Hist. Rev. 423 (2013)),