The South and the Income Tax

My most recent paper, now "in production" at a journal to be identified if all goes well (as it should), is about Southern enthusiasm for the 16th Amendment.  Warning: what follows is not a cute anecdote; it's a big piece of analysis.

Southerners loved the federal income tax in the early 20th century.  In fact, seven of the first ten states to ratify the Sixteenth Amendment had been slave states during the Civil War: Alabama first, followed by Kentucky and then, of all things, South Carolina.  White Southerners debated about whether strengthening the federal government in this way would be a problem -- specifically whether it would threaten their "racial order" -- but their financial incentives were simply too strong.

Here is some data I've just put together.  First, notice the difference between 1916, 1926, and 1936 on the one hand and 1946 through 1976 on the other.  This was the transformation of the federal income tax from a "class tax" levied only on the rich to a "mass tax" levied on, well, the mass of the population.

Form 1040, 1916

 And how rich did you have to be to pay income tax in 1916?  Well, look at the first page of that year's IRS Form 1040.  The personal exemption stood at $3,000 for a single person (think $64,700 today) and $4,000 for a married person or a "family head" (think $86,300). Then, of course, there were the various deductions.

We can also notice the rates in 1916.  They were progressive, charging the very rich much more than the only sort-of rich, but at very low rates overall.  The range spanned from a 1% bottom rate to a 13% top rate on income over $2 million (think $43.2 million).  Today, the bottom rate is 10% and the top rate is 39.6%.

Southerners liked a tax that was levied only on the rich because few of the wealthy targets of this tax lived in the South.   A whole lot of them lived in New York.  With 10 percent of the U.S. population in 1916, New York State accounted not only for 20 percent of the tax returns, but also for a whopping 45 percent of the tax!

But the "mass" income tax did not mean that the South suddenly started sending large sums to the Treasury.  If you scan across the last row of the table, you see the tax data registering the South's slow climb out of poverty.  Southerners paid only 34 percent of the national average in 1916, 48 percent in 1936, 67 percent in 1956, and 87 percent in 1976.

For the early period, though, the overall regional figure for 1916 -- the 34 percent -- makes the South seem less poor than it actually was, since much of that came from a few states that we don't always even think of as South: Delaware, Maryland, and Oklahoma (with oil wealth).   I made a map that dramatizes the true situation by showing the income tax per capita in the individual states. 

I made this map myself.  All rights reserved.

Rich little Delaware came in at an extraordinary $15.75 (about $340 today).  But except for Delaware, Maryland, and Oklahoma, (which had a lot of oil), the states with per capita averages over $1 were in the North:  $6.97 in New York, $3.34 in Rhode Island, $2.76 in Massachusetts, and so on.

Then, there were the states that came in with per capita averages under a quarter: South Carolina at 6 cents, Alabama at 9 cents, Arkansas at 10 cents, Georgia at 15 cents.  A few states outside the South also came in with very low averages, but Iowa was the only one of them with a large population.

So, yes, white Southerners rather liked the idea of giving the federal government the power to levy an income tax.  As long, that is, as this expanded power to tax did not create a new "power to destroy" their oppression of African Americans.  But it didn't.  That required the Civil Rights Movement -- which had nothing to do with the federal income tax.