This book looks at the way we tax the poor in the United States, particularly in the American South, where poor families are often subject to income taxes, and where regressive sales taxes apply even to food for home consumption. Katherine S. Newman and Rourke L. O’Brien argue that these policies contribute in unrecognized ways to poverty-related problems like obesity, early mortality, the high school dropout rates, teen pregnancy, and crime. They show how, decades before California’s passage of Proposition 13, many southern states implemented legislation that makes it almost impossible to raise property or corporate taxes, a pattern now growing in the western states. Taxing the Poor demonstrates how sales taxes intended to replace the missing revenue—taxes that at first glance appear fair—actually punish the poor and exacerbate the very conditions that drove them into poverty in the first place.
List of Illustrations
List of Tables
1. The Evolution of Southern Tax Structures
2. Barriers to Change: Inertia, Supermajorities, and Constitutional Amendments
3. The Geography of Poverty
4. Tax Traps and Regional Poverty Regimes
5. The Bottom Line
Conclusion: Are We Our Brothers' Keepers?
Appendix I. How Many Lags of X? by Scott M. Lynch
Appendix II. Tables
Katherine S. Newman is James B. Knapp Dean of the Arts and Sciences at Johns Hopkins University. Among her many books are Falling From Grace, No Shame in My Game, Rampage and The Missing Class: Portraits of the Near Poor in America. Rourke L. O’Brien is a graduate student in sociology and social policy at Princeton University and a non-resident fellow of the New America Foundation.
"New South? Not really. A compelling demonstration that the South's regressive taxation wreaks so much havoc that the federal government has no choice but to swoop in at great cost and attempt to band-aid all the poverty and dysfunction. The best argument yet for a new federalism that says enough is enough."—David B. Grusky, Stanford University
“Taxing the Poor makes extremely important points that are not now—but must be—part of the American discussion of poverty and social policy. The authors make these points with fascinating details on the history of how we got to this place. Bravo to Newman and O’Brien for thoroughly laying out a politcal economy of taxation.”—Robin Einhorn, author of American Taxation, American Slavery
The Evolution of Southern Tax Structures
In the state of Alabama today, one of the most important sources of revenue for state and local governments is a 12 percent tax on food for home consumption. Those who can least afford it face a heavy burden for the very staff of life. Food taxes push poor people in exactly the direction they should avoid at all costs: low quality but inexpensive diets that increase obesity and imperil their health. How did Alabama come to rely on such a regressive tax policy? Why do the other states of the old Confederacy look so much like Alabama?
In their important article comparing the development of the French and American systems of federal taxation, Morgan and Prasad argue that the United States relied on relatively progressive systems of income tax and rejected the use of regressive sales taxes, while the French moved in the opposite direction.1 At the federal level this is true. But when we look one notch below, we find that many states, particularly those in the South, took the opposite tack and ended up looking far more like the French than we might have expected.
To the rich historical literature on the fiscal dilemmas of the nineteenth century and the Jim Crow era we add an original analysis of trends in state tax revenues over time. Together, these accounts paint a picture of a punishing regime affecting the poor of the South but never imposed on their counterparts in the northern and midwestern states. This historical legacy forms the backdrop for contemporary patterns of southern poverty, which are deeper and significantly more persistent than in other regions of the country.
Tax Policy before the Civil War
Although the most relevant periods for our purpose are the Civil War era, the Radical Reconstruction that followed, and the Redemption period that overturned the progressive achievements of Reconstruction, we must actually turn the historical dial back further to understand why the Civil War provoked the changes in tax policy that are so important today. Indeed, we must back up to the colonial era and the pathbreaking scholarship of historian Robin Einhorn, who has given us the most comprehensive understanding of fiscal policy in the early years of our nation. In her book AmerAmerican Taxation, American Slavery,ican Taxation, American Slavery, Einhorn explains that northern states came into the nineteenth century with fairly mature property tax schemes, established during the colonial and Revolutionary War periods. Southern states, by contrast, had exemptions in place that put most land out of the reach of colonial taxation, and they had slaves-the most valuable property in the South-who were labeled and taxed as "persons" through poll taxes.2 The systems of property taxation in the South were therefore more underdeveloped and did not take shape in many ways until the antebellum period of 1830-1850.
By that time, class conflicts that set slaveholders and non-slaveholders apart intensified debates over appropriate systems of taxation. As Einhorn outlines in detail,3 the reapportionment of state legislatures throughout the nineteenth century threatened the influence of slaveholding elites as power shifted to burgeoning inland districts populated largely by non-slaveholding small landowners. As these small farmers "called for legislative reapportionment so that their majority number could be translated to majority power, they had to persuade slaveholding minorities that they would not impose heavy or prohibitive slave taxes."
The result was a spate of "uniformity clauses" that made it illegal to tax chattel more than other kinds of assets. With Maryland, a slave state, having included a uniformity clause in its state constitution in 1776, other slave states followed: Missouri in 1820, Tennessee in 1834, Arkansas in 1836, Florida in 1838, and Louisiana and Texas in 1845. Uniformity clauses had two important consequences. First, with most taxable wealth in the hands of slave owners, uniformity clauses acted as a pressure to hold down tax revenue altogether and set a pattern of low levels of financial support for the common costs of public administration in southern states. Second, the protection of slave owners set in motion efforts to tax others-particularly business owners and professionals-more, uniformity clauses or no. Louisiana added license fees and other kinds of taxes on businesses and particular professions in order to protect landed elites and slave owners. Differentiated rates and underassessment had the same impact. For example, the state of New York had a general property tax: one rule for taxation of all property. Elsewhere this was not the tradition: Mississippi favored landholders with the lowest ad valorem rate and slaveholders with a flat rate that was even lower.
All in all, as figure 1 suggests, these differences in tax regimes meant that general property tax revenue was very low in most of the southern states, while it made up a considerable proportion of the public resources in the North. Low levels of taxation meant that the resources available to support the development of public institutions (schools, roads, ports, etc.) were far lower in the vast majority of southern states than in their northern counterparts. With the exception of Louisiana, which was a trade center and hence blessed with industry and other forms of property beyond land and slaves, the South entered the Civil War era with a much weaker tax structure for generating revenue and a far less generous tradition of providing for the poor than the rest of the country.
Tax Regimes during the Civil War
Financing a war of such huge scope was not an easy matter for either the Union or the Confederacy. Indeed, the genesis of the income tax was to raise federal revenue in the northern states for the pursuit of the Civil War. The Union made use of other devices as well, but as Yale political scientist Rose Razaghian has shown, it was able to fully finance 20 percent of its war costs through taxation, while tax revenue covered only 4 percent of the Confederacy's considerable military expenditures. With continued opposition to the taxation of slaves as property by southern elites, the Confederate States of America (CSA) turned to non-interest-bearing treasury notes and loans to finance the war efforts: a strategy that predictably resulted in hyperinflation. They indulged in "in kind" taxes by confiscating produce and other goods to fuel the army, a particularly harsh burden for poorer white farmers. Nonetheless, these means of raising revenue fell short.
By 1863, Confederate leaders were forced to consider new avenues to finance the war effort. Accordingly, Richmond mimicked the northern strategy by enacting a progressive income tax, a suite of excise and license fees, an 8 percent sales tax on selected goods, and a 10 percent tax on wholesale profits and agricultural products. Here again, though, wealthy slave-owning elites, who controlled the largest landholdings, had the power to ensure favorable treatment-slaves and many valuable forms of property were spared from assessment. These new taxes therefore generated little revenue and failed to ameliorate the worsening financial-and strategic-position of the CSA.
As the momentum of the war shifted in favor of the Union, prominent Confederate policy makers-notably those from states that stood to face the most "economic, social and political upheaval" from emancipation-began to reconsider their dogmatic aversion to taxation. Faced with the reality of an empty treasury and the unsettling prospect that defeat would result in emancipation, the CSA levied a suite of taxes that cut into the pocketbooks of the wealthy. Taxes on property, including slaves (taxed at 5 percent), gold and jewels (taxed at 10 percent), and interest or shares in banks and companies (taxed at 5 percent), were assessed in 1864. The tax on corporate profits was increased to 10 percent, and the CSA even created a windfall tax of 25 percent on all companies that made more than a 25 percent profit.11 Almost immediately after these new taxes were implemented, they were increased unilaterally by 20 percent, with corporate profits being taxed an additional 30 percent. A $118 million windfall, more than ten times what was in the public coffers for the war under the previous tax structure, followed.
The Civil War created almost unimaginable havoc for civilian populations caught in its maw. For those who were left behind the lines, the spread of poverty and hunger was devastating, nowhere more than in the southern states, where so many of the great battles took place. Even when the campaign favored the southern states in the East, as it did prior to Gettysburg, the mere fact that the battlegrounds were largely on southern territory meant that victory was almost as costly as defeat for civilians. The stuff of daily life-from food to equipment-was requisitioned by the home army.
Ironically, the Civil War spurred progressive efforts to provide for indigent southerners. Direct public aid on a grand scale became available for the first time, reversing a long (and rather miserly) tradition of private charity. According to historian Elna Green, at least one-fourth of the white population of Alabama was receiving state or county assistance in the last few years of the war. Benefits were meager compared to what was available to civilians in the North, but the Confederate government began to provide direct relief, distributing food to the poor for the first time.
The Civil War marked the first time southern states were willing to increase taxes on property for badly needed revenue. This epiphany, however, came too late to change the course of the war. The defeat of the South led to the quick dissolution of property taxes adopted to fund the war.
The Cost of Reconstruction
Eric Foner's classic work on the Reconstruction era transformed our understanding of the period, from the popular conception of carpetbagger incompetence to that of progressive intervention that threw the energies of the state into reversing long-standing inequalities. Initially, however, under the guise of Andrew Johnson's policy of Presidential Reconstruction, state governments in the South were allowed to pursue their own policies without northern interference, and predictably, they leaned heavily toward protecting the interests of white elites. White veterans enjoyed pension programs and homes for veterans and widows, and the war wounded among them received money for artificial limbs.
Once Congress took the lead during Radical Reconstruction, federal agencies, particularly the Freedmen's Bureau, began to tend to the needs of the civilian poor-including the white poor-and the black population newly released from bondage. As Elna Green explains, the Freedmen's Bureau and the U.S. Army launched massive relief programs to prevent starvation in the region. In some of the larger cities they opened soup kitchens, and in other places they experimented with work relief projects of the kind the country would not see again until the New Deal era. These efforts were met with disdain by white landowners, who complained that freedmen would not work so long as free rations were available to them. And local government agencies did what they could to fob off the obligations for one group of paupers onto other jurisdictions. Poor relief was not a popular cause.
Yet the needs of the poor were almost endless. Slavery's demise saw a vast increase in the indigent population, and the cost of addressing their needs mounted quickly. During Radical Reconstruction, the newly formed state legislatures increased drastically the tax bill paid by white property owners to pay for the education of all children, black and white, a practice that outraged small landholders who had traditionally paid very low taxes. The expansion of services went to a population on both sides of the color line that had never been provided for in the slavery period, and the costs were imposed on defeated white elites. But where were the funds to come from? Radical Reconstruction legislators turned to land taxes to increase revenues, and property taxes increased four- to eightfold in the Reconstruction period.
The tax fell upon property holders, but this included very few blacks or poor whites, as they rarely owned much in the way of property. The number of taxpayers stayed roughly constant, while the population they were supposed to support doubled instantly. Inflation in the postwar period also took its toll, requiring an increase in tax rates just to stay even with the revenue demands.
While the southern states remain at the bottom in figure 2, the amount of revenue generated per capita nearly doubled during the Reconstruction period. In 1860, Georgia generated less than $1.00 per capita; by 1870, the rate had doubled in current dollars. Mississippi was at $1.20 per capita in 1860, but ten years later, after the new regime had come to power, the state was up to $4.00 per capita. Similar increases developed in the northern states, but the transformation was more profound in the South, with its long tradition of ignoring the welfare needs of its poor, black and white. The increased revenue is even more striking when we consider the sharp decline in the value of property in southern states due to both the ravages of war and the emancipation of slaves, the source of much taxable wealth in the South.
Reversing Course in the Redemption Era
Eric Foner and others have pointed out that if Radical Reconstruction had lasted for fifty years, instead of twelve, we might have seen an entirely different racial history in the United States. Instead, the federal government pulled out of the South and abandoned African Americans to a terrible fate at the hands of oppressive Jim Crow regimes. Histories of the "Redemption" period record the lamentations of black citizens as federal troops disappeared from the region and the old power structure of the white South reasserted control.
Whatever else this reversal implied for those at the bottom of the social structure, it spelled the end of the progressive tax policies that had fueled educational expansion, land reform, and public works investments. White politicians retook southern legislatures in the late 1870s and proceeded to slash state budgets and cut taxes. We can glimpse the up-and-down trajectory of property tax by looking at how the typical tax burden on a 160-acre farm in Mississippi changed over the period from 1848 to 1880, provided by historian J. Mills Thornton III. Before the outbreak of the war, the typical state land tax rate on a farm of this size was only 1.6 mills per acre. Radical Reconstruction saw that rate jump to 9 mills and climb another 3.5 mills over the succeeding two years. But when the backlash took hold in 1877, the rate dropped back to 5, and later down to 3 mills. What's more, the assessed value of the property was artificially lowered, further reducing the tax burden on landowners. All over the southern states, the same pattern took hold, inflation notwithstanding.
State investment in social welfare services of all kinds dropped precipitously. The tax codes of most southern states reverted to preferential treatment of property, which protected white elites from bearing much of a burden for public sector expenditures. According to historian C. Vann Woodward, "redemption governments, often describing themselves as the 'rule of the taxpayer,' frankly constituted themselves champions of the property owner against the property less and allegedly untaxed masses." In comments published in the Richmond DispDispatch,atch, celebrated newspaper editor and Democratic congressman Henry Watterson proclaimed, "Intelligence and property must rule over imbecility and pauperism [for this is the] law alike of nature and society." Relative to the rest of the country, property taxes were set very low, and what public monies there were tended to be held inside the boundaries of white communities.
While the rest of the country was pouring money into schooling, per pupil expenditures in the South eroded between 1870 and 1890. The percentage of the population in southern schools almost doubled, but the revenue to support their needs was simply not made available. The length of the school year contracted by 20 percent. Under these conditions, it is little wonder that human capital in the South declined at a rapid rate. Louisiana's illiteracy rate actually increased between 1880 and 1900.
To the extent that southern states were providing for public benefits at all, they placed the heaviest burden of taxation on the poor, who derived the fewest public benefits. Poll taxes and license taxes, fencing laws, restrictions on hunting-all of these mechanisms were put into place by Redemption governments in order to force blacks to go to work for wages rather than engage in self-sufficient farming. Tax policy-as Foner's work makes clear-was part and parcel of a much larger system of legislation that aimed to keep blacks in a state of dependency: stuck in low-wage jobs, unable to vote, consigned to inferior schools (or none at all), and terrorized by lynching.
The state of North Carolina provides an illustrative example of how Redemption era policy makers in the South fought to reverse the progressive tax reforms of the Radical Reconstruction period. As historian J. Morgan Kousser details, under Radical Reconstruction, a uniform, statewide property tax was levied to fund public education in North Carolina, and all revenue generated was to be redistributed equally to finance the education of blacks and whites across the state. As blacks and poor whites owned less property, the tax served to redistribute money from wealthy white communities to the state's blacks and poor whites. A conservative-led revolution in 1870-71 led to the impeachment of the radical governor and removal of the state superintendent. North Carolina's Redeemers set to work reversing the progressive policies of Radical Reconstruction, first by allowing localities to keep the revenues they generated under the property tax, predictably resulting in enormous inequality in per pupil expenditure between wealthy white communities and poorer localities, white and black. Whites pushed for a constitutional amendment "to limit black school expenditures to the amount paid by Negroes in taxes" that ultimately was never codified, in part out of fear such an amendment would generate unwanted attention from the Supreme Court. Even so, the underlying sentiment was clear.
The rollback of progressive taxation-and equitable funding for education-during the Redemption era was hardly unique to North Carolina. Nor was opposition to the practice. Populist movements that came into being specifically to protest unfair taxation proliferated in many states. The Readjuster Party in Virginia was one of the most colorful. Led by attorney Harrison Riddleberger and a former Confederate general, William Mahone, the Readjusters aimed to dismantle the power of wealth and privilege and infuse state resources into public education. Had parties of this kind been victorious, arguably the South would have come out of the nineteenth century looking more like the northern states. Sadly, the black-white coalitions that brought Mahone to power in 1870 fell apart in the early 1880s, giving way to rule by conservative Democrats that lasted for the next eighty years.
Uniformity clauses, originally incorporated into southern state constitutions to limit the power of the majority to tax the elite minority, began to exercise even greater power to restrain taxation in general. Einhorn notes that by the 1880s, judges relied on those statutes to strike down virtually every major reform designed to increase the resources at the disposal of states to feed the public sector. "Income taxes, inheritance taxes, corporation taxes, and taxes at progressive rates" all fell afoul of uniformity clauses: In states without clauses, judges disciplined legislatures and local officials by invoking "implied" uniformity mandates. In the name of equal taxation, the courts held the legislatures in a vise that translated into rock-bottom levels of revenue per capita in the southern tax coffers. As our analysis of the census data shows, by 1890 the states of the old Confederacy were unable to generate anything more than an anemic level of property tax revenue to sustain their public infrastructure.
No southern state in 1890 climbed above $6 per capita.
Indeed, southern states had very little revenue to spend on their public sector, period. The lack of revenue translated directly into a poorly funded educational system. Hence the South trailed the rest of the country on public school spending per capita (in the state population; figure 5) and per capita of pupils enrolled.
At precisely the point in American history when the rest of the country was pouring money-and teenagers-into universal high school enrollment, the South lagged behind in all respects. In their important book on education and technology across the twentieth century, Claudia Goldin and Larry Katz point to great advantages the United States reaped from this investment in education as it spread throughout the economy, creating a reservoir of skill that outstripped the rest of the developed world. But the South was way behind. Even if we confine attention to white youth in the period 1850-1880, the rates of high school enrollment in the southern states were drastically lower than in the Northeast or the Midwest. If we add in the black population, the educational profile of the old Confederacy looks far worse. Indeed, as these two economists explain, "youth in most parts of the South had the lowest rates of high school enrollment in the nation."
Hence the South headed for the next watershed moment in American history, the Great Depression, already handicapped by a poorly educated population, divided by race and class, with a weak infrastructure owing to underinvestment by state governments, and above all with a strong tradition of ignoring the needs of the poor. Taxation levels were low and inadequate to the task of modern governance. These customs exacerbated the bite of the Depression as the downturns of the early 1930s gathered speed to become an economic calamity of unprecedented proportions.
Rejecting the New Deal
The 1930s visited terrible hardship on the whole country, but the devastation of the Great Depression was arguably more serious in the rural South than in almost any other region. Prices for cotton, a mainstay of southern agriculture, dropped through the floorboards. In 1927, the Mississippi River flooded and damaged an enormous swath of the fertile river valley, bringing devastation to farmers. Eight out of ten Arkansas residents relied on agriculture for their income, and cotton was their main crop.
Overplanting, and the replacement of cotton (which anchors deeply in the ground) with wheat (which grabs only the surface) in the aftermath of World War I, reduced the land to a dusty plain vulnerable to erosion. The drought that spread through the Midwest, Texas, Oklahoma, and Arkansas exacerbated the problem and led to the infamous Dust Bowl that destroyed the livelihoods of millions of small landholders, spread the devastating "dust pneumonia," and sent thousands onto the highways in search of another place to make a living. These tragedies landed on the backs of farmers long before the stock market collapsed and mass unemployment began to impact the northern industrial cities.
Families accustomed to fending for themselves suddenly discovered they had nothing, and the prospects for jobs that would rescue them evaporated quickly. Poverty spread rapidly and penetrated deeply, especially in rural areas. The only saving grace was the ability of farming families to grow their own food if they still had access to the land, something that was harder for urban dwellers to do. But all across the country, the desperate turned to the government for help in ways that had never been customary before. Private charities that had fended for the poor as best they could were simply unable to meet the demand.
In the northern states, where a history of poor relief was relatively well established, local and state governments expanded their capacity to address the needs of the newly unemployed, and they willingly partnered with President Franklin Delano Roosevelt in New Deal programs that were based on matching funds. In this fashion, the federal government and the northern states erected a safety net that, meager as it was, prevented widespread hunger and eviction and then took to the task of putting millions back to work. The nation did not neglect the South: nearly $2 billion of federal money streamed through the hands of the Federal Emergency Relief Administration (FERA), the Civil Works Administration, and the Works Progress Administration, bound for the southern states.
New Deal policies helped to rescue many poverty-stricken southerners but did so almost in spite of local government, whose insistent refusal to participate in relief efforts that required state or local resources of any kind hurt the down-and-out. As historian Roger Biles explains, "long-standing attitudes regarding self-reliance, limited government and balanced budgets persisted; social welfare matters continued to command a low priority throughout the south." Hence, while state and local governments elsewhere in the country were hemorrhaging red ink in an effort to keep workers on the payroll, southern governments ran surpluses. Southern governments were not so ideologically opposed to the concept of relief that they avoided federal benefits that came without local strings attached. Indeed, as economic historian Gavin Wright has argued, the flow of federal dollars, in the form of Public Works Administration projects for road building, schools, electrification, hospitals, and other essentials, modernized the infrastructure of the South. It literally brought the population of the South into the modern world, since electricity meant that radios could bring the outside world into the living rooms of rural southerners. But when the feds asked southern governors to join the cause with a financial contribution of their own, the answer was usually "no."
Louisville and Little Rock started relief programs but quickly ran out of money, since no funds had been set aside to run them. Houston did not provide any assistance for the unemployed and refused to issue bonds for public works employment. The mayor of Richmond steadfastly refused to seek or accept assistance from the federal government. By 1932, the city of New Orleans was "ranked last among the nation's thirty-one largest metropolitan areas in the amount spent on relief." By 1934, the Big Easy was the largest American city to provide absolutely nothing for family relief, including aid for needy mothers. Only the blind received public assistance in New Orleans.
The state of Georgia was bound by Redemption era amendments to the state constitution that outlawed municipal debts "except to repel invasion, suppress insurrection . . . or to pay existing public debt." The Depression did not qualify, and hence indigent citizens of the Peachtree State went without. Alabama was even harsher. Birmingham passed a budget control law limiting expenditures to the amount of annual income. Similar efforts by policy makers across the South enabled many cities to post surpluses by cutting wages for municipal employees, slashing education funding, and stripping public health programs. The most that mayors did to combat rising unemployment was to put their citizens to work selling produce, launching campaigns to "buy an apple in Memphis" or an orange in New Orleans.
New Deal era southern politicians were particularly hard-hearted when it came to addressing the needs of the unemployed. Harry Hopkins, President Roosevelt's director of FERA, worked overtime to involve southern officials in the distribution of emergency relief. Congress had mandated that the states contribute to FERA's operations, but Hopkins met a stone wall in the region, and the federal government ended up footing most of the bill. While a significant flow of federal funds went south, it was a weaker stream than it should have been. In the 1930s, the South had one-quarter of the nation's population, but by 1939 it had garnered only one-sixth of the expenditures of FERA, the Civil Works Administration, and the Works Progress Administration.
To the extent that the South responded to the needs of the poor (and the public sector more generally), it led the way in the use of regressive taxes to fund the expenditures. Property values fell dramatically throughout the Depression all over the country, and many households simply could not afford the tax bill. Over time, revenues derived from this source became less and less useful as an income generator for states. Sociologist Isaac Martin has argued that the first great property tax revolt owes itself to precisely this implosion in property values. The practice of copying the same assessed value on property year after year laid the groundwork for a crisis in the 1930s. As prices for homes and farms tumbled, tax bills remained constant while the values of these assets tanked. Property owners protested by supporting legislation that placed limits on state and local property taxes and parallel lids on spending.
Not surprisingly, over time, revenues derived from property tax became less and less useful as an income generator for state and local governments everywhere. As figure 6 indicates, the southern states rested at the very bottom of the national barrel in terms of what their property tax revenues brought into the coffers of government. This was not simply a matter of being property poor, for other low-wealth states, notably plains states like Kansas and Nebraska, were able to generate considerably more. Southern states were deliberately underperforming relative to what was fiscally possible, because they were looking to hold public sector expenditures down. If this was intended as a balanced-budget approach to curing the Depression, it worked poorly. Instead, transients swarmed the southern cities and were turned away, since, by design, there were no funds to provide for them.
The Emergence of the Sales Tax
Ironically, it was state debt for construction projects launched in the glory days of the 1920s that pushed some southern governors to seek additional tax revenues in the 1930s, despite generic political resistance to taxation. Mississippi was $14 million in the hole; Arkansas had the highest per capita debt in the country. How were these debts to be cured? In some states, Mississippi included, raising property taxes was constitutionally possible but politically inconceivable, and that was that. Racially inspired voting rights restrictions meant that the very people most likely to favor increases in property taxes could not exercise any influence. Sales tax seemed the ideal solution to those who could vote. It appealed to property owners, who did not want to see their burden increased, and its advocates believed it would be a means of exacting taxes out of African Americans who had little property to be taxed in the first place.
In 1932, Mississippi adopted a 2 percent general sales tax, becoming the first state to opt for this form of regressive taxation as a source of revenue. When the state tax was upheld by the Mississippi senate in 1934, a headline in the AtlaAtlanta Constitutionnta Constitution read, "House Passes Bill to Insure Relief for Property Tax Payers." Similarly, in Oklahoma, the strongest supporters of the sales tax were property owners who wanted to lower their own taxes. In rapid succession, a series of copycat statutes passed in Kentucky, North Carolina, and Oklahoma. In 1933, North Carolina enacted a retail sales tax of 3 percent, the highest in the nation. Not surprisingly, given the political origins of the sales tax movement, local property taxes began to drop. Between 1930 and 1932, property tax declined 20 percent. Non-southern states also took notice, using sales tax revenue in part to meet the state matching requirements for federal assistance from FERA. Overall, two dozen states-across the South and beyond-adopted sales taxes as a solution to their budget problems during the decade between 1930 and 1940, a move that placed particularly onerous burdens on the poor.
Class politics ignited in response to regressive taxation. Senator Huey Long of Louisiana, one of the principal advocates of wealth redistribution, burnished his populist credentials by insisting that taxing the oil companies was the best way to pay for roads, free textbooks, and public hospitals. Senator Long denounced the sales tax as an attempt on the part of the wealthy to escape their proper share of the cost of government and to shift it to the less fortunate. Long called the tax "rotten all through." The Kingfish was joined by southern New Dealers-politicians like Governor Olin D. Johnston of South Carolina and Senators Claude Pepper of Florida and Al Gore, Sr., of Tennessee-in opposing the sales tax and agitating for more-progressive forms of revenue raising. However, southern New Dealers were usually outnumbered or blocked by state supermajority requirements and other political barriers.
African Americans also insisted that this new mechanism for raising money was a fiscal calamity for their community. An editorial in the New New Journal and Guide,Journal and Guide, an African-American newspaper, criticized the sales tax for shifting burdens from the rich to the poor. "The rich man, the large real estate owner . . . now wants the average man to pay his (the rich man's) taxes when he buys his sugar and coffee and shoes and coal," the editorial railed, "since he can no longer collect rents on the basis of what the City and State figure his investment in real estate to be worth." The opinion page concludes that the"JourJournal and Guidenal and Guide is opposed to a retail sales tax because it adds further to the burden of the poor." The rapid spread of the sales tax led some at the time to label it "an emergency tax"-yet the emergency became permanent. Over the next few decades, many progressive states tried to lessen the regressive nature of the tax by excluding basic necessities such as food and medicine. Most of the southern states never got that far. Instead, the exigencies of the Great Depression laid the groundwork for reliance on consumption taxes for state and local services-especially education-that continues to this day.
The lasting legacy of the New Deal for most Americans lies in the Social Security system. As Ira Katznelson has shown, southern antipathy for the progressive consequences of this program was relentless. Hailed virtually everywhere else, the centerpiece of the New Deal was perceived as an attack on southern structures of racial subordination and an intrusion into the labor market arrangements that bound black workers to paternalistic employers.
The original bill enjoined the states from imposing any conditions for the receipt of old age assistance and required that state pensions, when added to the recipient's income, furnish "a reasonable subsistence compatible with decency and health." Both provisions were stripped from the bill that emerged from the House Ways and Means Committee. Accordingly, states could impose any conditions they saw fit, and the subsistence provision was eliminated entirely, enabling states to pay pensions that were as small as they desired. Southern congressmen campaigned to exclude domestic and agricultural workers from Social Security, on pain of exercising a block veto unless they got their way. Over two-thirds of the black labor force was concentrated in domestic service and sharecropping in the 1930s.
Old age insurance was not the only target of southern ire. The Aid to Dependent Children (ADC) program, designed to assist widows with the cost of raising their children, and the Old Age Assistance program, which provided welfare to the aged poor, were brought under local control-the price for southern acquiescence to the Social Security Act. Originally, states were to be required to pay ADC and Old Age Assistance benefits that would permit a decent standard of living. Once again, the requirement was eliminated because of "objection to Federal determination of adequacy on the part of Southern members who feared Northern standards would be forced on the South in providing for Negro and White tenant families." Decision-making power was instead left in the hands of state and local administrators. Southern members of Ways and Means even inserted a provision into the act that set an upper limit on the amount of federal assistance provided to the state.
The southern assault on the ADC program during the New Deal has had lasting implications for regional inequalities in welfare support through Aid to Families with Dependent Children (AFDC) and, since 1996, Temporary Assistance for Needy Families (TANF)-the lineal descendants of ADC. Southern states continue to provide the most meager levels of cash assistance of any states in the Union: South Carolina, Alabama, Arkansas, and Mississippi, for example, currently provide only one-fourth to one-fifth of the assistance level of the New England states.
The combination of dependence on regressive consumption taxes to raise revenue and politically inspired limits on eligibility and benefit levels for federal programs of old age assistance and child welfare set up a toxic fiscal environment for the poor in the South.
Postwar Tax Regimes
Since the end of the Great Depression, it has become an article of faith that government bears important responsibilities for the care of the poor, although the able-bodied poor are often less welcome within the social contract. Less controversial is the requirement that government provide for the free education of all children at a reasonable level of quality (a provision generally enshrined in state constitutions). Neither of these assumptions came easily to the South.
In the postwar period, most states surrendered property taxes to local governments to be used, in the main, for the support of education. Southern states, however, were unable to generate as much revenue from property tax as other states, as figure 7 makes clear.
Indeed, if anything, the gap between southern states and the rest of the country in terms of the revenues generated by property tax got worse over time.
At the same time, many southern states slashed their corporate income taxes. Before World War II, southern states employed a corporate income tax which, on average, was the highest of any region in the country, the product of landholding elites shifting the tax burden to industry. After the war, state politicians leaned on the tax code to create incentives for business to move south. This about-face was accomplished by slashing corporate taxes. Historian Gavin Wright notes, "Between 1950 and 1978, the median corporate tax rate in the South went from 85 percent above, to 13 percent below, that of the rest of the country." Lower taxes coupled with cheap labor lured industry to the Sunbelt, sparking tremendous economic growth in the latter half of the twentieth century. Despite increased economic activity, corporate income tax rates were set too low to fill the coffers of state treasuries.
It must be said that the move to create a favorable business climate by limiting corporate taxes helped to ensure that the South would have lower unemployment rates, by far, than the industrial region of the North as deindustrialization gripped the Rust Belt. The South had, and has today, largely a low-wage economy, but there is no denying that unique among the regions, the poverty rate came down from a high in the 1960s that was well above the rest of the country. In 1969, the first year for which the census provides poverty data across the regions, the South weighed in at 17.9 percent, nearly double the rate in the Midwest. By 2008, the South had a poverty rate of 14. percent, which was higher than the Midwest (at 12.4 percent) but significantly lower than it had been in the late 1960s, while the Midwest had moved in the opposite direction. Arguably, as an economic development strategy in the midst of globalization pressures that offshored manufacturing jobs by the millions, the southern "low road" worked, if by workworkeded we mean it attracted firms and provided jobs to southern citizens at rock-bottom wage rates. A low-wage economy will not support the public sector, since the population is earning little. Where, then, does the South turn to fill the coffers? To the sales tax.
Whereas southern states are at the bottom in property tax revenues, as figure 9 indicates, the relationship changes when we consider sales taxes. There the southern states are closer to the top of the chart, generating far more money from the most regressive taxes than the rest of the country.
The burden continues to exact a toll on the southern poor to this day, as figure 10 makes clear. In 2006, the southern states generated more revenue per capita from sales taxes than did the vast majority of northeastern states, particularly when the absence of adjustments (like those available to New York taxpayers) is taken into account.
The history of taxation in the United States is-until the 1970s-a tale of two regions, the South and the rest. The long reach of slavery and the class politics of the "peculiar institution" catalyzed a long train of policy adjustments that culminated in far greater reliance on regressive sales taxes than we see in other regions of the country. This is not a technical matter: it is a history with teeth, for the reliance on sales taxes took money from the hands of those who had the least and pushed them deeper into poverty.
Yet starting in the "age of inequality," the period roughly corresponding to the mid-1970s to the present, the western states began moving in the direction of the South. While the West has never soaked the poor as egregiously as the South in terms of tax policy, increasingly it too is funding the public sector through sales taxes that hit the poor harder than anyone else. Arguably, similar consequences are visible there as well: public schools struggling to keep their heads above water, rising user fees to replace revenue lost by declining property tax, and increasingly high rates of pernicious poverty-related outcomes.
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