The intellectual foundations of the modern American fiscal state

the U.S. system of public 1⁄2nance underwent a dramatic structural transformation. The late-nineteenth-century system of indirect national taxes–associated mainly with the highly partisan tariff and regressive excise taxes on alcohol and tobacco–was eclipsed in the early twentieth century by a professionally administered, graduated income tax that soon accounted for more than half of all federal tax revenue. This seismic shift toward direct and progressive taxation marked the emergence of a new 1⁄2scal polity, one guided not simply by the functional need for revenue, but by social concerns about justice, fairness, and the equitable distribution of 1⁄2scal obligations. The intellectual debates and political struggles that took place a century ago inform our current discussions about “fundamental” tax reform. In recent years, American scholars, policy analysts, and lawmakers have decried the failings of the present U.S. tax system. At the same time, commentators have identi1⁄2ed how the recent rise in inequality has signaled the arrival of a new Gilded Age in the United States. In an attempt to confront this increasing concentration of wealth and power, some present-day reformers have vowed to make profound changes to our existing progressive income and wealth-transfer taxes. A century ago, during a similar period of rising inequality, serious structural reform was not only envisioned but also achieved, and we would do well to recall the social and economic conditions, as well as the political will, that made that fundamental 1⁄2scal reform possible. In the early twentieth century, the modern American 1⁄2scal state turned to direct and graduated taxes to reallocate the economic responsibilities of 1⁄2nancing an emerging regulatory and administrative, social-welfare state. But the reformers who sought to usher in a new 1⁄2scal order intended to use tax laws and policies for much more: to rede1⁄2ne the meaning of modern citizenship; to facilitate a fundamental change in existing political arrangements; and, perhaps most important, to help underwrite the expansion of the American liberal state. To do all of this, tax activists understood that they needed to lay an intellectual foundation in support of direct and progressive taxation. Among the critical reformers, a particular group of academic experts played a