American Economic Development, Managerial Corporate Capitalism, and the Institutional Foundations of the Modern Income Tax

Histories of the modern American income tax have generally focused on the role that social and political forces have played in the development of a new tax system. This article seeks to move beyond the social and political determinants to examine the economic factors that facilitated the adoption of the modern, graduated income tax. Without marginalizing the importance of social and political factors, the central aim of this article is to make a modest contribution to the legal and political historiography of the U.S. income tax by highlighting how changing material economic conditions afforded social groups, political reformers, and lawmakers with a unique, historically-contingent opportunity to transform the American tax system. More specifically, this article investigates how American economic growth and the advent of managerial corporate capitalism provided governments with new and crucial “tax handles” to assess and collect personal and business income. With an increasing amount of economic output and income moving through formal markets, public officials were more easily able to tap the growing tax base. And as income and economic power became concentrated in larger organizational units, namely large-scale, integrated business corporations, it became easier for taxing authorities to identify and access sources of tax revenue