Just 100 years ago the nation ratified one of the most far-reaching amendments to the Constitution: the 16th Amendment authorizing a federal income tax. Proposed by Congress in 1909, it won approval by three fourths of the states over a four-year period that ended in February 1913. The income tax has become so far reaching, the centennial of its enactment is an occasion that deserves a look at what it has meant to Maine.
Maine’s income tax has generated much public discussion recently after the 125th Legislature voted to lower income taxes. And the watchdog Tax Foundation on Wednesday said its analysis of the governor’s proposed 2014-15 biennial budget shows that if the governor doesn’t adjust income tax rates to inflation, it will raise average tax rates “in all cases.” But how did Maine come to have income taxes? The history lends perspective to the debate today.
In Maine, both party political platforms in 1910 gave support to the federal income tax amendment. But when legislators convened a few months later many of them initially had cold feet about voting for ratification. Setting in motion a strange set of events was a nine-to-one vote of the Legislature’s taxation committee to withhold ratification of the federal amendment unless Maine at the same time enacted its own state income tax.
Both a large number of the majority Democrats — who then controlled both branches of Maine’s Legislature — along with many of the minority Republicans — argued that only by a state income tax could Maine guarantee that the revenues raised would stay at home. House Taxation Chair William R. Pattangall, a Waterville Democrat, charged that the western states would rob eastern states, such as Maine, of their tax money in order to install “irrigation schemes costing millions” and that Maine’s tax money would be sent out West to be “taken up by speculators who hardly gave us a chance to say goodbye to it.”
Pattangall’s fears about the drain of federal income tax dollars away from Maine have not fortunately in modern times been borne out. The flow of federal dollars into Maine has always exceeded the amount our taxpayers have paid out. The surplus flow back in our direction is attributable in part to Maine’s large number of social security beneficiaries.
In any event, after an extensive debate over the wisdom of the new federal tax, the Maine House turned it down, 82 to 43. It then proceeded to vote for ratifying the federal tax on condition that a state income tax be enacted at the same time.
Surprisingly, the vote was not along either party or typical ideological lines. A number of rural Republicans voted for the tax. Some urban based Democrats voted against it. In a pattern that would repeat itself in future tax votes by the Maine Legislature, those hardest hit by the property tax — such as farmers and logging contractors — voted for a state income tax on grounds that such a tax held out the promise of property tax relief. Urban professionals, for whom the prospect of paying a tax on incomes seemed a greater threat, voted against it.
The Maine House vote tying the federal income tax to enactment of a state income tax didn’t last long, however. When the Senate balked, the House reluctantly then went along with ratifying the federal income tax constitutional amendment without tying it to simultaneous imposition of one at the state level. In less than two years, enough other states — three fourths of the then 48 — had ratified the amendment so that by February 1913 it became law of the land. Among its first missions was helping to finance World War I.
The question of whether Maine should adopt an income tax would continue to be a feature of Maine legislative debates for decades to come. By 1919, two thirds of the Maine Legislature, by then controlled by the GOP, went so far as to propose a state constitutional amendment, then seen as necessary to enable the state to enact one. When the next year the amendment came up for voter ratification, it failed on a 65,000 to 54,000 vote.
GOP Gov. Frederick Payne pushed for one in 1949 but wound up settling for the state’s first sales tax two years later instead. Our own income tax finally won approval in 1969, and it soon became a mainstay of state revenues. (It was passed by a Republican Legislature and signed into law by Democratic Gov. Kenneth Curtis.) We became the 39th state to adopt such a tax.
What Maine and the rest of the nation did a century ago set the stage then for sweeping change in the entire underpinning of both federal and state governments. After all, it would be hard to imagine our state governments today operating without the federal support to the states made possible by the national income tax. Whether one mourns or celebrates it, however, this year’s federal constitutional income tax centennial is certainly something to observe.
Paul H. Mills is a Farmington attorney known for his analyses and historical understanding of public affairs in Maine He can be reached by email at firstname.lastname@example.org.