Douglas K. Barney
INDIANA UNIVERSITY SOUTHEAST
and
Tonya K. Flesher
UNIVERSITY OF MISSISSIPPI
A STUDY OF THE IMPACT OF SPECIAL INTEREST GROUPS ON MAJOR TAX REFORM: AGRICULTURE AND THE 1913 INCOME TAX LAW
Abstract: Farmers have benefited from unique tax treatment since the beginning of the income tax law. This paper explores agricultural influences on the passage of the income tax in 1913, using both quali-tative and quantitative analysis. The results show that agricultural interests were influential in the development and passage of tax/tariff laws. The percentage of congressmen with agricultural ties explains the strong affection for agriculture. Discussion in congressional debates and in agricultural journals was passionate and patriotic in support of equity for farmers. The quantitative analysis reveals that the percentage farm population was a significant predictor of passage of the 16th Amendment by the states and of adoption of state income taxes in the 20th century.
INTRODUCTION
Tax legislation is a political process, with taxes levied and collected both to raise federal revenues and to achieve social goals. Numerous researchers have addressed the forces influ-encing tax policy during the 19th and early 20th centuries. This study provides a different perspective by exploring the contributions and considerations of agriculture in the development of our modern income tax laws.
Looking at the results of current income tax laws, it appears that agriculture is considered a distinct sector of society when Congress debates tax policy. There are many examples of pref-erential tax treatment for farmers. For example, only farmers can use income averaging and elect the cash, accrual, or crop methods of accounting.1 (Under the crop method, the entire cost of producing the crop must be taken as a deduction in the year in which the gross income from the crop is realized and not earlier.) Comparing two individuals, one a farmer and one a non-farmer, the non-farmer, on average, pays more in federal income taxes than does a farmer with similar income. This disparity results mainly from the opportunity for farmers to convert ordinary income to capital gain and the use of the cash method of accounting. How did farmers get these tax privileges? Searching for the answer to this question should provide insights as to how special interest groups may gain advantages in the current debate over tax reform.
Several studies provide the theoretical background for this research. Hansen [1990] points out that party leaders have only one objective – election, and that politicians assume that voters will respond to changes in their incomes induced by the government – taxes. Further, party leaders have two major considerations in the formulation of tax policy. The first is to raise revenue for the government. Second, party leaders use tax policy to distribute burdens and benefits across the electorate. In the Hansen study and in this research, “a closer examination of these two characteristics yields a number of predictions about the forces that shape the politics of tariff [tax] revision” [Hansen, 1990, p. 531]. Two propositions follow: (1) political parties adopt ideological positions on tax policy that correspond to the impact on their partisans; and (2) parties amend their tax-policy positions to reflect changes in the proportions of voters upon whom the heavier tax burdens rest in order to reflect the relocation of the political center [Hansen, 1990, p. 534]. One of the applications of these propositions is that parties adopt ideologies that match the interests of their core supporters, as will be shown in the later discussion of the history of the tariff and income tax [Hansen, 1990, p. 535]. Epstein and O’Halloran [1996, pp. 301, 319] concluded that the interests that lobbied government for favorable policies and the political parties that mediated these demands did significantly affect tariff policy from 1877-1934. Political “parties affected the manner in which interests were translated into policy outcomes by aggregating interests through coalitional politics….” “With the adoption of the Sixteenth Amendment in 1913 the United States entered the modern age of special-interest politics” [Baack and Ray, 1985, p. 624]. The results of the present study will confirm the impact of one special interest group, agriculture, on the evolution of the income tax. These results emphasize the need to monitor tax-policy statements and lobbying efforts of special interest groups as they attempt to shape platforms of political parties and tax legislation.
In his dissertation research, Holland [1978, p. 24] found that tax laws specifically directed toward agriculture developed slowly over several decades. He concluded that the evolution of the farm income tax laws began shortly after ratification of the 16th Amendment in 1913, which marks the beginning of the modern era of income taxation in the U.S. Holland asserts that the first tax law or regulation overtly affecting agriculture was allowing farmers to use the cash method in 1915. This paper will produce evidence that the actual story begins well before the 1913 ratification of the 16th Amendment and the 1913 Tariff Bill. In fact, the story begins in the 1800s and before. To understand how agriculture influenced passage of the income tax provision of the 1913 Tariff Bill requires considering taxes, tariffs, and ag-ricultural movements of the 19th and early 20th centuries.
Previous researchers have traced the support for income tax provisions to regional (South and West versus Northeast), class (poor versus rich), occupational (working class versus wealthy), and social (i.e., Populist, Progressive, Socialist) arguments. While it would be difficult, if not impossible, to separate regional, class, social, occupational, and agricultural positions, this study will trace support for the income tax provisions to agriculture.
The contribution of this paper is an exploration of agricul-tural influences on the passage of the income tax section of the 1913 Tariff Bill.2 A rather large body of literature exists concerning the development of U.S. income tax laws. Baack and Ray [1985, p. 607] trace the origin of the income tax to the War of 1812. Several studies have explained the forces for and against income taxes as based partly on regional and class differences. Congressmen from the Northeast opposed income taxes because their constituents were, on average, the wealthiest in the nation. Southern and western congressmen preferred the income tax over tariffs because of the undue burden the tariffs placed on their constituents. This study adds to this body of literature by exploring agricultural influences on the debates about tariffs and various forms of taxation.
2 Many congressmen in the formative years of federal income tax legislation had agricultural backgrounds. Because of the relatively large percentage of farm population in 1913, it is reasonable to explore the influence of agricultural interests in the formation of the current tax laws.
74 Accounting Historians Journal, December 2008
A study of the impact of special interest groups on tax reform is important due to the discussion concerning major re-form of the tax system generated by several events including the release of the final report of the President’s Advisory Council on Federal Tax Reform, the presidential campaign, the debates over social security reform, and taxation of e-commerce. Now begins the speculation over the prospects for major reform and the resultant winners and losers under a reformed system.
The insights provided by this study will be based on three sources of information. First, a historical review of political, economic, and social activities of the 19th century is related to agricultural movements, taxes, and tariffs. This study provides a different perspective by exploring the contributions and con-siderations of agriculture in the development of our modern income tax laws. Second, primary qualitative research studies the influence of agriculture on the politics of taxes and tariffs by examining tax commentary in agricultural periodicals, the Congressional Record, congressional committee reports, and congressional hearings from 1909 to 1915. Third, statistical analyses further explore agriculture’s influence on ratification of the 16th Amendment. Therefore, the primary research reported in the present study focuses on congressional activity between 1909, when the income tax amendment was sent to the states and the corporate excise tax was enacted, and 1915, when the cash method was allowed.
Immediately below are the research questions and the methodology, followed by a review of the literature. Next are the results of the primary qualitative research into the Congressional Record and agricultural publications. Correlation and regression results follow in the statistical analyses section. Summaries and conclusions are last.
RESEARCH QUESTIONS AND METHODOLOGIES
This study hypothesizes that agricultural interests influ-enced passage of the 1913 income tax law. The study’s review of agricultural publications and the Congressional Record from this period confirms the widely held notion that agricultural interests, farmers and their congressional representatives, preferred the use of income taxes instead of tariffs to generate federal revenue. Did senators and representatives consider agricultural desires when debating the 1913 income tax law? The first research question is: did agricultural interests impact passage of federal tax/tariff legislation?
To research the first question, the Congressional Record3 and agricultural publications from the period 1909 to 1915 were examined. The following primary research section incorporates articles and commentary in agricultural periodicals of the period several years before and up to passage of the U.S. individual income tax with agricultural discussions in the Congressional Record. The purpose of the research is to note if farmers, farm advocacy groups, or agricultural periodicals attempted to monitor and influence federal legislation on tariffs and income taxes and if agricultural interests were considered in the debate on tariff/tax laws.
The researchers reviewed national agricultural publications for the period 1905 to 1915. The sample included all issues of Farm Journal, American Agriculturist, Successful Farming, and The News and Farmer for this period and all issues available for Today’s Farmer, Progressive Farmer, and Prairie Farmer.4 These journals, for the most part, did not advocate or oppose the income tax directly. The debate in these journals mainly centered on tariffs, with some discussion of other taxes. The income tax is discussed as an alternative, possibly a favorable alternative, to current tariffs. Excerpts taken from these journals provide some insight into the presentation given to the tariff/income tax debate and how this debate was portrayed to the general agricultural audience. American Agriculturist (average weekly circulation in 1912 was 149,663) [American Agriculturist, February 17, 1912, p. 242] and Farm Journal (average monthly circulation in 1914 was 955,2075) gave the most space for discussion of this topic. The News and Farmer6 and Successful Farming (average monthly circulation in 1914 was 655,5327) also provided some coverage. Today’s Farmer, Progressive Farmer, and Prairie Farmer focused heavily on production agriculture with little coverage of political issues. Quantitative analysis used correlation and regression in presenting correlations of percentage farm population and per capita income tax paid in 1914 by state and year of each state’s ratification of the 16th Amendment. Year of each state’s ratification is also regressed on percentage farm population and per capita income tax paid in 1914 by state.
The second research question is: Did agricultural popula-tion percentages impact adoptions of states’ income tax laws in the 20th century? Correlations of farm population percentage and per capita income by state in 1914 and year of each state’s adoption of state income tax laws in the 20th century are pre-sented. Year of each state’s adoption of state income tax laws in the 20th century is regressed on farm population percentage and per capita income tax paid in 1914 by state.
HISTORICAL REVIEW OF AGRICULTURE AND TAXES
Brownlee [2004, p. 2] postulates that sweeping changes in the federal tax system have occurred only during times of great national emergencies – the constitutional crisis of the 1780s, the Civil War, World War I, the Great Depression, and World War II. He reviews these times of change and speculates on the prospects for radical reform in the future. What follows is a similar review, but with the focus on the impact of a special interest group – farmers.
Congress passed the first national tariff law on July 4, 1789. From that date until passage of the Underwood-Simmons Tariff Act of 1913, there were 58 U.S. tariff laws [Kip, n.d., pp. 21-27]. Tariffs provide revenues for the government and protection for domestic companies. The 1789 tariff was principally intended as a revenue-raising measure.
For much of this nation’s history, farmers constituted a majority of the population; agrarianism8 or farm fundamental-ism was strong. George Washington, Thomas Jefferson, Andrew Jackson, and Ralph Waldo Emerson were among the many individuals who manifested a special feeling for farmers and farming. Jefferson revered farmers and called farmers “God’s chosen people.” Jefferson was a less enthusiastic supporter of manufacturing interests in the U.S. and was willing to continue to import manufactured goods from England. Alexander Hamilton, on the other hand, supported the view that encouraging large commercial interests ultimately helped all other interests in the U.S. economy. The Whiskey Rebellion of 1794 is a good example of
8 Agrarianism is the idealization of the American farmer. Agrarianism is the belief that rural life is the ideal life, that farmers are virtuous, hard-working, honest, and independent.
these two contrasting views and the reaction of farmers [Ratner, 1942, p. 37].
After 1812, tariffs helped the nation begin a transition from agriculture to industry. Republicans were strong proponents of tariffs for the protection of industries. Many of these industries were in their infancies, and protectionists considered tariffs necessary to help the foundling industries flourish. The period from 1830 to 1860 saw considerable changes in tariff legislation as parties in power changed. Businessmen in northeastern states and their Republican congressmen favored tariffs. The middle class and farmers opposed tariffs, and this was the general view of the Democratic Party [Ratner, 1942, p. 26]. Farmers opposed tariffs as economically detrimental to agriculture because the tariffs forced up prices of farm inputs, such as machinery, without equally protecting farm produce.
At the outbreak of the Civil War, Congress passed an income tax. Congressmen from the Northeast were vehemently opposed to the income tax. Representative Justin Morrill of Vermont, author of the Morrill Tariff Act of 1861, argued that the progressive tax rates were a sign of agrarianism [Witte, 1985, p. 69]. The Civil War led to increased tariff rates and expansion of the items on which tariffs were placed. Congress discontinued the income tax in 1872, but high tariffs continued after the war. Tariffs were highest on cheaper grades of products. “Thus an undue share of the taxes for the support of the national government and the payment of its enormous war debt was borne by the people of small means, among whom we must certainly class the agricultural population” [Buck, 1933, pp. 22-23]. Two important lessons were learned from the Civil War income tax experience. “The first was that the income tax generated an impressive amount of revenue…The second lesson was that the burden of the income tax fell only on a few states. New York alone paid about one third of the entire tax. Massachusetts and Pennsylvania each contributed about 13 percent” [Baack and Ray, 1985, p. 608].
Rise of Anti-Tariff Movement: During much of the 1800s, especially after the Civil War, pioneers moved west. Land opened up for expansion and farmers and ranchers settled the land. As the latter half of the 1800s unfolded, the powerful manufacturing interests in the Northeast lost much of their stranglehold on U.S. politics. Constituencies of new states consisted heavily of the working class, small-shop owners, and farmers [Ratner, 1942, p. 160]. Farmers often had few options as to where to buy inputs and supplies or where to sell produce. The tariff situation further tightened the price/cost squeeze. Tariffs were generally placed on imported manufactured goods, such as farm machinery, while farm products competed on a fairly open world market. In general, farmers favored reduction or elimination of import tariffs on manufactured goods and tariffs on imported agricultural goods. Farmers complained that prices for their produce fluctuated according to the world market, while input costs were set unfairly high to put money in the hands of northeastern manufacturers. “The objection to the protective tariff seems to have been based upon the feeling that it was class legislation – that it taxed the farmer for the benefit of the manufacturer…” [Buck, 1933, p. 101]. “The farmers and workers upon whose shoulders the business groups attempted to place the tax load resisted, as best they could …” [Ratner, 1942, p. 16]
These injuries gave rise to the Grange (or Patrons of Hus-bandry, see Table 1) in 1867. The intent of O.H. Kelley, founder of the Grange, was to form a nonpartisan fraternity to advance the position of farmers throughout the nation. The Grange did not receive much attention from farmers, however, until it addressed the political and economic issues of most importance to them. One of the items on the Grange platform was “…equitable revision of the tariff…” [Farm Journal, March 1909, p. 134]. The Grange also desired that Congress set up a national tariff commission, and that farmers hold positions on this commission [Farm Journal, February 1909, p. 25]. However, the Grange’s foremost organized effort was to confront railroads and merchant middlemen.
Numerous branches of the Grange developed in the ensuing decade, predominantly in the upper Midwest. The Grange declined as an important power after 1880, but some of its policy objectives lived on in the Greenback Party, Farmers’ Alliance, Populist Party, and Progressivism [Ratner et al., 1979, p. 267]. The Populist Party incorporated several of the platforms of the farmers’ alliances, including the progressive income tax. The hard economic times, especially on farms, strengthened the position of the Populist Party [Seligman, 1914, p. 494].
These agricultural movements may have had some impact on tariff rates. In the latter half of the 1800s, tariff rates, as a percent of duties to total imports, were highest in 1868 at 46%. This rate declined to about 30% in 1873, dropping to about 20% in 1892. “The trouble with the whole tariff question lies in the growing sentiment at Washington that the United States is a manufacturing nation and not an agricultural country -Anything to promote manufactures, regardless of the effect on farming” [American Agriculturist, February 4, 1911, p. 176]. The average tariff rate fluctuated from 20 to 25% until 1911. Once the national income tax became a possibility in the early 1900s, tariff rates dropped precipitously to a low of 6% in 1919. Rates later rose to about 15% in the 1920s, but never regained their pre-1900 importance [Taussig, 1931, pp. 527-528].
During a seven-year period in the 1870s, congressmen from heavily agricultural states introduced 14 bills proposing income tax legislation. Wealthy capitalists from the Northeast did not allow any congressional votes on these bills [Ratner, 1942, p. 148]. While the industrial powers of the Northeast were well organized and singularly focused, at least regarding tariffs and taxes, farmers were politically unorganized and had many different goals. Their numbers were great, but they were independent. Farmers raised many different crops (i.e., corn, wheat, hogs, oranges, potatoes). Due to diversity in operations, great geographic distances, and their independence, farmers seldom agreed on issues of importance and had even greater trouble cooperating in joint political activity. For example, southern farmers, even though they agreed with northern farmers on many issues, did not wish to forsake the Democratic Party for fear of giving northern Republicans too much power [Ratner, 1942, p. 167]. However, “the agrarian movement achieved political strength and consolidated that strength in the formation of the Populist Party during the 1880s and early 1890s…” [Baack and Ray, 1985, p. 611].
Given the previous problems of combining efforts for the common good of farmers, the rise of the Populist Party is evidence of the power of “pocketbook” issues, such as taxes, to unite members of an industry. In fact, the 1894 Tariff Act included a provision for a federal income tax, which would have resulted in the taxation of only about 5% of the population, most of whom were in the Northeast. Northeastern businessmen and their congressmen cited it as an attempt to rob from the wealthy. Populists responded that the wealthy gained their wealth at the expense of the poor and middle classes. Congress passed the income tax bill in hope of appeasing agricultural interests and Populists. The Supreme Court, however, in a five to four vote, cited the income tax provision as unconstitutional because it did not apportion taxes directly [Pollock v. Farmers’ Loan and Trust, 1895]. Congressmen made numerous proposals for income taxes between 1895 and 1909, but none became law. All of these proposals were made by congressmen from the South and West [Blakey and Blakey, 1940, p. 8].
In the 1896 presidential election, William Jennings Bryan of Nebraska ran with Populist support, but the loss of the Populist candidates in the 1892 and 1896 elections was a blow to agriculture. Farmers and agricultural interests, while still a majority of the U.S. population, apparently did not carry the political clout needed to win presidential elections. The Populist movement lost much momentum and support after the 1896 election, but still carried some political influence well into the 20th century. “Traditional Democratic support came from the South. But the ultimate merger of the agrarian Populist movement with the Democratic party also suggests that during the 1880s and early 1890s support for the political objectives of the Democrats came from Midwestern agricultural states” [Baack and Ray, 1985, p. 611]. Two of the movements that came out of Populism were the Progressive Party and the Country Life Movement. Many Populists joined the Progressive Party in its push to reduce tariffs, implement a graduated income tax, and gain government control of railroads. The Country Life Movement had a shorter life than the Progressive movement. Country Life supporters were generally urban individuals with strong rural ties. Theodore Roosevelt was a Progressive and a strong supporter of the Country Life Movement. In 1908, he appointed a commission to investigate rural life and disclose hardships faced by farmers. The commission noted that there was a distinct migration of individuals from farms to cities and that farmers did not have the political influence of industrial and urban interests because farmers were unorganized [Ratner, 1942, p. 261] .
Table 1 provides a summary of the important events depicted above. Several items are significant to note. The influence of agricultural movements, such as the Grange, is greatest during times of relatively high tariffs. The U.S. ended the Civil War with a deficit, inaugurating a period of higher tariff rates. After ratification of the 16th Amendment and passage of the U.S. income tax law, tariff rates declined and never again regained their previous high levels.
History Immediately Preceding Debate on the 1913 Income Tax Law: From 1900 to 1909, congressional debate flared over the questions of tariffs and taxes. Federal income tax proposals abounded. Congressmen debated how to frame these income tax proposals in accordance with the Constitution. Nelson Aldrich of Rhode Island, chairman of the Senate Finance Committee, was strongly opposed to any income tax provision. Instead, he
TABLE 1
19th and Early 20th Century Timeline
Budget Deficit or Surplus (000s)* Tariff Duties as % of Imported Value ** Agriculture and Tax Movements
1800 63 Most New England states tax some form of income.
1805 3,054
1810 1,228
1815 -16,979
1820 -380
1825 5,984
1830 9,701
1835 17,857
1840 -4,837 Seven states adopt income tax due to recession.
1845 7,033
1850 4,060
1855 5,608
1860 -7,066 16% 1861-1872, North uses income tax to support war effort.
1865 -963,841 38%
1867 133,091 Grange founded.
1870 101,602 42% 1874-1878 Grange grows rapidly.
1875 13,377 28% Independence Party represents Grange.
1880 65,884 29%
1885 63,464 31% decline of Grange
1889 87,761
1890 85,040 29% Bryan and other westerners support Populist Party, Farmers’ Alliance, and Knights of Labor founded on platforms in St. Louis.
1892 9,914 Weaver runs for President.
1894 -61,170 income tax amendment to 18 94 tariff act
1895 -31,466 20% U.S. Supreme Court rules income tax unconstitutional.
1896 -14,037 Bryan runs for president.
1900 46,380 28%
1905 -23,004 24%
1909 -89,423 16th Amendment submitted to the states.
1910 -18,105 29%
1913 -401 16th Amendment ratified by needed majority of states. Tariff Bill of 1913 includes income tax provision.
1915 -62,676 15%
1920 291,222 6%
Bureau of the Census [1975b]
of the United States
*U.S. Department of Commerce, **F.W. Taussig, The Tariff History
designed a tariff bill that dramatically increased tariff rates.9 This move caused a severe backlash from Democrats and mod-erate Republicans. Conservative Republicans wanted to take the “wind from the sails” of the Populists and Progressives by proposing income tax laws. Taft, the Republican president, and Aldrich proposed submitting to the states for ratification of a constitutional amendment providing Congress the power to levy income taxes. Aldrich did this as a compromise measure in the hope that this amendment would ultimately fail, resulting in no income tax law [Ratner, 1942, p. 287].
Congressmen from heavily agricultural states continued to make income tax proposals in the years leading up to 1909, but all were effectively blocked by congressional Republicans. The Democratic platform of 1908 called for a federal income tax as part of the system to raise revenue and for the passage of an amendment to the Constitution to allow Congress to impose and collect income taxes. At the turn of the century, “Agriculture had undergone a relative decline in economic importance as urban manufacturing, commerce, and the service industries had increased their share of the national labor force and the national income” [Ratner et al., 1979, p. 253]. A division in the power of the Republican Party in 1909, however, provided an opportunity for passage of income tax legislation [Ratner, 1942, p. 273]. Due to a compelling speech by Senator Elihu Root, Congress passed a corporate tax bill instead of the individual income tax bill [Ratner, 1942, p. 290]. At least some amelioration was given to farmers as the final version10 was more favorable to farmers than Aldrich’s original proposal due to a “determined stand taken against Aldrich and his gang by the president” [American Agriculturist, August 7, 1909, p. 113].
After the elections of 1912, the Democrats held control of both houses of Congress. With this power and subsequent ratification of the 16th Amendment by the needed majority of states in 1913 (see Table 2), Democrats quickly submitted a federal income tax law. This income tax law also incorporated the corporate excise tax of 1909.
Table 2 provides some information on the above discussion and the data on which the resulting statistical analyses are
‘ Review of national budget deficits and surpluses of this time shows that the nation was operating at a deficit in both 1909 and 1913, but there was a surplus in 1911 and 1912 (see Table 1).
10 The News and Farmer provided a comprehensive discussion of the proposed 1909 income tax law and its implications for farmers.
based. The regional split in Table 2 shows the low percentage farm population in some New England and Middle Atlantic states in 1910. Several of these states (Rhode Island, Con-necticut, and Pennsylvania) with low farm populations either rejected the 16th Amendment or took no action. It is interesting that New York, with only a 10% farm population, was an early adopter of both the 16th Amendment and its state income tax. This is especially ironic as New York easily had the highest per capita income taxes paid. The table shows the year each state adopted an income tax up to 1942. This table provides the input for the correlation and regression analyses that follow.
TABLE 2 State Taxation Record and Farm Population
Percent Farm Population in 1910* Date of 16th Amendment
Passage** Year of First Modern State Income Taxes (up to
1942)*** Per Capita ($) Individual Income Taxes Paid in fiscal year ended June 30, 1914#
New England
Maine 33 03/30/1911 .113941
New Hampshire 24 02/19/1913 1923 .061527
Vermont 40 02/19/1913 1931 .027135
Massachusetts 4 03/04/1913 1916 .163556
Rhode Island 4 Rejected .139847
Connecticut 10 Rejected .139396
Middle Atlantic
New York 10 07/12/1911 1917 .254368
New Jersey 6 02/04/1913 .131723
Pennsylvania 14 No action 1935 .189499
East North Central
Ohio 26 01/19/1911 1931 .114332
Indiana 37 01/30/1911 .053525
Illinois 21 03/01/1910 1932 .202436
Michigan 32 02/23/1911 .188782
Wisconsin 39 05/26/1911 1911 .063155
West North Central
Minnesota 40 06/11/1912 1933 .156847
Iowa 47 02/24/1911 1934 .043400
Missouri 41 03/16/1911 1917 .101313
North Dakota 64 02/16/1911 1919 .024158
South Dakota 64 02/03/1912 1935 .015709
Nebraska 53 02/08/1911 .057982
Kansas 49 02/18/1911 1933 .034661
South Atlantic
Delaware 28 02/03/1913 1917 .171158
Maryland 23 04/08/1910 1937 .163556
Virginia 52 No action 1916 .047634
West Virginia 45 01/29/1913 1935 .078259
North Carolina 64 02/11/1911 1921 .038264
South Carolina 64 01/19/1910 1922 .045780
Georgia 61 07/11/1910 1929 .042955
Florida 36 Rejected .045320
East South Central
Kentucky 56 02/09/1910 1936 .035836
Tennessee 58 04/07/1911 1923 .022518
Alabama 64 08/10/1909 1933 .029047
Mississippi 75 03/07/1910 1912 .010401
West South Central
Arkansas 70 04/22/1911 1929 013112
Louisiana 44 06/28/1912 1934 .062493
Oklahoma 62 03/09/1910 1915 .028546
Texas 59 08/16/1910 .041476
Mountain
Montana 30 01/30/1911 1917 .063622
Idaho 45 01/20/1911 1931 .028506
Wyoming 36 02/03/1913
Colorado 25 02/15/1911 1937 .147643
New Mexico 56 02/03/1913 1933 .033150
Arizona 42 04/06/1912 1933 .075804
Utah 33 Rejected 1931 .175933
Nevada 13 01/31/1911 .011476
Pacific
Washington 23 01/26/1911 1929 .109362
Oregon 31 01/23/1911 1929 .131305
California 17 01/31/1911 1929 .233423
The states are divided in this manner to give a better view of income taxes paid by region of the nation. Average individual income taxes across the nation were $.115869 per capita.
* U.S. Department of Commerce, Bureau of the Census [1913, p. 56; 1975b, pp. 24-37]
** Blakey and Blakey [1940, p. 69] *** Blakey and Johnson [1942, pp. 3-4]
# Individual income taxes paid contained in a letter from the acting secretary of commerce to the 63rd Congress, dated December 14, 1914; 1910 state census
populations from U.S. Department of Commerce, Bureau of the Census [1975b].
As this secondary research shows, there is considerable evidence that the histories of agriculture, taxes, and tariffs are deeply intertwined. Whether this connection is strong enough to create an identifiable relationship between agriculture and tax/ tariff legislation is the subject of the following qualitative and quantitative primary research.
CONGRESSIONAL RECORD AND AGRICULTURAL PERIODICALS
In 1909 and in 1913, the Senate debated two new tariff bills and proposals for an income tax. If Congress dropped tariffs as a major source of revenue, then another tax must take its place. The income tax was the major alternative to tariffs. In 1909 and 1913, the Senate debated proposed income tax amendments to tariff bills. In 1913, both houses debated the first income tax.
Before 1909, tariff revenues were important in financing the federal budget. Congress was under pressure, however, from several sides on the tariff issue as it related to agriculture. First, consumers called for repeal of the tariffs imposed on agricultural goods in order to reduce the cost of these goods. Second, some congressmen proposed imposition of higher tariffs on imported agricultural goods, such as hemp,11 to bolster faltering farm prices. These congressmen primarily addressed goods grown in their home states. Third, congressmen from highly agricultural states proposed removal of tariffs on agricultural equipment needed by farmers.
The debate over use of tariffs for protection or revenue usually split along party lines unless constituents’ interests were at stake. As noted by Representative Sam Rayburn of Texas, “…our Republican friends will find that they are dealing with a thinking and intelligent class, who can not be easily fooled by the trickery of the political orator” [Congressional Record, May 6, 1913, p. 1247]. Congressman Rayburn took exception to the use of tariffs as a protective measure. Texas’ population was 59% agricultural in 1910 (Table 2). Nationwide, many farmers voted for Democratic candidates because of the party’s platform position on tariffs. [Hibbard, 1902, p. 170].
Speaking for the other side, Senator Chauncey Depew (New York) was very much opposed to income taxation and argued against it on constitutional grounds [Congressional Record, May 17, 1909, p. 2102]. Only 10% of New York’s population lived on farms in 1910. During the imposition of the Civil War income tax, New York paid approximately 30% of the income tax paid by all states (North and South) [Seligman, 1914, p. 482, Table III].
News and Farmer [June 24, 1909] identified members of Congress for and against the law by name. Several American Agriculturist issues also named individuals pro and con on the tariff law. “The party line-up will, of course, be maintenance of the protective policy by the republicans and tariff for revenue only by the democrats” [American Agriculturist, March 27, 1909, p. 423]. In the Senate, the vast majority of the farm-state Democrats and Republican Senators Dolliver and Cummins of Iowa, Nelson and Clapp of Minnesota, Beveridge of Indiana, Bristow of Kansas, and LaFollette of Wisconsin, “popularly known as progressive republicans,” voted against the 1909 Payne tariff bill [American Agriculturist, August 14, 1909, p. 129].
Agricultural publications mentioned Senator Porter Mc-Cumber of North Dakota, for example, who spent considerable congressional time analyzing various agricultural aspects of tariff legislation, including the impact on each agricultural pro duct and debating at length the plight of the American farmer on several occasions. When American Agriculturist [July 31, 1909, p. 88] announced the proposed 16th Amendment in 1909, the publication noted that eastern states will probably be against the amendment with the rest of the country for it. During the years of agricultural publications and congressional debate examined here (1909 to 1915), the rhetoric often relied heavily on key values, such as fairness and patriotism, and the lack of solidarity of the farm vote.
“Fairness” Issue: The main issue of concern to farmers was one of “fairness.” The general sentiment regarding the inequity of the tariff laws to farmers echoed in agricultural publications and in agricultural political parties. The popular slogan was “Tariff for all or tariff for none. A square deal” [Farm Journal, April 1910, p. 249]. The American Agriculturist [February 10, 1912, p. 260] reduced the tariff issue to a question of fairness.
The whole thing is simple. If the products that the farmers sell are to be admitted duty free, then the things the farmers buy must also be admitted duty free. If the products that the manufacturer makes for farmers and others are to be protected, then the products that the manufacturer and his workmen buy of the farmer, either in the raw or finished state must also be protected….The tariff must apply to one and all alike. It can’t be one system for one half the people and another system for the other half. If tariff reform is to be undertaken, it must be on the principle that all are to be treated alike.
The concept of fairness also had its roots in economic con-cerns. Farmers were caught in a price/cost squeeze. The goods they purchased were protected manufactured goods subject to transportation costs (particularly railroads) and to middlemen’s handling fees.
During the first decade of the 20th century, there was in-creasing resentment of tariffs by farmers. Farmers felt that their economic group suffered more than others: “To a greater extent than ever before the farmer is subject to conditions which he did not create and which he is powerless to control. The centralization of business of all kinds in the hands of the few, and in populous centers, has closed the little shops and factories and destroyed communal life in hundreds of thousands of villages and small towns” [Farm Journal, April 1910, p. 235].
Congressmen received letters and telegrams from their con-stituents asking for repeal of the tariffs. The American Agricul-turist [April 17, 1909, p. 512] urged farmers everywhere to send a message to win the victory over the tariff.
According to Hibbard [1902, p. 135], it was common for farmers and agricultural organizations to petition Congress. Appeals, noted or included in full in the Congressional Record [April 1909, pp. 1354-1372], often focused directly on repeal of tariffs on specific farm produce: sugar, wool, wood, hides, and cigars. The American Agriculturist [April 29, 1911, p. 658] called on farmers to send letters to congressmen to maintain tariffs on trade with Canada. This appeal is made in several consecutive issues. The January 11, 1913 issue [p. 37] called on farmers to write their congressmen and enclose a copy of a petition calling on Congress to confer “justice in taxation” for farmers. The May 3, 1913 issue [p. 606] calls again on farmers to “Above all, act! And act quickly!” by sending a petition (provided in the issue) to their congressmen to prevent injustice to farmers in tariff reduction. The periodical asked that tariffs be applied to both manufactured and farm goods or lifted from both. Farm Journal12 reiterated the Grange’s platform of “Tariff for all or tariff
12 Agricultural publications were not the only periodicals criticizing taxation for its detrimental effects on agriculture. An article in the Journal of Political Economy (Vol. 17, June 1909, pp. 354-362) determined that property taxes were harmful to agriculture.
for none” [May 1911, p. 320] and called on farmers to unite and write their congressmen [February 1910, p. 76].
One agricultural periodical subscriber summarized his perception of the tariff issue: “[t]he Democrats are more guilty than the Republicans. The Republicans are frankly prejudiced, insular and afraid. The Democrats, however, see the light, use it against their opponents, and yet lack the courage to push the knowledge they have to its only logical conclusion – absolute free-trade” [Farm Journal, May 1913, p. 330].
Patriotic Appeal: Support of agriculture often had patriotic appeal: “Civilization in all modern countries proves that agriculture is the basis of a nation…Under these conditions, American agriculture will feed not only our own people but Europe’s population…and the American flag insure peace around the globe!” [American Agriculturist, May 10, 1913, p. 632]
Debate on the tariff bill was heated, and congressmen used patriotic rhetoric to support their positions. According to Senator McLaurin of Mississippi [Congressional Record, May 14, 1909, p. 2047]:
The farming people of this country do not ask that you give them any protection, when ‘protection’ is used in the sense of an opportunity or power to rob the masses of the people, or to take the money that belongs to others and put it into their own pockets; but they do ask an opportunity to devote the fruit of their labor to their own interest, their own protection, their own comfort, and their own welfare. They ask that you take off of them the heavy hand of what you call ‘protection,’ but what really, in fact, is an opportunity for extortion…The farmers of this country produce the provisions upon which all of us live. They produce the clothing that clothes us….
Senator McLaurin’s home state of Mississippi had a farm population representing 75% of its total population. This percentage was significantly above the national average of 34.9% in 1910.
Ties to agriculture are evident in the following speech by Representative Hamlin of Missouri, a speech that proclaims the deleterious effects of tariff legislation on farming [Congressional Record, July 12, 1909, p. 4431]:
…I undertake to say that no man with a proper regard for the truth will deny that no class of people has been as persistently discriminated against in tariff legislation as has the farmer. I am his friend, and I am proud of it. I was born and reared on the farm. I have plowed, I have planted, I have sown, I have reaped, and I know that the farmer literally ‘earns his bread in the sweat of his face,’ but I have never ceased to be thankful that I was born and reared on the farm…Therefore I believe that I know what the farmer wants, at least I know something of his condition and his relation to national legislation, and so long as I shall remain a Member of Congress I shall do what I can to see that he receives fair and equal treatment.
Senator Porter McCumber of North Dakota was not about to be left out of the patriotic call to arms in defense of farmers against tariffs [Congressional Record, July 14, 1913, p. 2400]:
And so I shall address myself first to you, the Democratic Party, with reference to your assault upon the American farmer. In this year 1913 you are about to commit a greater crime against the American farmer than has ever been perpetrated by any political party against any class of people during any period of recorded history. You are about to rob him of sacred rights which he has paid for through long years of toil, self-denial, and patient waiting. With violent hands you are about to strip him of every advantage which the changed conditions of home supply and demand were about to yield him. You have declared that he is an outcast in the land which he has made, the only one of all classes of American people who is not entitled to any consideration at your hands…My first question is, What crime has the American farmer committed against the Democratic Party that has awakened in the heart of that party this dire vengeance against him?…Let me ask another ques-tion: Is not the American farmer equal in intelligence to the American stonecutter, bricklayer, carpenter, or plasterer?…I want to protest right here with all the earnestness in my power against the assumption which seems to prevail everywhere that the tiller of the soil is not expected to live on a plane of equality with the average person engaged in city avocations.
Senator McCumber was one of the most outspoken supporters of farmers during the early years of the 20th century.13 His home state of North Dakota had 64% of its population living on farms in 1910. Of the senators speaking for farmers, McCumber
13 Senator McCumber supported the use of income taxes and here lambastes the 1913 Tariff Bill, not for its income tax provision, but for the effects of its tariffs on agriculture.
was from the state with the second highest percentage of farm population behind only Mississippi’s 75%. Even these patriotic appeals were not enough to sway congressional votes toward the desires of farmers when farmers could not cooperate on political issues.
Solidarity: Due to geographic dispersion, differences in farm enterprises, and a strong sense of independence, solidarity as a political unit eluded farmers. The diverse interests of farmers made it difficult to build a strong community [Farm Journal, April 1914, p. 270]. “The farmer’s interests have undoubtedly suffered most because of the absence of that solidarity that pre-vails in other fields of effort” [Farm Journal, November 1912, p. 539]. Senator McCumber also explained why the American farmer had comparatively little political influence [Congressional Record, July 14, 1913, p. 2398]:
Labor is organized into a great federation, the head of which appears before our committees, tells us what or-ganized labor demands, sits in our galleries, and checks our votes, and we are afraid of him. The farmer is not organized; his interests are so scattered and the char-acter of his products so diversified that he has been un-able to organize a great national political society, and so you are not much afraid of him.
A comment in the Farm Journal [March 1911, p. 165] ar-gued that farmers pay more than their share of taxes due to in-adequate organization. “It is ‘up to’ the farmers, by organization, to save themselves and others from the effects of extravagance, corruption and injustice.” Farmers deserved a “front seat at the political table,” not “shoved into the back seats” nor “forced to accept what few crumbs fell from the politician’s table” [American Agriculturist, May 7, 1910, p. 676]. As the tariff debate progressed, the discussion shifted to focus on what could replace tariffs as a primary revenue generator.
Alternative Forms of Raising Revenue: American Agriculturist published numerous articles about alternative forms of raising federal revenues, including tariffs, income taxes, and property taxes. Senator Moses Clapp of Minnesota provided a synopsis of the possible sources of revenue. Increased revenues could come from increased taxes on tobacco or liquor; or inheritance tax, property tax, income tax; or corporate tax. The taxes on tobacco or liquor did not meet with congressional approval. Therefore only the last four were viable options [Congressional Record, July 1, 1909, p. 4008]. The inheritance tax, however, was given little consideration, and the major focus was on whether to tax income or property.
Concerning the income tax, Congress debated levying the income tax on corporations or on individuals. Dudley Hughes of Georgia was among the senators who proclaimed that a tax levied only on corporations could not be passed because of negative feedback from farmers who had incorporated their farms [Congressional Record, July 2, 1909, p. 4045]. Senator Cummins of Iowa (with a farm population of 47%) felt that there were enough farmers who had incorporated their operations to cause resentment of a corporate income tax law: “These small corporations have sprung up in every part of our country, and there are no exemptions in this provision” [Congressional Record, June 30, 1909, p. 3979].
American Agriculturist [July 24, 1909, p. 68], on the other hand, was much in favor of the corporate income tax:
The corporations are appealing to the farmers to assist in defeating this measure, pointing out that co-operative associations, creameries and other organizations having directly to do with agriculture will suffer. This comes with mighty poor grace from men who, with very few exceptions, have combined to wring from the farmers and the agricultural interests in general a larger proportion of their earnings than existing conditions warrant. They have combined to make the farmer pay larger prices for his machinery, his groceries, his dry goods, his fencing and everything else which he has to buy. The farmer is the creator of wealth. Corporations attempt to get this wealth from him, leaving simply enough for a bare living in most cases, with occasionally a few luxuries thrown in as a sop. The farmer is looked upon as legitimate prey for corporate interests. It comes with very bad grace, therefore, for the corporations to appeal to farming interests. Let them fight their own battles. Let them pay their just proportion of taxes.
Property taxes were also a possible source of federal revenue, although some congressmen felt that property owners were already taxed too heavily [Congressional Record, May 4, 1909, p. 1701]. According to Senator Charles Dick of Ohio [Congressional Record, August 5, 1909, p. 4958]: “In the United States the great [tax] burden rests upon the middle class, the small farm owners and small home owners.” Senator George Sutherland of Utah [Congressional Record, May 17, 1909, p. 2092] spoke against property taxes “because it destroys the equality of taxation and saddles the farmers with an undue burden.” Agricultural sentiment was strong against using property taxes to generate federal revenues. Taxes on property would have serious implications to those property-owning taxpayers who could not shift the increased cost of taxes to the consumers of farm products. Farmers had no influence in fixing prices as manufacturers did [Stewart, 1927, p. 69].
The average farmer earned well below the exemption amount provided in the income tax provisions. Therefore, most farmers would not be subject to income tax, certainly a reason farmers preferred income taxes to tariffs. In fact, few farmers paid federal income taxes in the first years of the tax because of the exemption levels and relatively low farm incomes.
The August 28, 1909 issue of American Agriculturist [p. 167] provides considerable discussion on the proposed income tax amendment, including some history of how earlier attempts to enact an income tax had met with opposition from the eastern states. “In this country the wealthy people who habitually evade, so far as possible, every form of taxation, are bitterly opposed to an income tax.
Congressional Backgrounds: Many congressmen of the era under study had ties to agriculture. As of the 1910 census, 34.9% of the U.S. population were farmers [U.S. Dept. of Commerce, 1975a, p. 457]. This percentage was down from approximately 50% in 1870. A cursory review of the biographies of the senators identified in the above discussions indicates that the average age of senators was about 55 years [Biographical Directory, 1989]. This would mean that these senators were born about 1855. In 1855, over half of the U.S. population was engaged in agriculture. Most of the vocal congressmen grew up in small-town, agricultural settings.
Table 3 lists the major farm supporters identified in the Congressional Record, their home state, and the percentage farm population in 1910. Most of these states had farm populations well over the national average, including four states with farm populations over 50%. Eight of the 11 states listed are west of the Mississippi. None of the states represented in Table 3 are from New England or the Middle Atlantic states listed in Table 2.
14 “Few farmers pay income-tax: only twenty-nine farmers out of every thou-sand paid income-tax in 1923” [Stewart, 1927, p. 69].
Barney and Flesher, Agriculture and the 1913 Tax Law
TABLE 3 Strong Agricultural Supporters
Senator Hometown State Represented % Farm Population
Joseph Bailey Crystal Springs (MS) Texas 59%
Thomas Carter Pana (IL) Montana 30%
Moses Clapp Delphi (IN) Minnesota 40%
Albert Cummins Carmichaels (PA) Iowa 47%
Charles Dick Akron Ohio 26%
Dudley Hughes Jeffersonville Georgia 61%
Porter McCumber Crete (IL) North Dakota 64%
Anselm McLaurin Brandon Mississippi 75%
George Sutherland Springville Utah 33%
William Thompson Garden City Kansas 49%
Representative Hometown State Represented % Farm Population
Courtney Hamlin Brevard (NC) Missouri 41%
Sam Rayburn Bonham Texas 59%
Source: U.S. Department of Commerce, Bureau of the Census [1975b]
Biographical Directory of the United States Congress: 1774-1989 [1989]
Two of the most vocal supporters of farmers, Senators Cummins and McCumber, were from highly agricultural states, Iowa and North Dakota, respectively. In 1910, 47% of Iowa’s population and 64% of North Dakota’s population were agricultural. The repeated references to farmers in the Congressional Record show that congressmen considered farmers in the tax debates.
Summary of Qualitative Research: The qualitative research shows that agriculture was considered in the congressional income tax/ tariff debates. If left to the designs of Senators McCumber and Cummins, early tax law and possibly current tax law, might be much more favorable to agriculture. Other congressmen, while not as vocal, gave notice that they too felt a kinship with agriculture or at least a concern for the farm vote. The number of congressmen coming from rural settings explains their strong affection for agriculture. The discussion of agriculture in the congressional debates was pervasive. Agricultural publications of the time also focused considerable attention on the debate between tariffs and taxes and whether taxes should be based on property or income. Congress decided to base the tax calculation on income, partially because property, much of which was held by farmers, was already highly taxed. The agricultural magazines also encouraged readers to petition congressmen to favor farm interests. These letter-writing campaigns would have reminded politicians of the importance of the farm vote.
STATISTICAL RESEARCH RESULTS
The previous sections have shown qualitatively that con-gressmen considered agriculture in the income tax/tariff debate. This section explores this issue statistically and further introduces the possibility that individual states’ votes on the 16th Amendment and adoption of state income tax laws in the 20th century were influenced by their percentage of agricultural population.
This study hypothesizes that the percentage farm popula-tion of a state will be a determining factor in adoption of the 16th Amendment. The factors analyzed were: percentage farm population of each state in 1910, year of the passage of the 16th Amendment in each state, year in which each state adopted state income taxes in this century, and per capita federal individual income tax in each state in the fiscal year ended June 30, 1914. Table 2 shows the input data for the statistical analyses.
A related area of interest is to study the adoption of state income tax laws in this century to see if the percentage farm population had an impact on increased reliance by states on income taxes for raising revenues instead of other forms of revenue generation. Another reason for including this factor is the diversity that existed among state taxation systems. Einhorn [2006, pp. 218-224] notes that by the antebellum era, there were two patterns of state tax structures, northern and southern, even though the government systems of the North and South were more similar than they had ever been. These differing state backgrounds may have influenced the adoption of the 16th Amendment. “Important to the new support for federal income taxation was the formation of an urban-rural alignment of middle-class citizens who favored state and local tax reform” [Brownlee, 2004, p. 49]. The economic depression of the 1890s caused more demand for services from state and local government and led states to look at adopting an income tax to bolster revenues [Brownlee, 2004, pp. 49-50]. A leader of one Grange recommended: “…that if the federal government by reason of the income tax can uncover millions that heretofore have been concealed, the states should likewise take up the matter and assess such wealth in order that the burden unfairly placed upon the farmer might be relieved” [Farm Journal, February 1914, p. 102].
Table 4 presents the results of correlation analysis.15 The results show that percentage farm population is significantly correlated with 16th Amendment passage (p<.01), the year in which states adopted state income taxes (p<.10), and with per capita income taxes paid by state (p<.01). In addition to being significant correlations, the levels of these correlations were notable. The negative correlations are as expected. As percent farm population increases, states adopted the 16th Amendment and their own state income taxes earlier. As mentioned above, percent farm population is highly correlated with per capita income taxes. Those states with higher farm populations tended to pay lower income taxes per person. Per capita income taxes paid by state significantly correlated (p<.10) with passage of the 16th Amendment in the anticipated direction, but not with the year in which states adopted state income taxes. The correlation between per capita income taxes and 16th Amendment passage is positive; states paying lower income tax rates passed the 16th Amendment earlier. In addition, the level of correlation and degree of significance between per capita income tax and 16th Amendment passage is not as great as the correlation and degree of significance between percentage farm population and 16th Amendment passage respectively. Table 5 provides the results of regression analysis. In the 15 Correlation analysis examines the relationship between two variables. Correlation coefficients can range from -1 to 1. The absolute value of the correlation is the level of the relationship. The sign of the coefficient shows if the two vari ables move in the same direction (positive sign) or opposite directions (negative sign). For example, if two factors change perfectly proportionately in the same direction their correlation would be 1. If they change perfectly proportionately in opposite directions, their correlation is -1. Two variables that are not correlated would have a coefficient of correlation near 0. The level of significance gives the odds that this relationship is the result of random occurrence. For example, in Table 2, percent farm population and 16th Amendment passage have a coefficient of correlation of -.437 and a level of significance of .002. This means that the two variables move moderately in opposite step with each other (-.437 is between 0 and -1), and the chances of this level of correlation happening randomly are about 2 in one thousand (.002). This would be designated p<.01. The negative sign in dicates that when one variable increases, the other variable tends to decrease. In this case, earlier passage of the 16th Amendment (smaller years) is correlated with higher farm population, hence the negative coefficient of correlation. 16 Regression analysis is another statistical method to analyze data. Regression analysis, when combined with supporting theory, as in our qualitative dis cussion above, can lend support to the theory that one variable affects another variable. In this paper, the theory postulates that percentage farm population is at least partially predictive of 16th Amendment passage and year of state income tax adoption. As with correlations, the coefficients in regression models show the relative direction of movement of the independent and dependent variables. Sig- 96 Accounting Historians Journal, December 2008 TABLE 4 Correlation Analysis 16th Amendment Passage# Income Tax YearA Per Capita Income Taxes Percent Farm Population -.437** -.269* -.728** .002 .065 .001 48 48 48 16th Amendment Passage .224 .265* .125 .069 48 48 Income Tax Year .054 .718 48 Input data are from Table 2. The first number is the correlation coefficient, the second is the degree of signifi-cance, and the third is the number of observations. *significant to . 10 **significant to .01 #Year of 16th Amendment passage was coded as follows: 1909=1, 1910=2, 1911=3, 1912=4, 1913=5, no action=6, and rejection of the amendment by the state=7. This coding was used as it was felt no action was a more negative outcome than passage in 1913 and rejection was an even more negative outcome than no action. Thus, the possible outcomes formed an ordinal ranking. AIncome tax year was coded as the year that state adopted a state income tax law in the 20th century, with a maximum of 1942 for those states not adopting a state income tax by that year. Sources: Percentage Farm Population: U.S. Department of Commerce, Bureau of the Census [1975b]. Year of 16th Amendment passage: Blakey and Blakey [1940, p. 69] Income Tax Year: Blakey and Johnson [1942, pp. 3-4] Per Capita Income Taxes: letter from the secretary of the treasury to the 63rd Congress, 3rd Session, Senate Document No. 623, December 7, 1914 [U.S. Depart-ment of Commerce, Bureau of the Census, 1975b] nificance provides the odds that this relationship would occur randomly. For ex-ample, in Table 5, model 2, as percent farm population decreases, states delayed passage of a state income tax to later years (negative coefficient). This relationship Barney and Flesher, Agriculture and the 1913 Tax Law TABLE 5 Regression Analysis Model 1 Dependent Variable: 16th Amendment Passage Independent Variables Coefficient t Significance Constant 5.506 5.758 .000 Percentage Farm Population -.04127 -2.665 .011 Per Capita Income -.002673 -581 .564 Adjusted R-Square .161 F-Statistic 5.518 .007 Model 2 Dependent Variable: Year of State Income Tax Adoption Independent Variables Coefficient t Significance Constant 49.087 6.177 .000 Percentage Farm Population -.308 -2.391 .021 Per Capita Income -.0566 -1.48 .146 Adjusted R-Square .076 F-Statistic 2.932 .064 Input data is from Table 2. Year of 16th Amendment passage was coded as follows: 1909=1, 1910=2, 1911=3, 1912=4, 1913=5, no action=6, and rejection of the amendment by the state=7. This coding was used as it was felt no action was a more negative outcome than passage in 1913 and rejection was an even more negative outcome than no action. Thus, the possible outcomes formed an ordinal ranking. Year of Income tax adoption was coded as the year that state adopted a state income tax law in the 20th century, with a maximum of 1942 for those states not adopting a state income tax by that year. Sources: same as for Table 4 was significant to .021, meaning that the chances of this relationship occurring randomly are about 21 in a thousand. The adjusted R-Square of .076 shows that the two independent variables together explain about 7.6% of the variation in year of state income tax adoption. While this may seem minimal, R-Squares are often low for significant models due to the many possible unanalyzed systematic and unsystematic variables that might impact the dependent variable. The probability of the F-statistic (.064 for model 2) indicates the degree of significance of the relationship between the independent variables of the model and the dependent variable. 98 Accounting Historians Journal, December 2008 two regressions, the independent variables were percentage farm population and per capita income taxes paid by state.17 The dependent variables in the two regression models were year of passage of the 16th Amendment and year of adoption of the state income tax, respectively. In both models, percentage farm population was a significant predictor (p<.05) and per capita income taxes paid was not a significant predictor. This result is consistent with the correlation analysis. Both models were also significant overall (p<.01 and p<.10, respectively). The conclusion of both the correlation analysis and the regression analysis is that percentage farm population was a significant predictor of passage of the 16th Amendment by the states and adoption of state income taxes in the 20th century and a stronger predictor than per capita income taxes paid. SUMMARY AND CONCLUSIONS The testimony in Congress during the years 1909 to 1913 indicates that congressmen did consider agricultural taxation. Legislators who considered agriculture in the development of the tax laws generally grew up in or represented states with a higher than average percentage of farm population. Perhaps there were no specific provisions that overtly favored farmers until 1915, as Holland states, but the mere existence of an income tax instead of tariffs or property taxes is the result of some dispensations to the farm population. Agricultural tax preferences may not have been necessary in 1913 because most farmers did not earn more than the exemption amount. From a U.S. population of 100 million, only 368,000 (.368%) filed returns for 1913. According to the 1913 definition of taxable net income, the average taxable net income of farmers in 1910 was $2,194, well under the $4,000 exemption for couples [U.S. Department of Commerce, 1975a, p. 99]. In 1935, only about 10% of the nation's farmers earned $4,000 or above [U.S. Department of Commerce, 1975a, Table G756]. A need for agricultural tax preferences may have devel-oped as farm incomes increased relative to the exemptions. Farmers have benefited from unique tax treatment since the beginning of the income tax law. This special treatment may be explained by the following conclusions based on the qualitative and quantitative analysis. (1) Agricultural interests were 17 These regressions are not intended to be complete predictive models of 16th Amendment passage and of adoption of state income tax laws. These regressions are only used to examine the effects of percentage farm population and per capita income taxes on the dependent variables. influential in the development and passage of tax/tariff laws. (2) The percentage of congressmen with agricultural ties explains the strong affection for agriculture. (3) Discussion in congressional debates and in agricultural journals was passionate and patriotic in support of equity for farmers. (4) Percentage farm population was a significant (p<.05) predictor of passage of the 16th Amendment by the states. (5) The quantitative analysis shows that percentage farm population was a significant (p<.05) predictor of adoption of state income taxes in the 20th century. As major tax reform is debated, the actions of special in-terest groups should be monitored. Today, as then, there are charges that the wealthy receive preferential treatment and the arguments are divided along political lines. According to Hansen's theory, political parties adopt ideological positions on tax policy that correspond to the impact on their partisans and amend their tax policy positions to reflect changes in the proportions of voters upon whom the heavier tax burdens rest in order to reflect the relocation of the political center. Modern groups may be as successful as farmers in securing preferential tax treatments. These successful groups will be the eventual winners under the reformed systems, while those with lesser voices will be the losers. A particular segment of the economy to watch is e-commerce. E-commerce is perceived as a threat to store-front merchants and state and local tax revenues. Could states with strapped budgets and businesses with a desire to see e- commerce taxed be compared to farm states and the economic interests of farmers in the early 1900s? The lesson to be learned from this work is that an industry could be similarly united to push for or oppose a major tax reform proposal today. For instance, if a tax on e-commerce were proposed, Internet merchants who constitute an even more diverse group than farmers would certainly unite to fight the new tax. Judging from the impact that farmers had on major tax reform, legislators should beware. REFERENCES American Agriculturalist, 1909-1915. Baack, B.D. and Ray, E.J. (1985), "Special Interests and the Adoption of the Income Tax in the United States," Journal of Economic History, Vol. 45, No. 3: 607-625. Biographical Directory of the United States Congress: 1774-1989 (1989) (Washington, DC: Government Printing Office). Blakey, R.G. and Blakey, G.C. (1940), The Federal Income Tax (London: Long-mans, Green and Co.). Blakey, R.G. and Johnson, V. (1942), State Income Taxes (New York: Commerce Clearing House). Brownlee, W.E. 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