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November 26, 2003
The Depression and Reform: FDR's Search for Tax Revision in N.Y.
Joseph J. Thorndike

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Joseph J. Thorndike is director of the Tax History Project at Tax Analysts. A previous article in this series on Franklin D. Roosevelt's tax policies as governor of New York appeared in Tax Notes, Nov. 17, 2003, p. 911. This article is part of a larger project on U.S. tax policy during the Great Depression and World War II. For more information on the project, visit

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New York Gov. Franklin D. Roosevelt (D) engineered a major reallocation of New York State taxes in 1929. By establishing a new excise tax on gasoline, he was able to reduce the state's dependence on real estate taxation, bringing substantial tax relief to the state's impoverished agricultural regions.

But the gas tax had ancillary benefits as well. In particular, it promised to bring a large surplus to the state treasury. Most estimates placed the annual revenue yield comfortably above $20 million, more than offsetting the state's assumption of road-building and maintenance costs associated with property tax relief.1 Eager to expand on his political advantage, Roosevelt coupled his call for a gas tax with a recommendation for sweeping tax cuts. This time, he targeted his cuts precisely, suggesting a program that would please most rich New Yorkers.

"It is probable that when I send in my recommendation," he told the Albany Chamber of Commerce, "I will go on the theory that I don't know very much about the intricate problem of taxation, but I shall urge a plan that will do the greatest good to the greatest number, and therefore recommend a reduction of 20 percent in the State income tax."2

Outflanked on the gas tax, Republicans were unwilling to let Roosevelt preside over an income tax cut. As an alternative, they suggested that the state join its counties in reducing the property tax burden. Republicans offered a plan to repeal the modest property tax imposed directly by the state. While small by comparison with county property taxes, the state levy was still a potent symbol amid the larger debate over farm relief. If Roosevelt could champion the elimination of one property tax, why not another as well?3

Roosevelt rejected the Republican initiative. Cutting the income tax would benefit more New Yorkers, he explained. Displaying a keen - - if disputable -- interest in tax incidence, he claimed that 35 rural counties would save $250,000 more from his income tax cut than through a state property tax elimination.4 He declined to specify how those tax savings would be distributed among each county's various residents; they may well have redounded to the benefit of a few rich taxpayers in each locality. But Roosevelt insisted his plan was fairer than the Republican alternative. The major beneficiaries of a property tax elimination would be among the least deserving, he said: "I wonder if those who advocate the elimination of the direct state tax as opposed to a reduction of the income tax realize that the greatest benefit under that plan would be to those who least need reduction. I refer to the fact that the direct State tax is paid in larger amounts by the big holders of real estate, the railroads and large business and industrial plants."5

Unlike county property taxes, the state property tax did not overburden poor counties. County levies were used to pay for the state's road budget, and poor counties had to shoulder their share despite a smaller tax base. But the state property levy was imposed directly on taxpayers, and therefore operated in a more uniform manner. Rates were consistent across geographic regions.

While economically reasonable, however, Roosevelt's argument was politically curious, especially coming from a governor eager to eliminate local property taxes. Republicans made the most of this apparent inconsistency. They countered Roosevelt's numbers with the observation that only 4,000 taxpayers -- just 0.75 percent of Roosevelt's vaunted 530,000 tax cut beneficiaries -- would receive more than 50 percent of the benefit from the governor's income tax rate reduction. This sort of competitive statistical analysis was typical of tax debates, each side mustering the data in slightly different fashion to prove wholly divergent points. According to Republicans, the bottom 335,000 taxpayers, ranked according to income, would enjoy a reduction of only $1.28 each. Moreover, they said, the state property tax was designed as a temporary tax to help balance the budget, and should therefore be the first levy slated for elimination. (The New York Times, however, observed that Republican legislatures had levied the tax more or less continuously since the Civil War, albeit on an annually renewed basis.)6

Republican leaders bolstered their claim to the mantle of progressive taxation by agreeing to consider a reduction in the tax on earned incomes.7 Under their proposal, taxpayers with earned incomes of $10,000 or less would have enjoyed a 25 percent reduction in their income tax bills. The proposal recalled similar earned income preferences on the national level, which then-Treasury Secretary Andrew Mellon championed throughout the 1920s. In New York, the earned income preference was designed to outflank Roosevelt among his more liberal supporters.

Republicans said the proposed earned income credit would benefit 450,000 state taxpayers, and The New York Times predicted that most of them would see more relief under the Republican plan than under Roosevelt's across-the-board income tax cut. While some observers saw the proposal as a concession to the governor, others pointed out that the GOP plan was designed to protect their plan to eliminate the state property tax; they were trying to buy one tax cut with another.8

Roosevelt hung tough, threatening to veto the entire farm relief package, including the gas tax, unless lawmakers accepted the income tax cut.9 He also offered an administrative argument for income tax reduction. The budget surplus, he contended, was a temporary phenomenon, expected to disappear the next year. Consequently, the best way to provide relief was through a rate reduction, not the outright abolition of a tax that might be needed in the future.10 Neither Roosevelt nor Republican leaders won the tax cut debate outright. Instead, they reluctantly agreed on a bill raising the state's income tax exemptions. Single persons enjoyed an increase in their exemption from $1,500 to $2,500, while married persons and heads of household saw a boost from $3,500 to $4,000. The changes were designed to channel most relief to lower- income taxpayers, and as such reflected the GOP effort to target the tax relief measures according to income level. On the other hand, the compromise did not require elimination of the state property tax, giving Roosevelt at least a modest victory.11

The exemption increase further sharpened the narrow focus of the state's income tax. Roosevelt, like almost all Democrats, preferred to keep the tax targeted on the well-off. Higher exemptions ensured that it would remain a narrow levy, softening the blow for Roosevelt in losing his broader income tax cut. Soon, however, the governor would be forced to defend the higher exemptions in a different economic climate. Revenue needs would soon prompt a call for broader income taxation.

Tax Reform Amid Fiscal Crisis

Roosevelt was not entirely pleased with the state tax system, even after his initial round of rural tax reforms. It was, he complained, a "jerry-built tax system" in need of wholesale remaking. Many experts agreed, with members of the State Tax Commission observing that recent changes had moved state exemptions out of line with the federal income tax, making for increased complexity in completing tax returns.12 In March 1930, Roosevelt called for a general revision of the state tax system. "It is time we consider a complete overhauling of our money raising and spending governmental machine," he declared:

    For the most part this machine which we have was never built up according to any particular design. Like Topsy, it just grew. I am suggesting that before our taxes go any higher we should survey the whole situation and see if we wouldn't accomplish more in the way of service to the taxpayers at a lower cost to them by building a new machine capable of doing all the things we demand of it.13

Roosevelt's call for a reform commission met with considerable support. Real estate interests were particularly supportive, as they continued to agitate for lower property taxes. The New York State Association of Realty Boards, the largest and most influential organization representing property owners, welcomed Roosevelt's idea, stressing the need for further property tax reductions. "The services of towns and cities are rendered to all citizens alike, and there does not seem to be any good reason why people who choose to own their homes should be asked to pay about three-fourths of the tax burden."14

It was a stirring appeal on behalf of the average homeowner -- and one that conveniently ignored the interests of commercial property owners.

At Roosevelt's behest, the State Legislature established a special tax reform commission, headed by state Sen. Seabury C. Mastick (R), chair of the Senate Taxation and Retrenchment Committee. The panel was instructed to consider wholesale tax reform, but it was also charged specifically with further reducing the property tax burden.

Mastick was something of a maverick among New York Republicans. Elected to the Senate in 1923, Mastick quickly developed substantial expertise in tax matters. Representing a safe Republican district in Westchester County, he was a good candidate for the often-contentious job of sorting out state tax policy. Over the years, he had served on various tax and spending commissions. And he had made a name for himself, if only because he espoused a variety of unusual positions for a New York Republican. In the 1920s, he championed old age, health, and unemployment insurance. In 1930, he successfully proposed a law giving small pensions to New Yorkers over age 70. Roosevelt had opposed the measure, complaining that it vested too much control with local administrators. Even more important, he attacked the plan for not requiring any sort of contribution from beneficiaries. It would amount, he suggested, to little more than a public dole. Better, he argued, to offer a graduated benefits schedule based on the recipient's effort to save for retirement.

"In other words," Mastick explained, "a definite premium should be placed on savings, giving to the workers an incentive to save based on the prospect of not only food and shelter, but on comfort and higher living standards than the bare minimum."15

Mastick shared with Roosevelt a fondness for farming, which he pursued as a hobby distinct from his legal career. He was no friend of the property tax, either at the state or the local level. And generally speaking, he was a proponent of lower taxation, bringing him in line with most of his party colleagues. As he said during debate over the Roosevelt commission's proposal, "taxes are increasing everywhere and in many cases amount to confiscation."16

Mastick's new reform commission included various academic and business luminaries, including Jesse Isidor Straus, president of Macy's Department Store, and Edwin Seligman, the dean of U.S. tax economists. Commission members were named jointly by the Legislature and the governor, and they represented an ideologically heterogeneous mix. Most were business leaders, although all had important political and intellectual ties. A disproportionately large percentage came from upstate regions, rather than New York City -- "a recognition of political rather than economic realities," complained The New York Times, "since the metropolitan area pays three- quarters of the tax bill."

As the commission's staff director later pointed out, the Mastick commission was heavily weighted toward real estate interests.17

Among commission members, Edwin Seligman possessed the most impressive intellectual credentials. In the 1890s, Seligman had taken a position in the vanguard of income taxation, providing intellectual support for a politically vulnerable tax. He was also an outspoken defender of the federal estate tax, opposing Republican moves to eliminate the levy and insisting on its fairness. Perhaps most important, Seligman was well-known for his criticism of the general property tax.

Seligman was never a liberal economist, instead finding his political home in the moderate middle, often allied with more progressive members of the business community. By the mid-1920s, he had developed a somewhat conservative reputation, at least compared with many of his colleagues. He was a prominent opponent of the federal excess profits tax in the years after World War I, and business leaders enlisted his help in their successful campaign to repeal the levy. While Seligman continued to support a progressive income tax, he stood for a distinctly moderate flavor of tax policy.

A Cadre of Tax Experts

The Mastick commission employed a distinguished staff of economists and attorneys. Indeed, the panel was a breeding ground for New Deal economists; several of its staff members would help craft Roosevelt's presidential tax policy.18 Chief among them was Robert Murray Haig, Seligman's colleague and protégé at Columbia University. As executive secretary and research director of the Mastick commission, Haig played a vital role, shaping the panel's deliberations by controlling its research agenda. The commission granted him remarkable independence, and his analyses sometimes left him at odds with the panel's majority. Indeed, the commission's final report included a separate study by Haig, featuring conclusions and recommendations inconsistent with the panel's formal recommendations.

Haig brought a liberal but solidly mainstream approach to his study of taxation. Born in Ohio in 1887, he earned his doctorate at Columbia in 1913 under Seligman's guidance. He remained at Columbia as a faculty member, and in 1931, he assumed the McVickar Chair of Political Economy when Seligman retired.

Haig pursued an active career in public policy. He served on a variety of local, state, and international tax commissions, authoring studies on the revenue systems of New York City, Colorado, California, Alberta, Saskatchewan, and numerous other jurisdictions. During World War I, he served on the "blue ribbon" Committee on War Finance, assembled by the American Economic Association to evaluate wartime tax policies. And as a consultant to the U.S. Treasury Department, he helped draft the highly progressive Revenue Act of 1918.19

After World War I, Haig squared off against Seligman during debate over the excess profits tax. Like Seligman, he was a supporter of income taxation, and an advocate for progressivity. But he stood significantly to the left of his mentor. The excess profits tax, in Haig's view, was a salutary component of a progressive tax system, helping shift the tax burden to those most able to pay.20

Haig is best known for having contributed his name to the Haig- Simons definition of income, an economic concept undergirding the modern income tax. According to the Haig-Simons definition, "income" should be construed broadly and comprehensively; for individuals, it should equal consumption during a given period (usually a year), plus any change in net worth.21 This definition implies that capital gains, even unrealized ones, should be treated as income -- a theoretically consistent but administratively problematic notion.

Haig, however, was an energetic spokesperson for the idea, telling one audience that "an income tax which would allow capital gains to escape unscathed would, in this country at least, be an ethical monstrosity." That position placed him at odds with Republicans and business leaders, many of whom supported preferential treatment for realized capital gains, and no taxation at all for unrealized capital income.22

Haig championed a scientific approach to taxation, seeking to imbue an inherently political process with a more intellectually sensible agenda. He had many allies in the endeavor, including Seabury Mastick, who convinced Haig in 1928 to help him organize the New York State Tax Association. According to The Wall Street Journal, the group was "an association of taxpayers of all lines of professional, business, labor, industrial and farming endeavor" dedicated to a "sound, sensible and comprehensive fiscal program" for the state.

Indeed, the association's members included State Tax Commissioner Mark Graves, a variety of less exalted public finance officials, and numerous business leaders. It was an ideologically diverse group, representing both Republicans and Democrats. Haig was its most prominent academic member.23

Haig recruited a variety of distinguished colleagues to join the Mastick staff, including many of his students and colleagues at Columbia University. Economist Mabel Newcomer was one of his choices. Newcomer earned her doctorate at Columbia in 1917, writing a dissertation on the coordination of state and local tax systems. She was in the vanguard of a renewed movement to improve the interaction of fiscal systems -- an issue that attracted surprising attention in the early 1930s, even appearing in Franklin D. Roosevelt's campaign rhetoric.

After her graduation, Newcomer joined the faculty at Vassar College, where she quickly developed a reputation for tax expertise. Beginning in the early 1930s, she served on numerous tax study commissions, assisting Haig with several studies, including one of the California tax system.24 Indeed, during the 1930s and 1940s, she came to play a central role in state and federal tax policymaking, becoming the most prominent woman in the upper echelon of the tax policy community.25

Also joining the Mastick commission was Carl Shoup, a lawyer and economist with degrees from Stanford and Columbia universities. His doctorate, completed in 1930 under Haig's guidance, focused on the French sales tax, making Shoup an expert on the subject just as this tax levy was sweeping through the nation's capitals. Perhaps the most promising young economist of his generation, Shoup joined Seligman in publishing a 1932 study of the Cuban tax system, and in 1934, he coauthored with Haig the definitive study of state sales taxation.

Throughout the 1930s and 1940s, Shoup played a vital role in federal tax policy, serving as a staff member and consultant to the Treasury Department. Without doubt, however, his most important achievement came after World War II, when he spearheaded reform of the Japanese tax system during the postwar American occupation. Today's Japanese tax system remains essentially as Shoup designed it.26

Haig, Newcomer, and Shoup would all figure prominently in New Deal tax policymaking, as would Louis Shere, another economist on the Mastick staff who would later move to the U.S. Treasury Department. As both staff members and consultants to the Treasury Department, these economists shaped the modern tax system. For the time being, however, they focused on New York tax issues, undertaking an intensive study of real estate levies -- still a sore spot despite the property tax reductions of 1929.

In February 1931, the Mastick commission issued a preliminary report suggesting that the state replace some of the money currently coming from real estate taxes with some other source of revenue. It was an obvious restatement of the problem, not a recommendation of any consequence: Lawmakers had instructed the commission to design "a system of taxation which shall reasonably distribute the tax burden as widely and evenly as possible and thereby relieve those present sources of revenue, particularly real estate, which now bear a disproportionate part of the whole tax burden of the state."27 But how should the state raise equivalent revenue? For the time being, the commission had no answer.

Over the course of several months, the Mastick commission had convened a series of hearings around the state. In each, real estate interests called for a reduction in property taxes. Several witnesses even had suggested alternatives, including lower income tax exemptions and new sales taxes on retail purchases. As time went on, speculation increased as to what the commission would recommend. Many observers believed it was leaning toward a sales tax, in large part because it would raise so much money. According to Mastick, the panel wanted to shift about $250 million out of the property tax, and a new sales levy promised to raise substantial revenue.28

Some key political forces favored a sales tax. Potent support came from the New York State Farm Bureau, which regarded the levy as a reasonable replacement for property tax revenue.29 Retail interests, however, were predictably hostile, organizing a formal coalition to oppose the idea. At the Mastick commission's final hearing, held in New York City, more than 100 representatives of the retail industry gathered to voice their concerns. Representing hardware, furniture, jewelry, and other retail interests, the coalition's spokespersons denounced the "expense, difficulties, and injustice" of a sales tax. They also insisted that it would retard economic recovery.30

Merchants had a key ally in the governor's office. Roosevelt was on record against a sales tax.31 "I am against a sales tax," he declared in December 1931. "I have been in the past and I still am." The sales tax imposed too great a burden on poor New Yorkers, he said; it was simply not fair.32

For all this progressive vehemence, Roosevelt was willing to consider narrower consumption taxes, especially on luxury goods. These levies enjoyed considerable public support, due in part to their long history at both the federal and state level. But the governor was never a big fan of these excise taxes either, as he occasionally observed in public. When asked by a reporter whether a luxury tax might be levied on tobacco products, Roosevelt reached for a cigarette. "Many people," he deadpanned, "do not consider tobacco a luxury."33

Experts were divided on the subject of luxury taxes. Many considered them a nuisance. Tax administrators criticized them for raising too little revenue at too great a cost; levied on the retail level, they were administratively burdensome and tended to encourage evasion.

But at least some experts embraced selected luxury taxes. In 1931, an economist with the New York State Tax Commission endorsed luxury taxes, just as lawmakers were casting about for new revenue. Ralph Burnett Tower observed that luxury was almost always in the eye of the beholder; practically speaking, it was defined politically. "No exact definition of luxury is possible," he stated, "except from the standpoint of society as a whole since superfluity can only be measured in terms of what seems normal for the social group."34

But once luxury was defined, it provided a reasonable basis for equitable taxation. Luxury taxes, according to Tower, featured an important element of choice. "They reach goods and services the consumption of which is entirely voluntary," he wrote. "Furthermore, if any person be denied the right to consume the tax goods or services by reason of the tax, his position as a member of society will in no wise be injured."35

This was a key point, buttressing the notion that luxury taxes were fair, despite their regressive burden. Tower acknowledged that many luxury taxes were passed on to the ultimate consumer rather than being absorbed by manufacturers. But that pattern of incidence wasn't much of a concern when the taxed item was a diamond ring or motor yacht.

Admittedly, however, luxury taxes were more problematic when taxed items were cheap and broadly consumed. Alcohol and tobacco, for instance, were popular targets for luxury taxation. The argument for taxing those items rested on the idea that luxury could be defined not simply by price, but also by necessity. In these cases, the fairness of a luxury tax hinged on the notion of sumptuary taxation - - levies designed to discourage activities considered socially undesirable. Tower noted that many luxury taxes were levied on "anti-social" items, not just superfluous or expensive ones. The sumptuary quality of many taxed items had long been used to deflect criticism of the regressive burden associated with alcohol and tobacco levies. But the fact remained that these sorts of luxury taxes were effectively burdens on the poor, not the rich. Calling them "luxury" taxes was something of a rhetorical coup for supporters because the name tended to obscure one of the principal fairness arguments against them.36

Despite their regressivity, luxury taxes were a desirable source of revenue, according to Tower. They tapped income and wealth otherwise beyond the reach of state tax authorities, promising to raise significant revenue; if levied in New York at rates already common in other states, taxes on tobacco, entertainment admissions, and bottled soft drinks would raise at least $45 million annually, he predicted.37

Tower made the classic case for luxury taxation, insisting that the taxes were essentially optional; would-be taxpayers could exempt themselves by simply living more frugally. As long as they targeted superfluous or undesirable goods, luxury taxes could be tolerated, even in an otherwise progressive tax system. Roosevelt seemed to endorse this view, at least halfheartedly, when acknowledging that he might support taxes on "a small number of articles distinctly in the luxury class." But he left his definition of "luxury" conveniently vague. In time, he would disavow the idea entirely.38

Meanwhile, the Great Depression was swelling relief rolls across New York, and Roosevelt soon proposed creation of a temporary work relief program. The cost, he argued in August 1931, should be borne by wealthier taxpayers through an increase in the income tax.

"It seems logical," Roosevelt declared, "that those of our residents who are fortunate enough to have taxable incomes should bear the burden of supplementing the local governmental and private philanthropic work of assistance." He suggested a proportional increase in state income tax rates, adding "merely half again as much" to each taxpayer's annual liability.39

The 50 percent increase, Roosevelt told the State Legislature in a special session, would fall lightly on those with small incomes, totaling only $2.50 for a single person with net income of $3,000. Higher incomes, not surprisingly, would be taxed more, with those earning more than $100,000 paying an extra $1,162.50. Such a proportionate increase in tax burden seemed fair to Roosevelt. "It is clear to me," he told lawmakers, "that it is the duty of those who have benefited by our industrial and economic system to come to the front in such a grave emergency and assist in relieving those who under the same industrial and economic order are the losers and sufferers. I believe their contribution should be in proportion to the benefits they receive and the prosperity they enjoy."40

Republicans were unhappy with the income tax plan. Senate Majority Leader George R. Fearon (R) and Assembly Speaker Joseph A. McGinnies (R) opposed the idea. Both had conservative records, especially on budget issues, and they advanced a plan of strict economy and limited loans.41 Worried that Roosevelt would capture the political high ground, however, they eventually acceded to the governor's plan.

The 1931 tax hike soon proved insufficient; declining revenues and growing relief demands opened a gaping hole in the state budget. By early 1932, New York was confronting a serious shortfall, with deficit predictions creeping upward almost weekly. The Depression had changed the debate over tax reform; it was no longer enough to simply replace property tax revenue with something else; the state needed revenue to close its budget gap, and the Mastick tax reform commission began considering the fairest way to do it. Roosevelt, meanwhile, defined his own path out of the red ink. In his January 7, 1932, budget message -- widely viewed as the kickoff for his presidential campaign -- he criticized Washington leaders for their lack of decisive action on the budget front. To underscore the alternative, he offered a host of proposals for New York. In broad strokes, he called for dramatically steeper taxes on income, gasoline, and the sale of securities. All were to be doubled under Roosevelt's plan, and he even tacked on a retroactive increase in income taxes for 1931. The tax increases were expected to raise $137 million, more than covering the expected $124 million deficit.42 Roosevelt had not entirely forgotten about tax reform; he went out of his way to endorse complaints about real estate taxation. "These taxes on real estate are too high," he declared. But the problem, he insisted, was best solved through spending cuts at the local level. "By the same token I make the categorical assertion that the cost of government is too high. The answer to the problem of excessive real estate taxation is reduction in the cost of local government."

Roosevelt had been stressing problems in local government throughout his years in Albany. In July 1931, he had given a major speech at the University of Virginia outlining his case against profligate local governments. Roosevelt would expand this criticism to include the federal government when he began his run for the White House.43 At this juncture, however, he was unwilling to consider tax cuts as a remedy for overburdened property taxpayers. Short-term revenue problems made reductions impossible.

Technical issues of tax administration played a role in Roosevelt's recommendation for an income tax hike. As Roosevelt explained to the Legislature, new revenue should come from old taxes. He specifically declined to recommend new consumption levies, including taxes on luxury goods. He cited the administrative difficulty of collecting numerous small taxes. The New York Times, almost always a supporter of FDR's tax agenda, praised the governor for this approach, noting that his plans had the "merit of simplicity and familiarity."44

Ultimately, however, it was fairness, not simplicity, that Roosevelt stressed in rejecting excise taxes. "In the last analysis, these so-called luxury taxes are on the average individual, bearing nearly equally in actual cost on the individual members of our population. They are not based on ability to pay and therefore bear relatively far more heavily upon the poor than upon the rich."45

It was a persuasive case, and one widely echoed among professional economists. But it might have been offered against his proposed gas tax hike, as well, especially because gasoline was not a luxury for many people. And Roosevelt had voiced no such qualms in 1929, either, when he championed introduction of the new gas tax. Nonetheless, it seems clear that Roosevelt understood the regressive pitfalls of any consumption-based tax. As his earlier comments made clear, he was willing to consider these levies, especially if narrowly focused. And he was thoroughly convinced of the fairness of a "user fee" like the gas tax. But his new gas tax hike was not really a user fee; it was prompted by a general revenue crisis, not a road-building initiative. Roosevelt chose the gas tax among his various revenue options because he knew it would raise substantial revenue. It was an entirely pragmatic decision.

Still, the gas tax hike must be viewed in the context of Roosevelt's overall revenue proposal. He asked low- and middle-income New Yorkers to shoulder a regressive tax burden, one bearing more heavily on them than on their richer neighbors. But he also made sure to saddle the wealthy with sharply higher income taxes. It was, on balance, a politically progressive package. Income taxes were declining in their capacity to provide adequate revenue, and increasing rates would not solve the problem as long as the economy sputtered. But high rates had a symbolic role to play, as well as an economic one, increasing the fairness of the overall system.

The Mastick Commission Reports

On February 1, 1932, the Mastick commission issued its long- awaited final report. The panel took as a starting point the Legislature's insistence that real estate taxes were too high. In fact, however, the panel was divided over this issue. A majority concurred strongly with the legislative opinion, but two members -- Edwin Seligman and Jesse Isidor Straus -- were less convinced. Seligman and Straus, along with staff director Robert Murray Haig, questioned the severity of the problem.

All members of the commission agreed, however, that road users should foot more of the state tax bill, reflecting the steep cost of highway maintenance. Consequently, the panel unanimously recommended a hike in the gas tax from 2 cents to 4 cents per gallon. They also endorsed a variety of other car and truck taxes, all designed to allot more of the tax burden to drivers and vehicle owners.46

Even more important, the panel called for a substantial broadening of the state income tax. Specifically, they suggested reducing exemptions to the federal level. Politically, it was a controversial idea, at variance with Roosevelt's plan to keep exemptions high. But the commission pointed out that the 1929 tax cuts had raised exemptions well above the federal level. They called for a return to the earlier amounts -- $3,500 for a married couple and $1,500 for a single taxpayer. Even those amounts would have left the vast majority of taxpayers entirely exempt. Indeed, the Mastick panel went on to suggest an even more radical reduction in exemption levels to $2,500 for married filers and $500 for individuals. At the lower end of the single exemption, taxpayers would still be required to file a return and pay a $2 filing fee.47

The commission argued that broadening the income tax base was a good thing in its own right, even absent revenue needs. "This proposal springs from a conviction that the personal income tax should be as comprehensive as possible and that everyone not positively destitute should pay at least a nominal sum as a direct contribution toward the costs of the government under which he lives."48

To many, this seemed a conservative idea, one that sought to shift more of the tax burden to lower-income citizens. But the idea reflected one of the canons of good tax policy: visibility. By requiring taxpayers to pay some amount -- no matter how trivial -- a broad-based income tax would presumably heighten awareness of government finance.

Many tax experts believed tax consciousness would foster good government and fiscal responsibility. "Although little direct evidence bears on the point, it appears that tax consciousness is in general a force for good government," noted one prominent study published in 1937. Moreover, the income tax was almost certainly the best way to foster awareness of the tax burden. "The real problem of lack of tax consciousness is represented by the mass of urban tenants and farm tenants who do not own automobiles and do not have enough income to be taxable under existing income tax laws," the report continued. "They bear a real tax burden, of course, but it is hidden. We see no practicable way of bringing it out in the open except by substituting, for some of the tax they now pay indirectly, some form of income tax."49

Over the course of the 1930s, economists of all political stripes would make that argument. But at the decade's start, it was still considered a conservative position, and only a few Democrats were inclined to embrace it. Certainly not Roosevelt. Given an early look at the Mastick commission's report, he ignored its suggestions as he prepared his own plan in late 1931. Like a good, conventional liberal, Roosevelt preferred his income taxes narrow and steep. Ultimately, his arguments carried the day, with the Legislature quickly approving most of his suggestions. Lawmakers did, however, insist on scaling back the gas tax increase, limiting the hike to 50 percent. Apparently, they, too, understood the regressive burden of such a levy.

Perhaps the most striking aspect of the Mastick commission report was its accompanying staff memos. Not endorsed by the commission's appointed members, these memos formed the basis for the official recommendations. But they also went much further. Unconstrained by the political difficulties of trying to build a consensus among disparate political appointees, the staff were able to voice their own opinions on a wide variety of tax issues. Some of these opinions would prove indicative of things to come, as these same researchers moved from Albany to Washington when Roosevelt won his presidential election.

Robert Murray Haig wrote most of the staff report, although he coauthored large sections with Carl Shoup and Mabel Newcomer. His analysis raised doubts about the severity of the property tax burden. While acknowledging that some readjustment was in order, he cautioned against hasty assumptions. "Although there seems to be widespread acceptance of the proposition which appears in the statute creating the commission that real estate is bearing a disproportionate part of the tax burden, there has been a remarkable paucity of analysis of the character and extent of this disproportion."50

Haig pointed out that when trying to gauge tax equity, the prevailing standards were the benefit principle and ability to pay. The former was relevant to the gas tax and other vehicle taxes proposed by the commission. In this case, the connection between a tax and a related government service was fairly certain. In most cases, however, such a connection was impossible to trace. In that situation, Haig argued, ability to pay was the accepted standard of fairness.

This canon, moreover, tended to encourage a move away from property taxation. While once considered a suitable measure of ability, property as a standard of ability to pay was no longer in good standing among economists. Neither, he pointed out, did consumption seem to be a reasonable measure of ability. Instead, income had emerged as the preferred yardstick.51

In an important caveat, Haig stressed that fairness was not the only concern facing tax policymakers. "[T]he canon of equity is not the only canon to be considered," he stated, "economic and administrative questions enter also." Moreover, even assuming the primacy of fairness concerns, no single measure could tell the whole story; "a combination of several norms may be superior to any one used singly," he suggested.

This was a fine exposition of the taxwriter's challenge: confronted with norms and ideals, policymakers also had to grapple with practicalities and imperatives. In calling for property tax cuts, lawmakers had indulged in some thinly veiled political posturing. Haig counseled, however, that sweeping indictments of the tax system were premature. Policy was about compromise and balance, not theoretical or ideological purity. As he phrased it with good bureaucratic concern for dispassionate expertise: "The wise decision is one which represents a balanced judgment arrived at after a full consideration of all the facts which can be marshaled regarding the probable effects."52

Haig stressed the difficulty of analyzing tax problems. In particular, the incidence of a given tax was very difficult to gauge. Politicians often assumed that taxes were paid by those from whom they were first collected. In fact, however, many were shifted through price increases or capitalization.53

Finally, Haig pointed out that history was more than just a guide for tax policymakers. Arguments for tax reform often ignored "the fact that what has been done in the past in this field of taxation controls to a very important extent the action which may be wisely taken in the present and the future." Shifting and capitalization prompted economic adjustments, many of them built into asset valuation and business decisionmaking. These adjustments "may be unjust and foolish to disturb," he suggested, making a case for the status quo:

    Certainly he who ignores history in dealing with tax changes assumes a heavy responsibility. The proponent of a radical change must accept the responsibility for demonstrating that the disturbance of the existing state of affairs will, in the general balance, show a net gain.54

Haig was articulating an old maxim of taxation: An old tax is a good tax. Haig was not, by nature, a conservative policymaker. Indeed, his defense of the World War I excess profits tax marked him as something of an innovator. But like most tax professionals, he recognized the pitfalls of sweeping, ill-considered reform; reform was not something to undertake lightly or legislate quickly.

The old tax maxim also provided a compelling argument for retaining old, if admittedly imperfect, taxes. New York's property tax was one such levy. While problematic, it was reasonably well understood. Hence, Haig supported moderate reform of the levy, not its abolition or radical reduction. In the future, that sort of argument would be used to defend a variety of other flawed taxes, including consumption levies on such consumer goods as alcohol and tobacco. While certainly regressive, they were also well-tested and effective. And many old taxes provided a lot of revenue. An important consideration -- perhaps the most important consideration -- when shaping tax policy.

Two other sections of the Mastick staff report deserve special mention. In a discussion of the state income tax, Haig argued that any significant increase in revenue would necessarily come from higher rates on the richest taxpayers. Given existing low rates across the income range, it would be impossible to substantially increase revenue from middle brackets without imposing tax increases of more than 100 percent. Anything in excess of 100 percent was not the sort of measured reform that Haig could recommend.

The staff report did suggest, however, that lowering the income tax exemptions would have important benefits. While it would not raise significant new revenue, it would boost the visibility of the tax. Indeed, the narrowness of the tax base was often used as an argument against the income tax, endangering a levy that Haig and most other economists considered to be the fairest of all revenue tools. Furthermore, lower exemptions would open the door to future reforms that would substantially increase the revenue flowing from this tax; by establishing the administrative foundation for a broader tax, lower exemptions would allow policymakers to increase rates and revenue in the future.55

The report endorsed the notion of a filing fee -- essentially a minimum tax for those just above the exemption level. The fee would not raise much money, but it would boost tax consciousness. And it would also help bolster enforcement in the lower reaches of the income tax. "The two chief virtues of the filing fee," Haig wrote, "would be its direct message to almost every citizen that the government is a tax-collecting as well as a spending body, and its aid in detecting whatever evasion now occurs among those who are close [to] the preset exemption limits."56

A second important section of the Haig report -- written almost entirely by Carl Shoup -- took aim at the notion of a state sales tax. While acknowledging the growing popularity of state sales levies, the report raised doubts about its use in New York. A sales tax would mark a major departure for the state, Shoup noted. And it would not necessarily redress any of the revenue system's acknowledged problems. "[A]lthough one cannot be certain of its effects," he cautioned, "it does not hold out a promise of correcting whatever wrongs that now exist, but on the contrary would probably be the originator of more injustice."57

The sales tax would inevitably weigh on the state's poorest citizens, Shoup contended, even assuming that some of the burden would be offset by a reduction in the property tax. If the revenue were used to offset reductions in other taxes, such as the inheritance levy, then the overall tax burden would shift even more decisively downward. "This, of course, is one of the aims of the proponents of the sales tax," Shoup observed coolly, "who wish the masses to pay more tax than at present, on the theory that a more equitable distribution of the burden would result therefrom." But the masses already shouldered a heavy burden, according to Shoup, especially because the real estate tax was almost certainly shifted to apartment dwellers by their landlords.58

Shoup warned against luxury taxes, especially when the term was used to describe taxes on items of mass consumption but admitted superfluity -- things like cigarettes, soft drinks, entertainment admissions, toilet articles, or chewing gum. Moreover, "luxury taxes" were often conflated with "sumptuary taxes."

    Sometimes, in the argument for taxes on tobacco, cosmetics, etc., appears a sumptuary note, e.g. poorly-paid stenographers wasting their salaries on lipstick and soft drinks instead of eating a fair quota of wholesome food should not object if they are shown the way to correct expenditure via an alteration of the tax system.59

While boosting the perceived fairness of an excise tax, the sumptuary argument ran counter to revenue imperatives, Shoup explained. To the extent that a tax managed to successfully discourage consumption of an undesirable item, it would cease to raise significant money for the state. And while some people would reduce their consumption to avoid the tax, others would not: "those least able to pay will suffer the most by the tax," he complained.

When lawmakers used luxury taxes to raise significant revenue, they were implicitly undermining the sumptuary argument for the levies. If rates were set low enough to actually make money, then they could not be set high enough to discourage use. In practice, sumptuary taxes were not designed to forestall undesirable behavior: They were designed to raise money from those least able to pay.

Overall, the Haig report to the Mastick commission provided a valuable window into current thinking among some of the nation's most important tax experts. The Columbia clique that dominated the Mastick commission staff would soon move to Washington. Just two years later, many of these same economists would be reunited in the Treasury Department to undertake a major, multivolume study of the federal revenue system. Their ideas, in turn, became the foundation for a series of important Roosevelt-era tax reforms.

Taken as a whole, Roosevelt's tax record as governor of New York was clearly a mixed bag. Often, he seemed to sacrifice ideological fervor for political expediency. He generally treated tax reform as a means to other, more important ends. His two most significant tax proposals -- the 1929 gas tax and the later pair of income tax hikes -- were really about agriculture and unemployment relief. And when the Mastick commission actually focused on tax policy as a subject unto itself, Roosevelt showed little real interest. Indeed, he ignored the panel's most important recommendation -- its plan for reducing exemptions.

Still, Roosevelt's record as governor did portend some of his later policies as president. His comments and proposals began to describe the outlines of a tax ideology. In general, he supported a system of limited consumption taxation, coupled with steeply progressive income levies. By embracing a user fee argument on behalf of the gas tax, he was able to reconcile budgetary imperatives with a principled stand against broader forms of consumption taxation. It was an exercise in political convenience, certainly, but it was not wholly cynical. By all indications, Roosevelt sincerely believed that the gas tax was fair, and just as clearly, he opposed most other consumption levies as a burden on the poor. He had ample support for both positions among the tax experts of the State Tax Commission and, later, the Mastick tax reform panel.

As president, Roosevelt would adopt similar positions, although he showed even more willingness to tolerate excise taxes. Ultimately, this willingness to compromise on consumption taxes reflected a pragmatic approach to tax policy. Adequate revenue was Roosevelt's most important criterion when crafting tax policy. Both as governor and later as president, he was prepared to sacrifice equity for the sake of adequacy.

Roosevelt's fondness for a narrowly focused income tax was similarly predictive. As president, he would resist suggestions to broaden the tax. While many Republicans and economists were partial to the idea, neither Roosevelt nor most of his Democratic colleagues were ready to embrace it. They believed the income tax was best restricted to the upper reaches of American society. So contained, it offered a quick and easy way to ensure that rich people paid their fair share. Extending the tax onto lower-income groups was at variance with the history of American income taxation. Breaking with the past would require a more powerful catalyst, at least for most Democrats.


1 Bernard Bellush, Franklin D. Roosevelt as Governor of New York (New York: AMS Press, 1968), p. 79. Finla G. Crawford, "The Legislative Session of 1929 in New York State," 23(4) American Political Science Review 917 (1929).

2 "Roosevelt for 20 Per Cent Income Tax Cut, Contingent on the 2-Cent Gasoline Levy," The New York Times, Feb. 7, 1929, p. 1.

3 Frank Burt Freidel, Franklin D. Roosevelt: The Triumph, 1st ed. (Boston: Little Brown, 1956), p. 1; "Roosevelt Appeals to People to Back His Taxation Plan," The New York Times, Mar. 8, 1929, p. 1.

4 "Roosevelt Appeals to People to Back His Taxation Plan," note 3 supra.

5 Id.

6 Freidel, note 3 supra at 55; "Exemption Refund in Gasoline Tax," The New York Times, Feb. 10, 1929, p. 19.

7 In general, "earned income" was understood to include wages and salaries, as opposed to investment income.

8 "Republicans Lean to 25% Cut in Tax on Earned Incomes," The New York Times, Mar. 11, 1929, p. 1; "Republicans Offer Bill to Cut Income Tax 25%; State Leaders Also Plan Higher Exemptions," The New York Times, Mar. 12, 1929, p. 1; Freidel, note 3 supra at 5.

9 Freidel, note 3 supra at 1.

10 W. A. Warn, "Roosevelt Insists on Gasoline Levy in Tax Relief Plan," The New York Times, Feb. 1, 1929, p. 1; "Exemption Refund in Gasoline Tax," The New York Times, Feb. 10, 1929, p. 19; "The Governor's Tax Program," The New York Times, Feb. 26, 1929, p. 19; "Roosevelt Appeals to People to Back His Taxation Plan," The New York Times, Mar. 8, 1929, p. 1; Franklin D. Roosevelt, Public Papers of Franklin D. Roosevelt: Forty-Eighth Governor of the State of New York (Albany, N.Y.: J.B. Lyon Co., 1930), p. 141.

11 W.A. Warn, "City Bills and Roosevelt Program Die; Gas Tax, Rise in Income Exemption Pass; Session Ends, Extra Call Is in Doubt," The New York Times, Mar. 29, 1929, p. 1.

12 Crawford, "The Legislative Session of 1929 in New York State," p. 918. "Jerry-built" comment from Freidel, note 3 supra at 3; "Will Ask Revision of State Tax Plan," The New York Times, Mar. 5, 1930, p. 16; "Governor Demands Reform of Tax Laws," The New York Times, Mar. 6, 1930, p. 5.

13 "Governor Demands Reform of Tax Laws," note 12 supra.

14 "Realty Men Favor Tax Survey Bill," The New York Times, Mar. 23, 1930, p. RE4.

15 W.A. Warn, "Roosevelt Objects to Mastick's Plan for State Pensions," The New York Times, Feb. 24, 1930, p. 1.

16 National Cyclopedia of American Biography, Being the History of the United States as Illustrated in the Lives of the Founders, Builders, and Defenders of the Republic, and of the Men and Women Who Are Doing the Work and Moulding the Thought of the Present Time (New York: J. T. White, 1892), vol. 56, p. 254; "Tax Commission," The Wall Street Journal, Mar. 7, 1930, p. 3.

17 "State Tax Reform," The New York Times, Aug. 2, 1930, p. 12. The commission included Seabury C. Mastick, chair; Charles R. White, vice chair; Albert G. Preston, secretary; G. William Magly; Walter L. Pratt; Harlan W. Rippey; Edwin R.A. Seligman; Jesse Isidor Straus; and J. Frank Zoller. For the comment on real estate interests, see Robert M. Haig, "Taking the Burden from Real Estate," 18(2) Bulletin of the National Tax Association 36 (1932).

18 Staff members included Robert Murray Haig, Beulah Bailey, Arthur R. Burnstan, Philip H. Cornick, R. Parker Eastwood, Audrey Davies, Don L. Essex, Stanley Feitler, Luther Gulick, E.S. Lawler, E.H. Mereness, Arnold Miles, Paul R. Mort, Mabel Newcomer, Louis Shere, Carl S. Shoup, Alfred D. Simpson, Edwin H. Spengler, G.F. Warren, and Morton D. Weiss.

19 For Haig's generous assessment of the 1918 law, see Robert Murray Haig, "The Revenue Act of 1918," 34(3) Political Science Quarterly 369-391 (1919).

20 National Cyclopedia of American Biography, note 16 supra at 265-266.

21 Haig's much-quoted wording is more concise: "Income is the money value of the net accretion to one's economic power between two points of time." Economists often describe this as the accretion concept of income. See Robert Murray Haig, "The Concept of Income -- Economic and Legal Aspects," in Robert M. Haig, ed., The Federal Income Tax (New York, Columbia University Press, 1921), reprinted in Richard A. Musgrave, Readings in the Economics of Taxation (Homewood, Ill.: Published for the association by R. D. Irwin, 1959), pp. 54-76.

22 Robert M. Haig, "Simplification of the Federal Income Tax -- Discussion," 18(1) The American Economic Review 120-121, Supplement, Papers and Proceedings of the Fortieth Annual Meeting of the American Economic Association (1928). The Haig-Simons definition has become a sort of gold standard for income taxation. J. A. Kay, "Tax Policy: A Survey," 100(399) The Economic Journal 23 (1990). To be sure, some critics have suggested that the Haig-Simons definition is inadequate. See Walter Hettich, "A Theory of Partial Tax Reform," 12(4) Canadian Journal of Economics 692-712 (1979). Further, at least one scholar has contended that Haig was a lukewarm advocate for using accretion income as the basis of a tax system, preferring consumption. See David Wildasin, "R. M. Haig: Pioneer Advocate of Expenditure Taxation?" 28(2) Journal of Economic Literature 649-654.

23 "New York State Tax Association Formed," The Wall Street Journal, June 6, 1928, p. 15.

24 "To Assist Prof. Haig in Tax Study," The New York Times, Jan. 25, 1928, p. 31.

25 Anna Rothe, ed., Current Biography: Who's News and Why (H.W. Wilson Co., 1944), pp. 491-492.

26 Id. at 569-571.

27 Quoted in New York State Commission for the Revision of the Tax Laws, Preliminary Report of the New York State Commission for the Revision of the Tax Laws, submitted Feb. 15, 1931 (Albany, N.Y.: J.B. Lyon Co., 1931), p. 3.

28 "Roosevelt Against Imposing Sales Tax," The New York Times, Nov. 18, 1930, p. 26.

29 "State Farmers Meet, Seeking a Tax Remedy," The New York Times, Nov. 6, 1931, p. 21.

30 "Roosevelt Against Imposing Sales Tax," note 28 supra; "Merchants Fight Sales Tax as Blow to Trade Recovery," The New York Times, Nov. 20, 1930, p. 1; "Retail Sales Tax Opposition Voiced," The Wall Street Journal, Nov. 20, 1930, p. 16; "Merchants Unite to Fight Sales Tax," The New York Times, Jan. 7, 1931, p. 25.

31 "Roosevelt Against Imposing Sales Tax," note 28 supra.

32 "Roosevelt Opposes General Sales Tax," The New York Times, Dec. 15, 1931.

33 Id.

34 Ralph Burnett Tower, Luxury Taxation and Its Place in a System of Public Revenues (Albany, N.Y.: J.B. Lyon Co., 1931), p. 15.

35 Id. at 18.

36 Id. For an explanation of sumptuary taxes, see Joseph J. Cordes, et al., The Encyclopedia of Taxation and Tax Policy (Washington: Urban Institute Press; distributed in North America by University Press of America, 1999), pp. 343-344.

37 Tower, note 34 supra at 19.

38 "Roosevelt Opposes General Sales Tax," note 32 supra.

39 Franklin D. Roosevelt and Samuel Irving Rosenman, The Public Papers and Addresses of Franklin D. Roosevelt (13 vols.), vol. 1 (New York: Random House, 1938), pp. 457-468.

40 Id. at pp. 465-466; Mark Hugh Leff, The Limits of Symbolic Reform: The New Deal and Taxation, 1933-1939 (Cambridge, England: Cambridge University Press, 1984), pp. 54-55; Bellush, note 1 supra at 141.

41 Bellush, note 1 supra at 141.

42 Roosevelt and Rosenman, note 39 supra at 111- 125; W.A. Warn, "Address Opens Session," The New York Times, Jan. 7, 1932, p. 1; "Governors' Message on State's Financial Problem," The New York Times, Jan. 13, 1932, p. 20; "Roosevelt Invites Criticism of Plan," The New York Times, Jan. 13, 1932, p. 21; "Roosevelt's Income Tax Program," The New York Times, Jan. 13, 1932, p. 1; "Roosevelt Asks 100 Per Cent Increase in Tax on Incomes and Gasoline Sales to Meet Large Deficit Faced by State," The New York Times, Jan. 13, 1932, p. 1.

43 "Roosevelt Assails '10-Layer' Tax Load as Outworn Relic," The New York Times, Jan. 7, 1931, p. 20; Roosevelt and Rosenman, note 39 supra at 100-111, 286-287, 288-302.

44 "Roosevelt Asks 100 Per Cent Increase in Tax on Incomes and Gasoline Sales to Meet Large Deficit Faced by State," The New York Times, Jan. 13, 1932; "Roosevelt's Income Tax Program," The New York Times, Jan. 13, 1932, p. 1.

45 "Roosevelt Asks 100 Per Cent Increase in Tax on Incomes and Gasoline Sales to Meet Large Deficit Faced by State," note 44 supra; "Roosevelt's Income Tax Program," note 44 supra.

46 New York State Commission for the Revision of the Tax Laws, Report of the New York State Commission for the Revision of the Tax Laws, submitted February 15, 1932, (Albany, N.Y.: J.B. Lyon Co., 1932), pp. 24-27.

47 Id. at 27-28, 30-31; W.A. Warn, "$127,000,000 in Taxes Proposed for State to Cut Realty Levy," The New York Times, Feb. 2, 1932, p. 1.

48 New York State Commission for the Revision of the Tax Laws, note 46 supra at 30-31; Warn, "$127,000,000 in Taxes Proposed for State to Cut Realty Levy," note 47 supra.

49 Carl Summer Shoup, et al., Facing the Tax Problem; a Survey of Taxation in the United States and a Program for the Future (New York: Twentieth Century Fund, 1937), p. 421.

50 New York State Commission for the Revision of the Tax Laws, note 46 supra at 124.

51 Id. at 87-88.

52 Id. at 88.

53 Id. at 89-90.

54 Id. at 90.

55 Id. at 176-177.

56 Id. at 177-178.

57 Id. at 205.

58 Id.

59 Id. at 207.