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Full Working Draft 6-3-15 New Taxes and the American States: The Social Origins of Fiscal Citizenship Debates, 1945-1970 By Elizabeth West Pearson A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Sociology in the Graduate Division of the University of California, Berkeley Committee in Charge: Professor Margaret M. Weir, Chair Professor Marion Fourcade-Gourinchas Professor Kim Voss Professor Robin L. Einhorn Summer 2015 Abstract New Taxes and the American States: The Social Origins of Fiscal Citizenship Debates, 1945-1970 By Elizabeth West Pearson Doctor of Philosophy in Sociology University of California, Berkeley Professor Margaret Weir, Chair Scholars have documented that a new type of fiscal compact took hold in the United States during the twentieth century as taxpayers supported progressive taxation on incomes in exchange for public investments by government aimed at securing widespread prosperity. Yet by focusing primarily on the national level, existing literature examining the link between tax structure and social policy in the United States has missed a key element of American fiscal exceptionalism. By moving to the state level, my analysis finds that very different fiscal bargains, or models of “fiscal citizenship,” developed across the American states between the late 1940s and early 1970s, in many cases dramatically departing from the national model. Indeed, in some states, taxes were understood not as a way to underwrite progressive investments but rather as a means to force groups “escaping” taxation to contribute more toward the cost of government, as a way of preserving an exclusionary social order, or as a tool for purchasing autonomy from federal intervention. Understanding the factors shaping this period of reforms is critical for strengthening theories of the exceptional American welfare state, particularly since the United States is distinctive in its strong reliance on state-level revenue generation to support social policy expenditures. In this dissertation, I examine what factors were responsible for the development of such diverse fiscal compacts across the American states by undertaking a comparative historical analysis of four key cases of state tax reform: New York, Texas, Georgia, and South Carolina. I find that types of social contracts negotiated between taxpayers and the American states during these critical tax debates depended on the balance of power between labor and business groups and the prevailing racial order in each state. !1 This dissertation is dedicated to Tarek, whose love was the best part of writing it. !i Table of Contents Acknowledgments iii Chapter One: 1 Taxes, Federalism and American Social Policy Chapter Two: 28 American Fiscal Exceptionalism and the Failure of Federal Tax Sharing Chapter Three: 63 Securing the American Dream or Protecting the Business Climate? Comparing the Promises of the Sales Tax in New York and Texas Chapter Four: 86 Race and Redistribution in South Carolina and Georgia Chapter Five: 105 The Language of Fiscal Mobilization in Texas, Georgia, and New York Conclusion 133 References 138 Appendix 149 !ii Acknowledgments Many people contributed to the writing of this dissertation, and I am deeply thankful for their support and advice. I am particularly grateful to my dissertation chair, Margaret Weir, who suggested during my first month of graduate school that I investigate a growing subfield of scholarship in something called “fiscal sociology.” Through the hundreds of hours of conversation and many rounds of comments on my work that followed over the next six years, Margaret was always unfailingly thoughtful and supportive of my efforts to write about the things I cared about most. I also benefited immensely from the guidance of the other members of my dissertation committee: Marion Fourcade, Kim Voss, and Robin Einhorn. I had the good fortune to receive research assistance from a number of very talented undergraduates through Berkeley’s Undergraduate Research Apprenticeship Program (URAP). The hours of work that Justin Kemp, Alec Lepe, Diana Li, Ryan Lynch, and John Towey devoted to transcribing and coding letters about sales taxes was invaluable to my research. I also benefited from the aid of Ashton Ellett, who helped me investigate material about Governor Herman Talmadge at the University of Georgia’s Russell Library collections at a critical point in my research. Christine Klotz provided me with months worth of microfilm scans of the Albany Knickerbocker News, and Treissy Hernandez speedily and professionally transcribed an additional set of hundreds of handwritten letters about the sales tax from Texas constituents. I am also tremendously grateful to the assistance of the archivists and research librarians at the New York State Library, New York State Archives, the Sam Houston Regional Library and Research Center, the University of South Carolina, and the South Carolina Department of Archives and History. Friends across the country hosted me while I visited archives, including Maria Cecire, Mariam Ghani, Morrie Schulman and Rachel Gunner, Johanna and Stuart Feldman, and Lindsay Joyner. This dissertation simply couldn’t have been written without your spare rooms, couches, home cooked meals, and incredible hospitality! Thank you to Peter Fisher, David Osterberg, and Colin Gordon for teaching me everything I know about tax policy and tempting me to go get a PhD. I also felt truly lucky to discover a community of fellow fiscal sociologists who read my work, provided generous and lengthy comments, encouraged my interest in these topics, and always made me feel like we were working together on a common project. I am particularly grateful for the advice of Isaac Martin, Ajay Mehrotra, and Monica Prasad in encouraging my work and the growth of a whole body of fiscal sociology scholarship. I can’t imagine graduate school — or this dissertation — without the support of the peers and friends at Berkeley who cheered me on every step of the way. Thank you to Rebecca Elliott, Katy Fox-Hodess, Sun Kim, Carter Koppelman, Louise Ly, Carlos !iii Bustamante, Ben Shestakofsky, Phil Rocco, Amanda Cook, and Gowri Vijayakumar for making everything good, even when it was really hard. Finally, my family makes unconditional support looks easy, and I couldn’t be more thankful for their support. Thank you to my mom and dad, to my brother, and to Tarek for always being on my side. !iv Chapter One: Taxes, Federalism, and American Social Policy No issue is more fundamental to understanding American politics and policy than taxation. Tax policy decisions determine how much money is available to fund public priorities, establish how the cost of raising that revenue will be apportioned across different types of taxpayers, and even play a key role in structuring how the benefits of public spending are divided up among American citizens. Yet determining how much revenue should be raised and how the costs and benefits of public spending should be distributed are not merely technical problems that can be solved by pulling out a calculator or turning to a spreadsheet. Rather, these decisions are embedded in profoundly political considerations and deeply informed by historical and institutional contexts. What is the proper role and size of government? What sacrifices can the state can legitimately ask of its citizens? What criteria should we use to determine a “fair” distribution of social costs and benefits? During the late nineteenth and early twentieth century, public finance scholars argued that studying tax policies provided a crucial lens on how a society answered these important questions. “Fiscal theory, like all social theory,” declared public finance economist E.R.A. Seligman in 1910, “is but an attempt to present an analysis of the living forces at work in industrial society” (1910: 331). A few years later, Joseph Schumpeter put the matter even more colorfully in his essay “The Crisis of the Tax State,” stating: “The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare — all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else” ([1918] 1991: 101). In this dissertation, I build upon a growing body of more recent scholarship in fiscal sociology that takes Schumpeter’s and Seligman’s insights to heart by understanding taxation as a social contract between taxpayers and the state. I argue that taxes are not merely a protection payment extorted by coercive rulers — as in Tilly’s (1985) provocative description of taxation and state building in early states — nor are they simply a functional response to the need for more revenue. Rather, taxes are a “concrete instantiation of the social contract that exists between citizens and their state” (Mehrotra 2015: 108). The design of tax policies and the structure of the overall tax system reflect the “collective fiscal bargain” that has been struck between taxpayers and the government in modern society (Martin, Mehrotra, and Prasad 2009: 18). By articulating expectations about who owes what to the state, as well as what activities the state can be expected to perform in return, tax and budget policies lay out the terms of “fiscal citizenship” in a polity (Sparrow 2011; Zelenak 2013; Mehrotra 2008; 2015). Scholars who study the history of taxation in the United States have charted dramatic shifts in the terms of this fiscal bargain throughout the last
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