This week, I got a lot of traffic from the query “what is a ‘Downton Abbey’ economy?” The question was linked to a Sunday op-ed written by Larry Summers for the Financial Times, “America risks becoming a Downton Abbey economy.” In his article, Summers addresses inequality and the “excess of a privileged few” in the United States today; themes that are quite apparent in Downton Abbey.
While Summers makes a comparison between the two, his article focuses on today’s American economy and does not go into detail about that of early twentieth century Britain. For the past two seasons, I’ve been writing about a mix of specific economic and social issues brought up in Downton Abbey – the Grand Trunk Railway failure, for example – and broader issues, like the general lack of social and economic mobility in early twentieth century Britain. Below, I take a quick look at how the ‘Downton Abbey economy’ relates to today, using Summers’ op-ed as a guide.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.”
16th Amendment of the United States Constitution
On February 3, 1913, Congress ratified the 16th Amendment, enabling a federal income tax as a means for fiscal revenue. The development of this idea had been long in the making. William Pitt in England was one of the first to place an ‘income’ tax on citizens, in his case it was to help pay for the Napoleonic War in the 1790s. Later, the United States took Pitt’s idea and tried to impose an income tax to help pay for the War of 1812, but the war ended before it could be enacted. Later still, during the Civil War, income taxes were used on both sides to support the costly war.
Sensing a theme here? Governments consistently found themselves unable to pay for large-scale, unplanned war expenses. Lacking a rainy day fund, they turned to citizens’ pockets.
The very idea of “income tax” has evolved since its tentative beginnings in the United States. Tariffs on consumer goods preceded income taxes as a popular way for the government to gain revenues. However, issues of class came up frequently with tariffs, and, more often than not, they failed to bring in enough revenue for the government. Looking for additional options federal and state governments attempted to tax American citizens directly on their income, rather than indirectly via tariffs. Several attempts were made prior to 1913, all varying in degrees of effectiveness.
Below, I focus on the evolution of the individual income tax during the 19th and early 20th centuries in the United States.