From FEE, Myths of the New Deal:

In 1929, the income tax only affected the top 2 percent of earners; they paid almost $1.1 billion in income taxes that year. Excise taxes, which were mainly imposed on tobacco, were less than half that, or $539 million. In other words, if you didn’t smoke and you were not a corporate officer, what money you earned was yours to keep.

During the 1930s (starting under Hoover and expanded by FDR), a host of new excise taxes were passed on such popular consumer items as alcoholic beverages, movie tickets, telephone calls, bank checks, telegrams, gasoline, cars, car tires, and even grape concentrates. In 1936, after FDR helped raise the top income-tax bracket to 79 percent, the revenue collected from income taxes dropped to $674 million, as rich investors withdrew their capital from taxable investments. The excise taxes, which hit the middle- and lower-income groups with full force, were over $1.5 billion. These new excise taxes, much more than income taxes, were helping fund the New Deal programs. In other words, the “forgotten man” who pumped gas into his car and drove it to a theater to smoke a cigarette and watch a movie paid four new taxes (and one old one) to pay the WPA worker in Chicago to build a bridge and the wheat farmer in Kansas to take his land out of circulation (so that the farmer could then receive a higher price for wheat, which translated into more expensive bread for the “forgotten man”).

print