by Sheldon D. Pollack. Ithaca: Cornell University Press, 2009. 328pp. Cloth $69.95. ISBN: 9780801447921. Paper $24.95. ISBN: 9780801475863.

Leslie Friedman Goldstein, Department of Political Science, University of Delaware. Email: lesl [at] udel.edu.


This new book by Sheldon Pollack sets out to tell the story of the politics of the build-up of a taxing capacity in the American State – that is, in the central government of the United States of America. As all Americans know or should know, the initial version of the USA under the Articles of Confederation, did not have a taxing power and did not have the power to enforce any laws. It could request money from each state, as the United Nations today can request dues from each member, but, like the latter, it had no forceful mechanism for extracting that money. By contrast, the contemporary Internal Revenue Service raises $2.5 trillion annually (p.288) and is feared by individual Americans from the lowly to the haughty. How did we get from there to here?

Pollack begins his account with a recapitulation of the descriptions by several theorists who have likened the rise of the modern European state to criminal protection rackets. A warlord gang comes along (in the power vacuum that followed the collapse of the Roman Empire) and extorts money from local residents as payment for refraining from totally pillaging them. Over time, the gang finds it more economical to stay put and extract regular tribute and provide bonafide protection from other potential marauders, as a way of securing its revenue source. These ignoble bad guys, now in charge, become the so-called “nobility” who were later taken over by monarchs in the postfeudal period. Kings rise to power in the early modern period because of technological developments in weaponry that advantage big treasuries and big armies (Chs.1-2). Enter the modern kingly state, later known as the nation-state.

The kingly warrior state began to evolve toward the modern social welfare state as the liberal monarchy of Germany confronted the threat of the rise in popularity of social democracy in the late nineteenth century. In 1883 Kaiser Wilhem I and Otto von Bismarck implemented compulsory health insurance for workers (employers paying 2/3 of the cost, employees the rest), in 1884-5 compulsory accident insurance (paid by employers), and in 1889 comprehensive pensions for the old and/or disabled. In the same decade the monarchy nationalized the railroads and organized a conscript army (p.89). As a system that offered concrete benefits to the mass of the citizenry, and that, as to pensions, tied the benefits to the long-term stability of the regime, the social welfare state conserved existing power relations. Other European powers noticed the successful innovation and copied it in rather short order. By the [*730] 1920s, all of the Western European states were on board (p.92-94). By the early 1930s, the states of Europe were spending more on social benefits than on their militaries (p.95)

So far, Pollack is summarizing the work of other scholars, and he offers an impressive overview of the state development literature. His interest, however, is on how, when and why states manage to build up and institutionalize their taxing, or as he puts it, “revenue extraction” capacity. The short answer is war. A sense of crisis weakens public resistance to paying taxes, and nothing says “crisis” so well as war. The crisis of the Great Depression pales in comparison to the two world wars as a stimulus to rises in tax impositions (pp.94-99). When the war ended, instead of going back to prewar tax levels, the European states each time largely shifted the spending to social welfare benefits (ibid.).

In the remaining two thirds of his book, Pollack offers a careful history, thick with descriptive detail, of the development of the state apparatus – i.e. the governmental bureaucracy, particularly but not exclusively that of the revenue raising forces, of the American national government. He traces the transition from the thirteen separate states, already leagued in war, that declared in July of 1776 that they “are,” although “united” nonetheless “independent.” At some point the thirteen original states began to speak of themselves with a singular verb rather than a plural verb. Although Pollack does not trace the linguistic transition, the political transition from, first, states leagued by war, to then confederated states, to finally a more unified and effective federal state via adoption of the U.S. Constitution is part of the story he unfolds (Chs.4-5).

The revolutionary war created war debt that the impotent Confederation could not come close to paying off. The U.S. Constitution lists the first three powers of the new Congress in Article I, Section 8 as (cl.1) the power to tax and spend for the common defense and general welfare, (cl.2) the power to borrow money, and (cl.3) the power to regulate commerce among the states. The new government, after brief experiments with inheritance taxes (1798-1801) and taxes on land and slaves (1798-1801), settled into a pattern of financing mainly by a combination of excise taxes on so-called luxury items like whiskey and tobacco, sales of public lands, and tariffs. Tariffs far outpaced the rest as a revenue source. The U.S. managed to pay off much of its debt but incurred new debt with the War of 1812. During the war, massive borrowing and massive increases in the level of taxation took place, thus producing new national debt. By 1835 the entire national debt was paid off, but soon there was the War with Mexico, then the Civil War. The Spanish American war goes unmentioned, but Pollack gives World Wars I and II and the Cold War considerable attention.

Each war caused the federal government to raise taxes and to supplement tax revenue by borrowing. The Civil War brought the first, tiny income tax (5% on incomes above $600 per year, graduated up to 10% for incomes above $10,000). It was allowed to expire in 1872. Nonetheless, the significant expansion of the federal bureaucracy that accompanied the war and the high level of federal expenditures triggered by the [*731] war continued after war’s end. Much of the new bureaucracy existed to administer the new veterans’ and widows’ pensions for soldiers of the Union army. In other words, social welfare benefits started to flow to the northern states where the Republican party’s strength lay (pp.234-238). As the South and West increased in political strength toward the end of the nineteenth century, the Democratic party pushed through a 2% flat income tax, so tariffs could be lowered (pp.239-240) . The Supreme Court declared it unconstitutional, and the Constitution was then amended in 1913 to permit an income tax. This time (as during the Civil War) the tax had significant support from many Republicans, including President Taft. After ratification, Woodrow Wilson’s administration then pushed through a very modest and modestly graduated income tax accompanied by a lowered tariff. Income up to $3,000 for single individuals was exempted, and the tax rate on up to $20,000 income was only one per cent. Even then, for the first years of the tax, the exemption was so high that only 2% of households paid income tax (pp.245-246). Naturally, entry into WWI massively pushed up both tax rates and expenditures, but the postwar period, until the stock market crash, brought a gradual shrinkage of both down to prewar levels. President Hoover promoted a boost of income tax rates to deal with the drastic drop in revenue attendant to the Great Depression, and that law passed in 1932. FDR at first resisted political pressure to continue raising rates, but gave in to pressure from his left with the Revenue Act of 1934. In 1935 the federal government introduced both the social security system of old-age pensions and a program of unemployment insurance. It tinkered with the income tax rates throughout the thirties but did not fundamentally alter the system. It was WWII that brought massive changes in the revenue system along with a mushrooming in the federal payroll and size of the military. Federal expenditures went from $9.6 billion in 1940 to $95 billion in 1945, basically a tenfold increase (p.259). In contrast to the sequel to WWI, this time the Cold War came along and kept expenditures up. Not surprisingly the federal bureaucracy stayed commensurately large. Meanwhile, social welfare benefits increased over time, especially during the Lyndon Johnson administration.

Pollack concludes that, despite the parallels to Europe in the connection between war and revenue growth, the United States exhibits important differences. The American system looks much more like a genuine social contract where members understand themselves to be mutually benefiting from the political system that would protect their rights, and does not look like the “protection racket,” i.e., prettified extortion system, described by the scholars of the early modern European state.

This is an overwhelmingly impressive piece of work in terms of its grasp and analysis of a wide range of literatures, but I cannot suppress one complaint about a topic he did not really treat. It strikes me that comparison to the growth of the European kingly state is not likely to be terribly illuminating, because the “American state,” as Pollack calls it, is born of voluntary immigration, revolution against a monarchy, and then [*732] voluntary federation of self-governing smaller states. I have elsewhere urged a comparison of the growth of the U.S. federation with state development of the Dutch federation of the seventeenth and eighteenth centuries and the Swiss federation of the nineteenth century (Goldstein 2001). These too formed voluntarily, in contrast to the German federation and the USSR, both of which grew out of conquest; and they formed independently, in contrast to Canada, Australia, and India, which federated under the shadow of the British imperial power.

The absence of focus on the federal element of the U.S. system produced a commensurate neglect of the non-military aspects of state-provided protection. In this federal union, it is the local state that performs the functions of dispute resolution and apprehension of criminals. Revenue is needed for these. How does the ability to raise revenue evolve at the state and local level? Perhaps Professor Pollack can be persuaded to address these issues in his next book. Until then, we can be grateful for this one.

Goldstein, Leslie Friedman. 2001. CONSTITUTING FEDERAL UNION: THE EUROPEAN UNION IN COMPARATIVE CONTEXT. Baltimore: Johns Hopkins University Press.

© Copyright 2009 by the author, Leslie Friedman Goldstein.