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Lawyers, Guns, and Public Moneys: The U.S. Treasury, World War I, and the Administration of the Modern Fiscal State

Published online by Cambridge University Press:  15 February 2010


World War I was a pivotal event for U.S. political and economic development, particularly in the realm of public finance. For it was during the war that the federal government ended its traditional reliance on regressive import duties and excise taxes as principal sources of revenue and began a modern era of fiscal governance, one based primarily on the direct and progressive taxation of personal and corporate income. The wartime tax regime, as the historian David M. Kennedy has observed, “occasioned a fiscal revolution in the United States.”

Forum: World War I and the Making of the Modern American Fiscal State
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18. Cuff, War Industries Board; McGerr, Michael E., A Fierce Discontent: The Rise and Fall of the Progressive Movement in America, 1870–1920 (New York: Simon & Schuster, 2003), ch. 9Google Scholar.

19. Witte, Politics and Development of the Federal Income Tax, 79–87; Brownlee, Federal Taxation in America, 47–58. On the early origins of the U.S. income tax, see Stanley, Robert, Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861–1913 (New York: Oxford University Press, 1993)Google Scholar; Waltman, Jerold L., Political Origins of the U.S. Income Tax (Jackson: University Press of Mississippi, 1985)Google Scholar; Weisman, Steven R., The Great Tax Wars: Lincoln to Wilson; the Fierce Battles over Money and Power that Transformed the Nation (New York: Simon & Schuster, 2002)Google Scholar; Ratner, Sidney, Taxation and Democracy in America (New York: John Wiley and Sons, 1942)Google Scholar.

20. United States Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1914 (Washington, D.C.: Government Printing Office, 1915), 149Google Scholar. The 1913 income tax had a $3,000 exemption level for individuals and a $4,000 exemption for married couples, and it had graduated rates that began with a 1 percent “normal” tax on all incomes above the exemption levels and included “surtax” rates that ranged from an additional 1 to 6 percent, with the maximum rate applied to incomes over $500,000 (Revenue Act of 1913, chap. 16, 38 Stat. 114, 166, 168).

21. Effective tax rates refer to the ratio of a taxpayer's tax liability to income. For those few taxpayers who had annual incomes that exceeded $1 million the effective tax rate skyrocketed from 10 percent to over 70 percent between 1916 and 1918. Brownlee, W. Elliot, “Historical Perspectives on U.S. Tax Policy Toward the Rich,” in Does Atlas Shrug? The Economic Consequences of Taxing the Rich, ed. Slemrod, Joel B. (New York: Russell Sage Foundation, 2000), 45Google Scholar. Historical Statistics of the United States, Series Ea 758-772.

22. In nominal terms, the federal budget deficit climbed from roughly $400 million in 1914 to over $13 billion by 1919. Total public debt consequently soared from about $1 billion to over $25 billion during the same period (Historical Statistics of the United States, Series Ea 584-587).

23. Gilbert, American Financing of WWI, 177–99, 212–13; Sparrow, From the Outside In, 298–302; Friedman, Milton and Schwartz, Anna J., A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963), 189239Google Scholar; Rockoff, Hugh, “Until its Over, Over There: The U.S. Economy in World War I,” in The Economics of World War I, ed. Broadberry, Stephen and Harrison, Mark (Cambridge: Cambridge University Press, 2005), 310343CrossRefGoogle Scholar.

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27. McAdoo, Crowded Years, 372; Kennedy, Over Here, 107, 109.

28. “Conscripting Capital,” Los Angeles Times, June 4, 1917, II4; “Where the Burden Shall Fall,” Puck, April 21, 1917, A7; “The Conscription of Wealth,” The Independent, April 28, 1917, 193.

29. Eight percent was established as the “reasonable rate of return,” and all profits above that level were taxed at graduated rates ranging from 8 percent to a maximum of 60 percent on corporate profits that were in excess of 32 percent of invested capital (Revenue Act of 1917, 40 Stat. 300 [1917]).

30. “The Excess Profits Tax—Discussion,” American Economic Review, 10 (March 1920): 19–32; Brownlee, “Economists and the Formation of the Modern Tax System in the United States,” in The State and Economic Knowledge, eds. Mary O. Furner and Barry Supple, 409–11; Brownlee, “State and Social Investigation,” 328–32.

31. Revenue Act of 1917, 40 Stat. 300 (1917); Pinchot quoted in Hillje, John W., “New York Progressivism and the War Revenue Act of 1917,” New York History 53 (October 1972): 446Google Scholar.

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33. Annual Report of the Secretary of the Treasury, 1914–1925; Sparrow, From the Outside In, 295–98; Historical Statistics of the United States, Table Cc 1-2.

34. After working for the Interstate Commerce Commission in the 1890s, Roper leveraged his regulatory knowledge and experience and became the manager of a railway and public utilities financing firm. Roper, Daniel C., Fifty Years of Public Life (Durham, N.C.: Duke University Press, 1941), 9091Google Scholar. “The Public Service Record of Daniel C. Roper,” Box 11: Honorary Bound Volume, March 31, 1920, Daniel C. Roper Papers, Rare Book, Manuscript & Special Collections Library, Duke University, Durham, N.C. (hereinafter DCRP).

35. “New Treasury Assistant,” The Washington Post, December 11, 1917; Gould, Lewis L., Progressives and Prohibitionists: Texas Democrats in the Wilson Era (Austin: University of Texas Press, 1973), 6162, 278–79Google Scholar; McAdoo, Crowded Years, 403; Moore, Sue E. Winton, Thomas B. Love, Texas Democrat, 1901–1949 (Master's thesis, University of Texas, 1971)Google Scholar.

36. Leffingwell was not only a central legal figure in the development of Treasury policies but he was also a capacious note-taker and correspondent who left behind an abundant collection of documents, as perhaps only a former Cravath partner could. Russell C. Leffingwell Papers, Library of Congress, Washington, D.C. (hereinafter RCLP).

37. Leffingwell was instrumental in assisting the investment house of Kuhn, Loeb & Co. float $60 million worth of short-term debt for the Pennsylvania Railroad just as the Panic of 1907 had hit (Swaine, Robert T., The Cravath Firm and Its Predecessors, 1819–1947, 3 vol. [New York: Ad Press, 1946], I:716Google Scholar).

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39. “Arthur Ballantine, Lawyer, Dies,” New York Times, October 12, 1960; “Hoover Aid in Treasury Dies in N.Y.” Washington Post, October 12, 1960; Urofsky, Melvin I., “Ballantine, Arthur Atwood,” in Dictionary of American Biography, Supplement Six, 1956–1960, ed. Garraty, John A. (New York: Charles Scribner's Sons, 1990), 34Google Scholar. “Named Legal Advisors on War Revenue Regulations,” Official Bulletin, December 1, 1917; Arthur A. Ballantine to Daniel C. Roper, November 25, 1918, Box 1: IRS Solicitor 1917–1919, Arthur A. Ballantine Papers, Herbert Hoover Presidential Library, West Branch, Iowa (hereinafter ABP); Roper, Fifty Years, 174.

40. Brownlee, “Russell Cornell Leffingwell.” According to Robert Swaine, when the United States officially entered the war, Leffingwell demonstrated his patriotism—and perhaps his disillusionment with his successful legal career—by joining the Plattsburg Reserve Officers' Training Camp. Cravath was astonished to learn about his junior law partner's seemingly rash decision, and he intervened to ensure that Leffingwell's expertise in legal and financial matters would not be wasted on the battlefield. Cravath contended that Leffingwell with his age and experience could provide the country with greater service in Washington than by “toting a gun, doing K.P., or teaching American young men how to stick their bayonets through the bodies of imaginary Huns” (Swaine, Cravath Firm, 209).

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42. Gordon, “Legal Thought”; Gordon, “The American Legal Profession, 1870–2000,” in The Cambridge History of Law in America, eds. Grossberg and Tomlins, 92–98; Hurst, Growth of American Law; Hofstadter, Age of Reform.

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47. Roper, Fifty Years, 177, 193.

48. Swaine, Cravath Firm, 210; Lawrence L. Murray, “Bureaucracy and Bipartisanship in Taxation: The Mellon Plan Revisited,” Business History Review 52 (Summer 1978): 200–25.

49. Roper, Fifty Years, 174–75; “Robert Miller, U.S. Tax Lawyer Under Woodrow Wilson, Is Dead,” New York Times, January 2, 1968, 41; Hopkins, Albert L., Autobiography of a Lawyer (Chicago, 1966), 106Google Scholar; E. Barrett Prettyman, “Autobiography of a an Obscure Man at Forty,” unpublished manuscript in Box 122, E. Barrett Prettyman Papers, Library of Congress, Washington, D.C. I am grateful to Dan Ernst for identifying the Prettyman manuscript and its relevance to my research. Many Treasury lawyers went on to have prosperous postwar tax law careers, including Prettyman, Hopkins, Robert N. Miller, and Annabel Matthews, one of the few female attorneys working in Ballantine's office. Matthews began her career as a clerk in the BIR in 1914, worked her way up to become a senior attorney, and then became the first female judge on the U.S. Board of Tax Appeals in 1930 (“Miss Matthews, U.S. Tax Expert,” Washington Post, March 25, 1960); see also the appointment and promotion letters contained in “Folder 11: Correspondence, 1914–1930,” Annabel Matthews Papers, 1880–1960, Schlesinger Library, Radcliffe Institute, Harvard University, Cambridge, Mass.

50. Leffingwell to Thomas W. Lamont Jr. (Officer of J. P. Morgan & Co.), February 21, 1918, Reel 3; Leffingwell to Otto Kahn (Member of Kahn, Loeb investment banking house), June 10, 1918, Reel 5; Leffingwell to Goldman, Sachs & Co., July 8, 1918, Reel 9, RCLP; Leffingwell to George O. May (Senior Partner, Price Waterhouse & Co.), August 12, 1918, Reel 10, RCLP. Brownlee, “Russell Cornell Leffingwell,” 217. On Leffingwell's assistance to friends and former colleagues see, Leffingwell to W. M. Cutcheon (of Cravath), December 1917, Reel 1; Leffingwell to Love, January 23, 1918, Reel 2, RCLP.

51. “D.C. Bank Merges Foreign Branches: Roper Names Advisors,” Washington Post, April 3, 1918, 5; Roper, Fifty Years, 174; Roper, “The War Revenue Act and the Taxpayer,” 2, December 13, 1917, Box 27: Addresses, DCRP. As a political insider, Roper was also consistently fielding requests for assistance in helping politicians land government jobs for their friends and constituents. Breckinridge Long (Third Assistant Secretary of State) to Daniel C. Roper, February 28, 1920, Box 11, DCRP.

52. Leffingwell to McAdoo, August 17, 1918, Reel 10, RCLP; “1,500,000 for France,” Washington Post, April 4, 1918, 2.

53. Roper, Fifty Years, 183; BIR field agents responded in kind to the confidence that Roper had instilled in them, and they understood that by following Roper their postwar careers “will be more remunerative and less exacting” (A. S. Walker to Daniel C. Roper, March 27, 1920, Box 11, DCRP).

54. Unsurprisingly, Love's patience for being the direct subordinate to a New York Republican and Cravath partner eventually wore thin, as he quickly returned to the comforts of Texas Democratic politics soon after the war (More, Thomas Love; “Excess Tax Review Board,” Wall Street Journal, April 3, 1918).

55. Roper, Fifty Years, 181; Doris, Lillian, The American Way in Taxation: Internal Revenue, 1862–1963 (Englewood Cliffs, N.J.: Prentice-Hall, 1963), 218Google Scholar. Roper set up similar training for BIR field offices. Roper, “The War Revenue Act and the Taxpayer,” 3, DCRP.

56. McAdoo to Kitchin, June 5, 1918, Record Group 56—General Records of the Office of the Secretary of the Treasury, Box 187, Folder “Tax—Excess Profits & War Profits, 1917–1920.” National Archives and Record Administration, College Park, Md. (hereinafter NARA Excess Profits Tax Folder).

57. “Excess Tax Review Board,” Wall Street Journal, April 3, 1918; Roper, Fifty Years, 175. Leffingwell to George R. Cooksey (Assistant to the Secretary of the Treasury), August 23, 1918, Reel 11, RCLP.

58. Leffingwell to McAdoo, August 24, 1918, Reel 11, RCLP; Eisner, From Warfare State to Welfare State, 230–31. Leffingwell took similar steps to ensure that the War Finance Corporation did not also directly take part in financing the war effort (Leffingwell to Thomas V. Lamont [Partner, J. P. Morgan & Co.], February 21, 1918, Reel 3, RCLP).

59. Leffingwell to Attorney General Thomas W. Gregory, March 23, 1918; Leffingwell to Gregory, October 14, 1918; Leffingwell to Gregory, December 1918; Leffingwell to Senator Robert L. Owen, March 26, 1918; Leffingwell to McAdoo, December 1917; Leffingwell to Congressman Carter Glass, January 16, 1918; Leffingwell to Richmond Weed, September 3, 1918, RCLP. For more on the importance of delimitation for bureaucratic power, see Weber, “Bureaucracy.”

60. Leffingwell to Ballantine, October 25, 1918, Reel 16, RCLP.

61. “Fords Acquire Stock Control in their Company,” New York Times, July 12, 1919, 1; Roper, Fifty Years, 181–82; Brinkley, Douglas, Wheels for the World: Henry Ford, His Company, and a Century of Progress, 1903–2003 (New York: Viking, 2003), 240–42Google Scholar.

62. Leffingwell to McAdoo, September 11, 1918; Leffingwell to Thomas Love, July 19, 1918; Leffingwell to McAdoo, August 17, 1918; “For Morning Papers,” (Leffingwell approved press release regarding recent issuance of Treasury certificates) September 12, 1918; Leffingwell to John Burke (Treasurer of the United States), December 3, 1917; Leffingwell to McAdoo, January 16, 1918, Reel 1, RCLP.

63. Leffingwell to McAdoo, September 11, 1918, Reel 12, RCLP; Schafer, America in the Great War, chap. 1. Treasury officials also worked with George Creel's Committee on Public Information (CPI) to spotlight the fiscal obligations of buying liberty loans and to cajole Americans to do their Christmas shopping early to expedite the receipt of federal sales taxes. George Creel to Woodrow Wilson, August 6, 1918; Wilson to Creel, August 8, 1918, Container 2, George Creel Papers, Manuscript Division, Library of Congress, Washington, D.C. For more on the Committee on Public Information, see Vaughn, Stephen, Holding Fast the Inner Lines: Democracy, Nationalism, and the Committee on Pubic Information (Chapel Hill: University of North Carolina Press, 1980)Google Scholar.

64. Vaughn, Holding Fast the Inner Lines, chap. 2; Capozzola, Christopher, Uncle Sam Wants You: World War I and the Making of the Modern American Citizen (New York: Oxford University Press, 2008), ch. 6CrossRefGoogle Scholar.

65. Leffingwell to McAdoo, December 1917, Reel 1, RCLP; “May Accept Part Payment of Taxes,” Washington Post, April 12, 1918, 3.

66. “Banks Want Excess Tax Paid in Installments,” Wall Street Journal, September 28, 1917, 2; “Want Only Revision in the War Tax Bill,” New York Times, December 11, 1917, 14; “Installment Plan for Taxes Urged” Washington Post, March 14, 1918, 10; Leffingwell to Love, March 2, 1918; March 7, 1918; March 19, 1918, Reel 3, RCLP.

67. Leffingwell to Daniel Roper, n.d.; Leffingwell to Hoxsey, April 22, 1918; Leffingwell to Frank E. Howe (President, Manufacturers National Bank); Leffingwell to Benjamin Strong, April 22, 1918, Reel 4, RCLP.

68. Leffingwell to Love, April 12, 1918, Reel 4, RCLP; “Income Tax May Net $4,000,000,” New York Times, April 12, 1918, 17.

69. “U.S. Reaps Richest Harvest in Taxes,” Washington Post, June 26, 1918; “War Taxes in Year Yield $3,694,703,000,” New York Times, August 7, 1918, 15.

70. “$3,000,000,000 Tax Paid With No Strain,” New York Times, June 17, 1918, 10; “Banks Easily Meet Income Tax Drain,” Washington Post, June 23, 1918. Leffingwell to McAdoo, June 28, 1918, Reel 8, RCLP.

71. Kennedy, Over Here, 43–44; Ely, Richard T., Taxation in American States and Cities (New York: Crowell, 1888)Google Scholar; Seligman, Edwin R. A., The Income Tax (New York: MacMillan, 1911)Google Scholar. On the role of progressive political economists in supporting direct and graduated taxes, see Hovenkamp, Hebert, “The First Great Law & Economics Movement,” Stanford Law Review 42 (4) (1990): 9931058CrossRefGoogle Scholar; Mehrotra, Ajay K., “Envisioning the Modern American Fiscal State: Progressive Era Economists and the Intellectual Foundations of the U.S. Income Tax,” UCLA Law Review 52 (6) (2005): 17931866Google Scholar. The transatlantic support for progressive taxes is explored in Kloppenberg, James T., Uncertain Victory: Social Democracy and Progressivism in European and American Thought, 1870–1920 (New York: Oxford University Press, 1986), 355–56Google Scholar.

72. Arthur S. Link, Wilson: Campaigns for Progressivism and Peace (Princeton: Princeton University Press, 1965), 62. For more on Kitchin, see Arnett, Alex M., Claude Kitchin and the Wilson War Policies (Boston: Little Brown, 1937)Google Scholar; Ingle, Homer Larry, Pilgrimage To Reform: A Life of Claude Kitchin (PhD diss., University of Wisconsin, 1967)Google Scholar; Norris quoted in Zucker, Norman L., George W. Norris, Gentle Knight of American Democracy (Urbana: University of Illinois Press, 1966), 128Google Scholar.

73. “An Urgent Duty and a Glorious Privilege,” The Literary Digest, January 12, 1918, 32; Roper, Fifty Years, 176, 180. Roper informed business journalists that they also had a professional obligation to remind “the man who pays his Liberty tax in full, without question or murmur, is no less a patriot than the man who invests in the Liberty bond or volunteers his services for military duty.” Roper, “The War Revenue Act and the Taxpayer,” 5, DCRP.

74. Roper, Fifty Years; Roper, “The War Revenue Act and the Taxpayer,” DCRP. For a recent examination of the World War I political culture surrounding a “citizenship of obligation,” see Capozzola, Uncle Same Wants You.

75. Even before the Revenue Act of 1917 was introduced in Congress, the New York Chamber of Commerce issued a statement urging “the advisability of a more nearly universal participation of the country's population in bearing the burdens of taxation; that the indirect sources of revenue should not be abandoned or unduly minimized, and that direct sources should not be overworked to the extent of arresting the financial ability of the country to develop enterprise at home and abroad” (“New York Chamber of Commerce and the Excess Profits Tax,” Commercial and Financial Chronicle, February 3, 1917, 421); “Opposition to the Excess Profits Tax By Business Men,” Commercial and Financial Chronicle, February 10, 1917, 517; “The Injustice of the Excess Profits Tax,” Commercial and Financial Chronicle, May 19, 1917, 1957.

76. Brandes, Warhogs, 174–75, 172.

77. Sprague, O. M. W., “Loans and Taxes in War Finance,” American Economic Review Supplement (March 1917): 199223Google Scholar; Fisher, Irving, “How the Public Should Pay for the War,” Annals of the American Academy of Political and Social Science 78 (July 1918): 112–17CrossRefGoogle Scholar.

78. Seligman, E. R. A., “Borrowing Must Supplement Taxes in War Finance,” New York Times, April 15, 1917, E3Google Scholar; Seligman, E. R. A., “Loans versus Taxes in War Finance,” Annals of the American Academy of Political and Social Science 75 (January 1918): 5282CrossRefGoogle Scholar; Bullock, Charles J., “Financing the War,” Quarterly Journal of Economics, 31 (May 1917): 357–79CrossRefGoogle Scholar; Bullock, , “Conscription of Income,” North American Review 205 (June 1917): 895904Google Scholar.

79. Leffingwell to McAdoo, March 1, 1918, Reel 3, RCLP.

80. Reflecting back on the war, McAdoo boasted in his memoirs about how he, unlike his Civil War predecessor Treasury secretary Salmon Chase, was able to appeal directly to the patriotic fervor of the people through several successful and oversubscribed bond drives. “Any great war must necessarily be a popular movement,” wrote McAdoo. “It is a kind of crusade; and like all crusades, it sweeps along on a powerful stream of romanticism.” To harness such powerful emotions, McAdoo recalled, “we went direct to the people and that means to everybody—to businessmen, workers, farmers, bankers, millionaires, school teachers, laborers. We capitalized the profound impulse called patriotism” (McAdoo, Crowded Years, 374).

81. McAdoo, Crowded Years, 374; Kennedy, Over Here, 105–6; “McAdoo Calls Bankers,” Washington Post, March 22, 1918, 5.

82. Leffingwell to McAdoo, March 1, 1918, Reel 3, RCLP.

83. Leffingwell to Richmond Weed (Treasury legal staff), February 5, 1918; Leffingwell to McAdoo, March 1918, Reel 2, RCLP; Brownlee, “Social Investigation and Political Learning,” 338.

84. Leffingwell to McAdoo, October 16, 1918, Reel 15, RCLP.

85. Ibid. Efforts to bolster U.S. postwar trade policy would, of course, also benefit the corporate bar, as leading Treasury lawyers like Leffingwell and Roper embarked upon postwar careers with a growing international focus (Chernow, Ron, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance [New York: Grove, 1990], 251, 312–14Google Scholar); Roper, Fifty Years, 207–8.


86. McAdoo to Kitchin and Simmons, September 5, 1918, Reel 12, RCLP; McAdoo further informed lawmakers that the Treasury “sought to avoid the issue of bonds at such rate and upon such terms as might result ultimately, when the war is won, in the accumulation of great wealth in the hands of a relatively small proportion of our population, carrying interest at a high rate and exempt from taxes” (Gilbert, American Financing of WWI, 126).

87. Brandes, Warhogs, 129–31. For more on how World War II policymakers helped institutionalize a mass income taxpaying culture, see Kennedy, , Freedom From Fear, 624–25Google Scholar; Jones, Carolyn, “Class Tax to Mass Tax: The Role of Propaganda in the Expansion of the Income Tax During World War II,” Buffalo Law Review (37) (1989): 685–737Google Scholar; Sparrow, James T., “‘Buying Our Boys Back’: The Mass Foundations of Fiscal Citizenship in World War II,” Journal of Policy History 20 (2) (2008): 263–86CrossRefGoogle Scholar.

88. In fact, as the economic historian Hugh Rockoff has shown, investors in Liberty Loans received an after-tax rate of return that matched the yield on other assets of equal risk, suggesting that, in spite of McAdoo's ambitions, the bond drives did little to capitalize on patriotism (Rockoff, “Until It's Over,” 322–27).

89. Studenski and Krooss, Financial History, 288–92. The attractiveness of government securities continued to be a thorny issue for fiscal policymakers well after the war. On the postwar effects of tax-favored government securities, see Murray, “Bureaucracy and Bipartisanship”; Murnane, M. Susan, “Selling Scientific Taxation: The Treasury Department's Campaign for Tax Reform in the 1920s,” Law & Social Inquiry 29 (4) (2004): 819–58CrossRefGoogle Scholar.

90. Friedman and Schwartz, Monetary History; Studenski and Kroos, Financial History, 288–89; Rockoff, “Until It's Over,” 317–19.

91. From June 1916 to June 1919, the money supply expanded by over $11 billion and consumer prices increased nearly 66 percent while the cost of living rose over 70 percent. As economic historians have explained, “The Federal Reserve became to all intents and purposes the bond-selling window of the Treasury, using its monetary policy almost exclusively to that end” (Friedman and Schwartz, Monetary History, 216).

92. See, for example, Leffingwell to McAdoo, December 8, 1917; Leffingwell to F. H. Meeker, Esq. (President, Unadilla National Bank), December 1917, Reel 1, RCLP.

93. Leffingwell to McAdoo, April 6, 1918, Reel 4, RCLP.

94. Leffingwell to Kitchin, December 1917; Leffingwell to Rep. Richard Olney, December 1917, Reel 1, RCLP.

95. Leffingwell to McAdoo, April 6, 1918, Reel 4, RCLP; U.S. Treasury Department, Annual Report, 1917, 3.

96. Ibid.


97. Gilbert, American Financing of WWI, 232–36; Rockoff, “Until It's Over,” 332–38; Kennedy, Over Here, 137–43.

98. For more on how “mezzo-level” government officials used their networks and reputations to create policies that were independent of lawmakers, see Carpenter, Forging Bureaucratic Autonomy.

99. “Helping the War Pay for Itself,” The Outlook, June 27, 1917, 319–20; “To Tax ‘Excess Profits’” The Literary Digest, January 27, 1917, 176; “The Excess Profits Tax,” The New Republic, September 15, 1917, 174–75; Brandes, Warhogs, 135–37.

100. Although Seligman had been a longtime supporter of graduated income taxes as the proper method of taxing according to the progressive principle of ability to pay, he opposed the excess-profits tax because “the choice of capital not only constitutes a clumsy attempt to reach taxable ability, but introduces a gross inequality in principle and a deplorable uncertainty in administration” (Seligman, Edwin R. A., “The Excess-Profits TaxThe Nation, March 28, 1918, 365–66Google Scholar).

101. “Excessive Taxation of ‘Excess’ Profits,” Commercial and Financial Chronicle, September 1, 1917; “The Mysteries of the 8% Excess Profits Tax,” Commercial and Financial Chronicle, April 28, 1917; “Washington Finance,” Wall Street Journal, April 27, 1917; “Assails the Profits Tax; Counsel of Bankers' Association Warns Against Hasty Legislation,” New York Times, December 6, 1918.

102. “Memorandum on the Differences Between a War Profits and an Excess Profits Tax,” July 27, 1918, NARA Excess Profits Tax Folder; Leffingwell to Adams, July 27, 1918, Reel 10, RCLP; Brownlee, “Economists and the Modern Tax System,” 415–17; May, George O., “Methods of English War Profits Tax,” New York Times, September 4, 1917Google Scholar.

103. McAdoo to Kitchin, June 5, 1918, (emphasis in the original) NARA Excess Profits Tax Folder.

104. Arnett, Claude Kitchin, 260; Blakey and Blakey, Federal Income Tax, 133. Some Treasury lawyers shared the vision of a postwar political economy that retained the excess profits tax as a permanent bulwark against corporate concentration. “The manifest advantage” of the excess profits tax, one Treasury lawyer wrote, is that it could become “a permanent part of the Government's revenue system, and can be used, if need be, as a check upon monopolies or trusts earning exorbitant profits” (Perry S. Talbert [Head of Law Division, Commissioner of Internal Revenue] to George R. Cooksey [Assistant to Secretary McAdoo], August 8, 1917, quoted in Brownlee “Economists and the Modern Tax System,” 408). Talbert was a member of the BIR throughout the war, and he leveraged his position to become a Washington, D.C., tax consultant after the war. Roper, Fifty Years, 181–82; Talbert, P. S., “Relief Provisions and Treasury Procedure on Appeal,” in The Federal Income Tax, ed. Haig, Robert M. (New York: Columbia University Press, 1921), 250–61Google Scholar.

105. Leffingwell to McAdoo, July 31, 1918, Reel 10, RCLP.

106. Brownlee, “Social Investigation and Political Learning,” 357–59. For a sample of some of the complaints from small businesses against the excess-profits tax see, Leffingwell to Love, August 24, 1918; Leffingwell to Tunstall, September 4, 1918; J. MacFarlane (President, Red River Iron Works) to Leffingwell, August 21, 1918, NARA Excess Profits Tax Folder.

107. More specifically, the Treasury report focused on replacing the steeply graduated rates of the existing excess-profits tax with an exceptionally high flat rate of 80 percent on all profits above a prewar average (“Confidential Memorandum Concerning War Profits Taxes and Excess Profits Taxes,” July 31, 1918; Roper, Fifty Years, 182).

108. In addition to Roper's reservations, which he did not make public, Herbert Hoover, the head of the Food Administration also supported the excess-profits tax (“Excess Profits Tax Backed By Hoover,” New York World, August 17, 1928, clipping in NARA Excess Profits Tax Folder).

109. “Confidential Memorandum Concerning War Profits Taxes and Excess Profits Taxes,” July 31, 1918, NARA Excess Profits Tax Folder.

110. Ibid.


111. Tumulty to Leffingwell, August 1, 1918; Wilson to Kitchin, August 2, 1918, NARA Excess Profits Tax Folder. Leffingwell bolstered his case by directly contacting President Wilson to notify him that the difference between the two levies was not merely semantic: “It is sufficient to say that the difference is not one of words but one of substance and goes to the very root of the social and economic problem” (Leffingwell to Wilson, August 2, 1918, quoted in Ingle, Pilgrimage, 150).

112. Arthur Capper (Chairman of the Farmers' National Committee for War Finance) to McAdoo, August 10, 1918; Leffingwell to Capper, August 27, 1918, NARA Excess Profits Tax Folder. Agrarian associations echoed these demands in a more formal proposal before lawmakers, which called for the “democratic financing of war costs by the retention of the income and excess profits taxes” (“Farmers Outline Their Program for Legislation,” New York Times, December 15, 1919, 1). Some newspaper editors, and even some officials within the Wilson administration, seemed to agree with the farmers (“Dodging the War-Profits Issue,” New York World, July 30, 1918, 7; “An Example of War Profits,” New York World, August 1, 1918, clippings in NARA Excess Profits Tax Folder).

113. “Corporations Paying War-Profits and Excess-Profits Taxes,” October 18, 1918, NARA Excess Profits Tax Folder.

114. Corporations were required to pay the higher of either a graduated excess-profits tax, ranging from 35 to 70 percent, measured with reference to invested capital, or a war-profits tax of 80 percent on net income in excess of a specific credit and the average net income for the prewar years of 1911–13 (Blakey and Blakey, Federal Income Tax, 167–69).

115. See, generally, Hicks, John D., Republican Ascendancy, 1921–33 (New York: Harper, 1960)Google Scholar.

116. “Boston Man Named for Job; Ballantine Chosen by President for Solicitor of Internal Revenue,” press clipping, Box 1: IRS Solicitor 1917–19, ABP; “Excess Tax Review Board,” Wall Street Journal, April 3, 1918; Ballantine, , “Some Constitutional Aspects of the Excess Profits Tax,” Yale Law Journal 29 (6) (1919): 625–42CrossRefGoogle Scholar.

117. “Urges A Sound Basis for Wartime Taxes,” New York Times, June 18, 1918, 17; Ballantine, “Constitutional Aspects,” 627.

118. Ballantine, “Constitutional Aspects,” 630.

119. Ibid., 639. Ballantine also maintained that the congressional use of “invested capital” to measure excess profits was part of the practical, institutional deference that the Court had long granted in the context of tax laws: “The decided cases show that the presumption that each act of Congress is valid, is applied with special readiness to revenue acts and that the Court, even without the persuasive effect of the imperative need for war revenue, would not be likely to declare invalid a taxing act framed with anything like reasonable regard to its just incidence” (639).


120. Ibid., 641.


121. LaBelle Iron Works v. United States 256 U.S. 377 (1921), 393.

122. Ballantine, “Constitutional Aspects,” 635, 642. Despite his initial reservations about the administrability of an excess profits tax, he conceded that the levy had distributional merit: “So far as revenue yield was concerned a sufficiently high flat tax upon business or corporate incomes would have been as effective as the [excess-profits tax], and would have been easier to compute and to administer. A high flat tax would, however, have been borne with undue hardship on the enterprise” that was only moderately connected to the war effort. “And it would not have reached the limit of what was conceived to be the tax-paying ability of the enterprise enjoying, perhaps through war conditions, a very high return upon its investment” (Ibid).

123. Roper, Fifty Years, 170–71, 211, 269–70.

124. Thomas B. Love to Kermit Roosevelt, January 26, 1916; Love to Kermit Roosevelt, September 23, 1919, Kermit Roosevelt Papers, Library of Congress, Manuscript Division, Washington, D.C.

125. Urofsky, “Ballantine, Arthur Atwood.”

126. After the war, Glass commended Leffingwell as being “an indispensable factor in the most important activities of the Department.” Similarly, McAdoo recalled that he valued how Leffingwell, the “Wall Street Republican,” challenged his ideas without being disloyal. “While [Leffingwell's] point of view and mine were frequently at variance, nevertheless these differences were brought out in argument and enabled me to reach decisions with greater confidence and satisfaction to myself than if he had agreed with me about everything,” wrote McAdoo. “Whenever I made a final decision Leffingwell acquiesced and carried it out with loyalty and energy” (Carter Glass to Leffingwell, February 2, 1920, quoted in Pulling, Selected Letters of R. C. Leffingwell, 9; McAdoo, Crowded Years, 430; Murray, , “Bureaucracy and Bipartisanship”Google Scholar).

127. Writing to a friend in 1952, Leffingwell recounted that he was disappointed but not surprised to learn that Wilson had appointed Houston ahead of him. After all, Leffingwell was neither a Democrat nor a close friend of Wilson's. “Under all the circumstances,” Leffingwell wrote, “it was most natural and proper for the President to appoint a long-time friend and Democrat and trusted Cabinet minister to this high office, instead of a stranger whom he knows only by reputation” (quoted in Pulling, Selected Letters of R. C. Leffingwell, 7). Leffingwell's postwar status as a partner in J. P. Morgan probably also cost him an appointment in Franklin Roosevelt's administration (Schuker, “Leffingwell, Russell Cornell,” in Dictionary of American Biography, 377; Swaine, Cravath Firm, 2:315).

128. Daniel C. Roper to Russell C. Leffingwell, October 17, 1919, NARA Excess Profits Tax Folder.

129. Leffingwell to Roper, October 20, 1919, NARA Excess Profits Tax Folder.

130. Roper to Leffingwell, October 17, 1919, NARA Excess Profits Tax Folder.

131. A Court of Internal Revenue Tax Appeals did not come into being, but this idea may have been the kernel that led to the creation of specialized federal trial courts for tax issues, the U.S. Board of Tax Appeals, which was a forerunner of today's U.S. Tax Courts (Dubroff, Harold, The United States Tax Court: An Historical Analysis [Chicago: Commerce Clearing House, 1979Google Scholar]). Tax scholars have analyzed the case for a specialized court of tax appeals, see Popkin, William D., “Why a Court of Tax Appeals is So Elusive,” Tax Notes, May 28, 1990, 1101–10Google Scholar; Griswold, , “The Need for a Court of Tax Appeals,” Harvard Law Review 57 (1944): 1153CrossRefGoogle Scholar.

132. Leffingwell to Roper, October 20, 1919, NARA Excess Profits Tax Folder; “Three Plans for Tax Revision” New York Times, December 21, 1919, 38.

133. Leffingwell to Roper, October 20, 1919, NARA Excess Profits Tax Folder.

134. See, for example, Ely, Taxation in American States and Cities; and Seligman, The Income Tax.

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