In celebration of tax season: How alcohol and women’s rights helped create the IRS

Toasting the IRSI’m going to go out on a limb here and suggest that one of government’s brand values is not “up-to-date office equip­ment.” If you don’t believe me, ask if a PDF will do the next time your local government requests a fax. There’s a good chance the answer will be, “What’s a PDF?”

But when it comes to collecting money, the United States government keeps fairly well up with the times. In an age where our best prospects for digital payment adoptions are Millennials and younger, the folks in charge of the Internal Revenue Service introduced electronic filing way back in 1986. (Little known fact: Many working at IRS headquarters back then were not spring chickens.) Though taxpayer convenience may have been a motivator, I would suggest, at the risk of cynicism, that speeding collections and lowering costs may also have played a part.

Of course, you knew the IRS uses direct deposit. Here’s what you may not know:

The curious tale of how alcohol and the women’s movement led to the IRS

In 1933, a scant 73 years before the IRS began accepting direct deposit, the United States ratified the 16th Amendment, permitting Congress to impose an income tax.[i] But the proposal was no simple matter, such that ratification took 24 years. During that time, the “income tax amendment” found a pair of allies who might, at first glance, seem unlikely: the Prohibition Movement and the Woman Suffrage Movement.

It was largely women who championed the Prohibition Movement, at least at first. By the time they started winning over the then all-male Congress, an inevitable, practical question arose. Alcohol taxation, permitted under the Constitution as an indirect tax, accounted to a good 30 to 40 percent of the nation’s revenues. If it was going to pass Prohibition, clearly the government would need a new revenue source. Decades earlier, the Women’s Christian Temperance Union (WCTU) had already suggested an answer. Author Daniel Okrent cites it in his book Last Call: The Rise and Fall of Prohibition:[ii]

… to those in the dry movement who understood political and governmental reality, imposition of an income tax was also an absolutely necessary step if they were going to break the federal addiction to the alcohol excise tax. This had been obvious to the leadership of the WCTU as early as 1883, when the editors of the organization’s official organ, The Union Signal, coyly asked their readers, “How, then, will [we] support the government” if the sale of liquor is prohibited? The editorials had a ready answer for their own question: an income tax, they wrote, was “the most just and equitable arrangement ever made for the equalization of governmental burdens.”

To understand how forces intertwined, it’s important to recall that Amendments 16, 17, 18, and 19 weren’t ratified in order of their numeration. First to win ratification was the 17th Amendment, in 1913. The amendment took the election of the U.S. Senate and House out of the hands of state legislatures and placed it in the hands of voters. It’s important to remember that, at the time, only men could vote.

Next came the 1919 ratification of the 18th Amendment, which banned the manufacture, sale, import, and export of alcohol. It was not lost on members of the U.S. Congress that Prohibition would displease a good deal of men, who now had power to vote them out of office. Hurrying along passage of the 19th Amendment, which gave women the vote, may have been for Congress an act of job retention more than of fairness. The states ratified the it in 1920, which just happened to be the year Prohibition went into effect.

With alcohol banned, the United States took the expected, severe financial hit. In his PBS series Prohibition, Ken Burns says the alcohol ban cost the U.S. government “$11 billion in lost tax revenue” and cost “over $300 million to enforce.” This loss added impetus to creating an income tax. Congress dusted off the 16th Amendment, which had been proposed 24 years earlier and left to sit. The states ratified it in 1933.

Prohibition, as you surely know, was an abject failure. About 11 months after the 19th Amendment accorded voting rights to women, the newly ratified 21st Amendment repealed the 18th Amendment. Once more, alcohol flowed freely through the land.

The repeal, however, wasn’t a complete reversal. Congress left the federal income tax in place. So it is that the United States Treasury is able to have its tax and drink it, too.

I for one am grateful for the 21st Amendment. The Super Bowl just wouldn’t be the same without the Clydesdales. 

[i] Utah, where I live, is one of six states never to have ratified the 16h Amendment. The other holdouts are Connecticut, Rhode Island, Virginia, Florida, and Pennsylvania. If you happen to live in one of them, I recommend against letting that stop you from paying.

[ii] Okrent, Daniel. Last Call: The Rise and Fall of Prohibition. Scribner, 2011.

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