In this episode of Tax Notes Talk, Tax Notes contributing editor and historian Joseph J. Thorndike discusses President Trump’s referral to “the forgotten man” and how the phrase connects to a conservative case for taxing the rich.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: memories of the forgotten man.
On January 20 President Trump was officially sworn in to his second term in office. Although his official tax policies have yet to be rolled out, a large number of his campaign promises involved cuts targeting specific groups in income.
But during his first inaugural address in 2017, President Trump referenced “the forgotten man,” a phrase with deep historical roots and one that has been used in an argument from a conservative tax expert in his justification for higher taxes on the wealthy.
So where does this phrase come from and what lessons can we draw on from history as we enter into what will surely be an eventful tax year? Tax Notes historian Joseph Thorndike recently explored this topic in his article, “The Too-Well-Remembered Man: A Conservative Case for Taxing the Rich,” and he joins us now to talk about it. Joe, welcome back to the podcast.
Joseph J. Thorndike: Hey, thank you for having me.
David D. Stewart: Why don’t you start us off with an explanation of the jumping off point for what you wrote, this use of the phrase “the forgotten man.”
Joseph J. Thorndike: Yeah. Trump has used this phrase a number of times, actually, but one of the best came on his election night in 2016, and he says, “Every single American will have the opportunity to realize his or her fullest potential. The forgotten men and women of our country will be forgotten no longer.” That’s a pretty resonant and somehow familiar invocation of an image, right? We know that “forgotten man” thing; it’s something we learned back in high school or something. But it’s interesting — I think that that’s where President Trump decided to go, with a sort of regular rhetorical trope.
David D. Stewart: Let’s get into that, this idea of “the forgotten man.” Where does it come from and how have we heard it used over time?
Joseph J. Thorndike: All right, for the most part, to the extent that people have any idea where it came from, they probably think it came from FDR. I think the phrase is generally really associated with Franklin Roosevelt. Trump’s decision to use it is really a form of co-opting it, and I think it’s tactical. Politicians are often looking to steal their opponents’ best lines. Bill Clinton, in the 1990s when he was like, “The era of big government is over.” Well, that’s Ronald Reagan’s line, right? But it’s useful for a politician to co-opt the best talking point of their opponent. I think that’s what Trump has in mind when he does this. But the “forgotten man” thing definitely goes back to Roosevelt, actually goes back further.
One of the first uses of that phrase that’s been documented came from William Graham Sumner. He was this late-19th-century sociologist and all around famous smart guy. That’s what — we call those public intellectuals now. But back then he was known for being a social Darwinist, that sink or swim mentality, the fit will survive and the not fit, well, good luck. He actually wrote an essay called “The Forgotten Man,” and it is not a liberal progressive argument like you might think for something Roosevelt was going to use later. It was actually a conservative argument, a social Darwinist argument that said basically the undeserving poor are an albatross for the working man. We just need to not worry about them and take care of the guy who’s actually trying hard. That’s a pretty conservative argument. It is one of the first.
David D. Stewart: So this is a term that seems to be switching back and forth from conservative to liberal ideology?
Joseph J. Thorndike: Exactly. In 1932, Roosevelt picks it up. Now, I can’t say whether he got it directly from William Graham Sumner or not, but in 1932 while he’s campaigning, his first campaign for the White House, he says, “These unhappy times call for the building of plans that rest upon the forgotten, the unorganized, but the indispensable units of economic power. Americans must put their faith once more in the forgotten man at the bottom of the economic pyramid.” This pretty clearly spells out Roosevelt’s priorities. What he’s saying is, “I am going to focus on the regular people here, the forgotten man, the forgotten people of America.” He too was quite fond of that phrasing, and it certainly shows up in his policy choices, but the reality is like any good line, the struggle for control of it continues.
That “forgotten man” line was just something sort of delightful. People were able to invert it to use it as a criticism of FDR. One of the early critics, and I would call him a friendly critic, was a guy named Roswell Magill. He inverted the phrase in this quote, so he writes an article for Fortune magazine and he says, and he’s talking about tax policy, “If the Arkansas sharecropper would like to claim the title of forgotten man, the New York City banker would like to claim the title of the man too well remembered.” What Magill is saying here is that certain people have been asked to pay a lot in taxes and it’s not necessarily the sharecropper, although he’ll go on to say that the poor people were paying too much as well, but that these New York bankers, the rich people, were well remembered and already being heavily taxed.
David D. Stewart: Let’s talk a bit more about this person with the fascinating name, Roswell Magill. Could you tell me about him?
Joseph J. Thorndike: All right, so if you’re a tax expert today, he really is an interesting guy. He’s one of the first real tax experts, the OG tax expert, certainly one of the first lawyer tax experts, as opposed to economists who specialized in tax, of which there were a lot in the late 19th, early 20th century. But the modern tax bar, the people who today go to the ABA tax section meetings, this didn’t exist. In fact, the tax section didn’t exist at the beginning of the 1930s.
Roswell Magill is one of the first lawyers to really specialize in tax, and federal taxation in particular, in the U.S. He is truly a founder of the modern tax bar. Interesting guy to be working for Roosevelt. He is a Republican. He started his career working for Presidents Harding and Coolidge, first at the Bureau of Internal Revenue and then later at Treasury. While there, he is working with Andrew Mellon, who’s like the archconservative tax cutter of the 20th century, up until Reagan, maybe.
After he worked for a little while there, he taught at Columbia in the law school in the late 1920s, one of the very first legal scholars to specialize in tax, and actually people thought he was crazy. He later recalled, he said, “Federal taxation wasn’t considered worth teaching then. All my friends told me, ‘Why go into this? It’s a dying subject. Taxes are going down,'” at least in the 1920s, right? He made a good bet. Taxes were definitely not a dying subject. It put him in a good position to be a leader in the field. Then in 1933 he did something at least mildly surprising: He went back to work for the federal government, and he went to work for Franklin Roosevelt and Henry Morgenthau, the Treasury secretary.
David D. Stewart: All right, so this is a person that has definitely established their conservative credentials. What sort of things does he have to say about the tax system at the time?
Joseph J. Thorndike: Well, he had a lot to say. They brought him in 1933 partly to be the top lawyer in the Treasury working on tax issues. In that role he would work with Congress and whatnot. A lot of his effort was eliminating preferences, or what most people then and now think of as “closing loopholes.”
But let’s start with his less day-to-day thing. He also oversaw a top-to-bottom review of the tax system. Basically, Franklin Roosevelt comes in, Henry Morgenthau becomes his Treasury secretary. They inherit a Treasury Department that’s been in Republican hands for a long time. There aren’t necessarily on the shelf a whole lot of progressive tax reforms ready to go. They did these big series of studies to try to figure out what needs to be done. They’re called the Viner studies, after Jacob Viner, who was an economist from the University of Chicago who also supervised these.
Basically the Viner studies paint us some big-picture conclusions. The first was that excise taxes, which were raising like half of federal revenue, they should be used less. Income taxes, and to a lesser extent estate taxes, they should be used more. For the most part, this was a fairness argument because people recognized most excise taxes were quite regressive and that income taxes and estate taxes were progressive. They believed that it was fairer to collect more revenue from the most progressive taxes.
Plus they also thought that they just flat-out needed more money, more revenue. Deficits were huge in the early 1930s. When Magill first got to the Treasury, the size of the deficit, the annual deficit exceeded the total amount of revenue being collected by the tax system every year. That’s pretty shocking. That would be what, like a $3 trillion deficit today. There was a real pressing need for more money. As it happens, Magill had some ideas on how to do something about that.
David D. Stewart: What sort of policies did he advocate for?
Joseph J. Thorndike: All right, well, like I said, the studies come to the conclusion that we need more productive income taxes, we need to be using them more. He thought the big problem was that income tax exemptions were too high and that rates were too low. The income tax was a rich person’s tax at this point and always had been since it was created in 1913, the modern version. They kept the rich person’s tax by keeping exemptions really high, so 10 percent max of the working population are paying these taxes. What these people like Magill and basically most tax experts in this period are saying is we should lower these exemptions so the income tax is broader. It’s not going to be like a tax that poor people pay, but it should be a tax that middle class people pay. This is the only way to make it raise enough money.
Then the rates, it’s interesting that they wanted to raise them because they were already high compared to what we think of as high rates. In the first half of the 1930s, they got income tax, the top income tax rate up to like 63 percent pretty quickly. But they felt like these should be pretty high, including those early brackets, the lower brackets.
The issue about raising rates is especially in those lower brackets that if you push new taxpayers, middle class taxpayers, into the income tax, they’re not going to love high rates. But Magill and many other tax experts in the Treasury certainly thought that it was necessary to have reasonably decent rates, not single- digit rates, otherwise the income tax would never raise enough money. You wouldn’t be able to get rid of these big deficits, and you wouldn’t be able to get enough money to stop using excise taxes, because they wanted to do a tax swap, right? To get more money from income taxes and less money from excises. You got to make the income tax more productive.
David D. Stewart: All right, I understand he also had some thoughts about the tax bar. What was he saying about them?
Joseph J. Thorndike: All right, so he complained a lot about the complexity of the income tax in particular. In his Fortune article, he complains about the “complication, turgidity, and ‘Alice in Wonderland’ phraseology of the tax code.” The interesting thing about this is that he doesn’t blame Congress; he has other things that we could talk about that he blamed Congress for, but not for complexity, because he thought the problem was tax practitioners, these people who were just coming together in that nascent tax bar, they were starting to get pretty sophisticated, pretty fast about how to exploit ambiguities in the law for the advantage of their clients. The better they got at that, the harder Congress had to work to close these loopholes, if we want to call them that. At one point Magill says, “The reason for the complication is not the stupidity of congressmen but the shrewdness, to use no stronger term, of high-priced lawyers.”
You can hear his disdain for that kind of tax practice creeping in, which is interesting since he would later go on to have exactly that kind of tax practice himself. But he did not appreciate clever lawyer tricks, as he would’ve called them, that reduced tax burdens when Congress had clearly not intended that. Then Congress would do its best to close those loopholes. That’s what made the tax code complex because all that loophole closing, you’re trying to craft your language so precisely to get rid of a preference that you didn’t intend to be there in the first place. That makes things very complex.
The other thing that I didn’t mention that Magill also cared quite a bit about in addition to complexity was he really believed — and this was actually a vestige of his conservative thinking, not a vestige, it’s like pretty front and center in his thinking — he believed that taxes should be visible, good taxes were visible.
One of the issues he had with excise taxes is that they were not so visible because they were baked into the price of a good. You didn’t see them on the receipt that you got when you checked out. They’re often paid by manufacturers. People weren’t aware that they were paying these taxes, and he felt like this was just cowardice. At one point he says, “The philosophy of making a tax as inconspicuous as possible to the mass of the people has an obvious political appeal, but from every other point of view it’s highly undesirable. The more acute the citizen’s consciousness of his tax burden, the more active his interest in the operations and particularly in the expenditures of the state.”
There you hear Magill the conservative talking, he’s saying, “We want people to be aware of their taxes that they’re paying because then they’re going to take a close look at how you’re spending that money,” which he believed was good for democracy. Honestly, it’s hard to argue with that, an informed, tax-paying public is better in some ideal, small-D democratic sense. Also, less visible taxes obscured how regressive the tax system actually was. People are paying all these excise taxes, which are actually quite regressive. They’re being passed along to these lower-income consumers, but they aren’t aware of it. They don’t even know how bad the tax system is. As much as they may think they’re overtaxed, they don’t even know it’s worse.
David D. Stewart: So what did he see as the biggest challenge for building a sound system of taxation?
Joseph J. Thorndike: Well, I think he understood that politics were the big problem, really. The problem is are these too-well-remembered taxpayers, right? This is true even today, I think, that the people who are quite active or willing to call up their congressmen or write a letter to their congressmen and complain about something are often the well-to-do taxpayers, sophisticated taxpayers. They are paying, generally speaking, a fair amount in income taxes and they’re not happy about it. There’s a lot of salience to tax issues for them and they’re politically active. That group is a really tough group to go to war with, because they are some of the most influential voters out there. I think he saw that as a big problem, especially when you believed, as he did, that progressive taxes needed to be used more, not less. That’s the thing about his “forgotten man, too-well-remembered man” phrasing is that he’s acknowledging that these people are already heavily taxed or relatively highly taxed and that’s why he’s calling them the too-well-remembered man.
He’s also saying we should tax them more. What he would say is that the rich, we can’t just tax the rich. That’s nice because everyone hates the rich, right? It’d be really easy to just tax the rich, but you can’t get enough money that way. You have to end up taxing these middle class, not necessarily lower-middle class, but middle middle class. We’re drawing fine lines of distinction here, but middle class and upper-middle class, adding these people into the income tax, they’re already sensitized to the taxes they’re paying, but we’re going to come back to them and say, “We want you to pay more.” He says, “To persons already keenly conscious of a tax burden that has increased markedly in the past few years, any further additions are appalling. But the conclusion follows with considerable certainty from the premise of the present program of expenditures.”
Again, Magill the conservative is here. He basically accepted the idea that the New Deal spending programs were necessary to fight the Depression, but that somebody had to pay for them, and that the only way to pay for them was to ask these too-well-remembered taxpayers to pay even more.
David D. Stewart: What ideas did Magill propose to fix all of this?
Joseph J. Thorndike: Mostly he thought that the low-hanging fruit would come from closing loopholes, and he wasn’t wrong because there were a lot of preferences in the tax law then as now. If you could get rid of a lot of them, or many of them, or just curb them, you could raise revenue in relatively inoffensive fashion. I think that’s where he spent most of his greatest efforts — were in trying to bring the functioning of the tax law more closely in line with the congressional intent in writing that tax law.
He was not a guy who was about soaking the rich, exactly. He believed that tax rates should be reasonably high in this critical period, but he didn’t think you should just raise rates to 95 percent or whatever on the top taxpayers. That was not his solution. His solution was like, “Hey, how about we make those more moderate rates, say like that 63 percent top rate and make that more effective by broadening the tax base, by getting rid of preferences and the erosion of the tax base. If we can do that, then we’ll be staying close to what Congress is trying to do, following congressional intent here, but we will also make the income tax much more productive.”
Really, he comes back time and again to having adequate revenue because, and honestly, it wasn’t just conservatives saying this in the 1930s, there was a lot of concern in both parties about deficits and about having enough revenue. He had a conservative sensitivity to that and the need for more money. I think loophole-closing, base-broadening as we like to call it in the professional tax world, that was his route forward.
David D. Stewart: Looking back at this historical context where he was, was he on the right track?
Joseph J. Thorndike: Well, I mean in many ways he was on the track of classic tax reform as we know it in the postwar world, which came to its high point in 1986 with the Tax Reform Act of 1986. That was a base-broadening, rate-reducing tax reform. One thing that’s important to remember about Magill, he’s like a progressive sympathizer within the conservative movement in the 1930s. By the time World War II is over, he’s back to being a flat-out conservative. After the war, tax experts, both liberal and conservative, were very open to the idea of reducing rates — because wartime tax rates were super high. They did actually reach the mid 90 percent range. But I think that that notion that we need to shore up the tax base, that we need to eliminate preferences, especially preferences that were unintentional, which I think actually could be described as loophole, most people would accept that as reasonable, as a good set of goals for tax reform. I think he was on the right track at that point.
Was his concern about deficits justified? I think he probably was. Although in this world in which, as Richard Nixon said, “We’re all Keynesians now,” we all recognize that raising taxes dramatically in the middle of the 1930s would probably have been a bad idea. Actually, to the extent that it did happen was maybe not the greatest idea, because it retarded recovery, slowed it down. But we can understand, especially in the context of today, when we are again confronting really large deficits, that this idea of trying to at least, at the very least shore up the taxes we have so that they are more productive. I think most people, many people, would agree with that.
I think that in many ways his sense that the income tax should be the mainstay of the federal tax system — that’s been our operating assumption since the 1930s. I think it still is today. I think that the progressive qualities of the income tax still tend to resonate as the fairest standard for taxing that we have. Most polls bear that out. I think even many lawmakers, even many Republican lawmakers, still pay lip service to progressivity even if many of their specific tax proposals are not especially progressive.
One thing that I think it did change was that Magill was a big fan of the estate tax, which he felt was quite fair and quite economically efficient. But I think we’ve seen the estate tax pretty much fall apart since the 1990s and lose its constituency almost across the board. I’m not an optimist about the future of the estate tax. I feel like that battle’s been lost. In that sense, I think it has really changed since Magill’s day.
David D. Stewart: What things can we draw from his recommendations into today’s context of the tax system?
Joseph J. Thorndike: I think base-broadening is a good place to start. It’s not going to be where we end, almost certainly, because our deficits are large enough and they are structural. They’re not just temporary. They’re going to continue and get worse. But I think focusing on that is probably the smartest idea.
The problem we’re going to have is that Magill was a 1920-, 1930-style conservative, and that style of conservatism lasted up through probably the 1980s, where conservatives really focused very heavily on budget balance as an ideal goal. They were willing to do what it took to get there, including raising taxes. Conservatives used to be open to the idea of raising taxes if the money was used to shrink deficits. I’m not so sure that that’s true anymore. I think that there is about zero appetite in Washington for raising taxes, certainly among Republicans. In fact, the debate we’re going to have this year is about cutting taxes further.
I think that one thing that we should take home from this is that the words “conservative” and “liberal” don’t really mean the same thing across time. The conservatives in the 1930s wouldn’t look like the conservatives today. They don’t even really look like the conservatives in the late 1980s and 1990s. They were Calvin Coolidge conservatives who would do whatever it took to balance a budget. In some ways, I think Magill’s ideas are not all that relevant because they have not much of a constituency anymore. But I do think that his overarching concern, “We need adequate revenue,” well, eventually that’s going to be the overarching concern in Washington again. It just isn’t right now.
David D. Stewart: One of those issues that changes over time, moves from party to party, is this idea of additional taxes on the wealthy. How do his ideas relate to current arguments over taxation of the wealthy and perhaps ideas of actual wealth taxes?
Joseph J. Thorndike: Yeah, I think he would’ve said the estate tax is the best wealth tax. The wealth taxes that are discussed these days, low-rate tax on accretions to wealth, even when unrealized, that sort of thing — I don’t think that Magill would’ve had much patience for that.
I think his view was twofold. One, the income tax was a good wealth tax if you built it correctly. It wasn’t a tax on accumulated wealth, but it was a tax on the accumulation of wealth, and that he would’ve felt like that was the best way to go about this. It’s certainly the low-hanging fruit now, low-ish hanging fruit in the sense that if you’re me and you’re looking for a way to shift more of the tax burden to those with more ability to pay — in other words, to the wealthy — I think you might, for instance, look at the tax treatment of capital gains, which exists within the existing income tax, doesn’t require a new tax.
But it would just require us to rethink what we mean by income, what we think we mean by investment incentives and things like that. I think that that would’ve been reasonably high on his list, although he was tolerant of a capital gains preference as well, for all the same reasons that people like it today in that they think that it encourages economic growth.
But I think that that focus, instead of creating new wealth taxes out of whole cloth, which are almost certainly today going to have a real problem in the Supreme Court, I think instead focusing on ways that we can make the income tax more productive as a tax on wealthy people. I think that’s a Magill-style tax reform, the progressively minded conservative tax reform that he was proposing in the ’30s. I think that would be a reasonable direction for today’s progressives to look rather than trying to create a new tax from whole cloth.
Again, I don’t think Magill is going to be the patron saint of raising taxes on the rich today because this guy was a founder of the Tax Foundation. He was a conservative in the ’20s, he was tolerant of progressives in the ’30s. He became a conservative again in the ’40s and beyond. He’s not going to be that guy today either. I just think that he does have something to teach us about trying to focus our progressive reforms on the taxes we have rather than some new tax we want to create.
David D. Stewart: Well, drawing on these lessons from history, what are you expecting to see over the next four years of the new Trump term on tax?
Joseph J. Thorndike: Well, I think we’ll hear some more “forgotten man” rhetoric from Donald Trump. We are going to see some tax cuts which are reasonably progressive maybe in theory. No tax on tips, no tax on overtime, no tax on Social Security. I don’t know which ones of these we’re going to see. But Trump has been talking about the no-tax-on-tips thing quite recently. These tend to skew somewhat more progressive, at least initially. They might be a lot less progressive once the scheming tax lawyers that Magill complained about — once they get into the mix. But I think that some of those signature tax cuts that Trump ran on, the smorgasbord of small tax cuts target — well, they’re not even so small, but narrowly defined tax cuts — some of those are progressive, and I think we’ll see those.
But realistically, Trump also wants to renew the tax cuts from his first term and the Tax Cuts and Jobs Act, and those are not especially progressive on balance. They do apply to everyone. There are lower income tax cuts in there, but they also provide huge tax cuts to the very wealthy. I don’t think we’re really going to see a Magill-style attention to the forgotten man in big picture terms. I think that a lot of the tax cuts we’re going to see over the next four years are going to be directed at the rich, and then who knows: Jury’s still out on some of these smaller ones like the taxes on tips.
David D. Stewart: Well, Joe, it’s always great talking to you. I always learn so much. Thank you so much for being here.
Joseph J. Thorndike: Thank you for having me.
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