Some Deductions

The Great Treasury Raid.
by Philip M. Stern.
Random House. 361 pp. $5.95.

The Cold War and the Income Tax: A Protest.
by Edmund Wilson.
Farrar, Straus. 118 pp. $2.95 (also Mentor, $.60).

We have here two very strenuous efforts at clarification of the federal system of taxation, written by two upper-class purists who have been horrified unto death by their discovery (or rediscovery) of certain of the qualities of American social reality, especially as revealed in the Internal Revenue Code.

To begin with Mr. Stern: The Great Treasury Raid is probably the best popular survey of the federal tax system yet published. It is also easy to follow and substantially entertaining—largely because Mr. Stern includes so many of the choice anecdotes that are among the happier by-products of the Code. The best of them all, for me, is taken from the trans-script of a 1946 case involving a man and his wife who claimed to be partners in a company along with their four children (ranging in age from seven years to three months). The wife was interrogated:

Q. Now, do you participate in the management of the business of the LaSalle Livestock Company?

A. Well, I have been producing partners.

Q. Beg pardon?

A. I have been too busy producing partners so far.

For those who are not in a position to produce partners, there is the more broadly-based production of little $600 exemptions. A dynamic detail relevant to this production, which Mr. Stern did not find the space to fit in, is the swarm of expectant mothers who regularly enter maternity wards throughout the country for induced births on New Year's Eve. (The timeliness is worth $80 or more, and it's a shame to throw the money away.)

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Mr. Stern, however, is not himself entertained by the Internal Revenue Code. At bottom, he is overwhelmed by its monumental irrationality and unfairness, and after describing the absurd inequities of the law, he proposes a return to a “pure” definition of income to which a graduated tax would be applied, with no exclusions or preferential rates. This means, among other things, doing away with the oil depletion allowance and abandoning the capital gains rate (in favor of an averaging device to account for the “bunched” income problem); it also means taxing Social Security payments. Mr. Stern calculates that all in all, under such a system, taxable income would be increased by $115 billion annually and the additional $40 billion the Treasury would collect thereon (at pre-1964 rates) would allow an across-the-board rate reduction of nearly half.

Thus, proceeding on the assumption that every time one citizen walks through a “loophole,” all other citizens have to pay more to the gatekeeper, Mr. Stern manages to paint a vivid picture of the internal revenue mess. But that is not the same thing as painting a picture of the economic realities involved in the creation and operation of the law, or of the political realities to be faced in any possible reform of it.¹ Here, Mr. Stern has not done so well. The moralistic tone of the book is heightened as it progresses, and finally becomes wearing, at least to this reader. Moreover, Mr. Stern knows better, as he indicates in the excellent chapter he calls “The Heavy Odds Against Reform.” Why, then, did he succumb to the moralistic purism of his proposal for reform? Because the only alternative is to embrace the irrationality of the Code—and indeed of American life itself, which that exfoliation so ardently expresses—in an act of despairing love. To embrace the irrationality means to live with it, in and among it; it means pinpointing our anger, both for political effectiveness, and to keep from ending up consumed with hatred for the whole crazy system—as, indeed, Edmund Wilson has ended up.

What happened to Wilson was that he neglected, for one reason and another, to file any tax returns from 1946 through 1955. On one level, that's what happened to him. If we note what happened to him on another, more important level, however, his failure to file returns or pay taxes seems perfectly proper. He had departed from the contemporary American reality, and therefore could not be bothered to support it financially. What drew him back was that he made a bit too much money in the mid-50's (writing about the Dead Sea Scrolls) and was thus led to inquire of a lawyer-friend as to what this tax-return business was all about. The lawyer (who later died of a stroke while worrying about this and other matters) came up with only one positive suggestion—namely, that Mr. Wilson leave the United States in physical fact, and become a citizen of some other country.

The key to this book (and perhaps to Mr. Wilson's entire career) is that he did not accept this excellent advice. Charlie Chaplin left us owing close to a million dollars in unpaid taxes. But then Chaplin, born in England, was a make-believe American. Mr. Wilson is not a make-believe American: he is one of the realest Americans ever. If there is a written American language that honest men can admire, then no list of its creators and preservers could begin with any other name. But in the course of disclosing his discovery of the literary character of the Internal Revenue Code, he employs the phrase, “in the midst of all this pedantry.” Oh, no, Mr. Wilson! In America we do not use the term “pedantry” to describe any aspect of the system that permits an annual theft of $40 billion. That is not the term to use in referring to the brilliantly functional obscurity of the Code.

The Cold War and the Income Tax: A Protest is one of the zaniest books ever written, and absolutely fascinating. It is Edmund Wilson, one of the living glories of our literature, discovering present-day America—that place from which he has steadfastly refused to separate himself in a physical way while withdrawing from it spiritually and intellectually. This act of political discovery—ending with another and further spiritual withdrawal: “I have finally come to feel that this country, whether or not I continue to live in it, is no longer any place for me”—means that to the renewed interest in us recently evidenced by the Rockefellers and Stevensons and Clarks and Scrantons, we may now add the active and still Olympian contempt of our great native stylist. Why, it is almost like having Mencken back home again! And the fact that Wilson had to find out about the extent of federally financed research by reading a piece in an English magazine (the New Statesman) by an editorial writer for the Washington Post (Karl Meyer) is a minor matter. Just so he noticed at last.

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Of course, he was dragged back by his tax delinquency—not, he wistfully avers, by any principle. And then it was not exactly in the best of taste to go on about the Cold War and the Bomb and the half-hidden horrors of CBR at just the moment when it became most useful to note that the taxes he didn't pay would have been spent on homicidal junk. And if he had to discover the bureaucratization of American society at IRS offices rather than at GM or the unemployment compensation office, so what? It is hard, however, to forgive his sentimental glorification of Major Eatherly, or his abysmal ignorance concerning the centrally American subject of money. He doesn't begin to understand that there is a society existing in which he makes the money on which the taxes are due because they are due . . . and paid . . . and spent . . . even on homicidal junk. Indeed, in his hysterical devotion to American Individualism (meaning me, me, me) come hell or high water, and whatever the historical facts of the matter may be, he is only a few ideological inches away from the rightwing amendment on the income tax—to preserve the integrity of the individual against the encroachments of an overweening federal bureaucracy, etc.

Still, he finally noticed. I'm grateful. And we can all be grateful to Philip Stern for his lucid and useful popularization of the Code. Although both books constitute all-out attacks on the Code, they are almost beyond comparison. Mr. Stern, enlightened heir to a great post-Civil War fortune, is in effect complaining that he has not had to pay enough tax. Mr. Wilson, honored heir to our pre-Civil War culture, couldn't be bothered paying any at all; when he got caught, he screamed. No, the books are beyond comparison.

¹ For example, the best functioning opportunity for reform during the past decade or so would have been the reduction of the top rate to 50 or 60 per cent. The immediate cost to the Treasury would not have exceeded $1 billion; the ritualistic cover would have been denied the high-income complainers; and the genuine unfairness to professionals, who have less room to maneuver in, would have been overcome. But even more interesting is that, beyond the obvious advantages, the lowering of rates would itself have “closed loopholes” and have been of distinct disadvantage to many upper-income types. Why? Because Uncle Sam would thereby have become a 60 per cent instead of a 91 per cent risk partner in numerous tax-tailored enterprises: many of the code preferences are useful only when played off against 91 per cent income. This is the kind of true economic and political complexity that one must deal with in reforming the tax system. (Yet imagine how the unions and the ADA would have screamed at any such proposal!)