The Evolution of Southern Tax Structures

In the state of Alabama today, one of the most important sources of revenue for state and local governments is a tax that can be as high as 12 percent on food for home consumption. Those who can least afford it face a heavy burden for the very staff of life. Food taxes push poor people in exactly the direction they should avoid at all costs: low quality but inexpensive diets that increase obesity and imperil their health. How did Alabama come to rely on such a regressive tax policy? Why do the other states of the old Confederacy look so much like Alabama?

In their important article comparing the development of the French and American systems of federal taxation, Morgan and Prasad argue that the United States relied on relatively progressive systems of income tax and rejected the use of regressive sales taxes, while the French moved in the opposite direction. At the federal level this is true. But when we look one notch below, we find that many states, particularly those in the South, took the opposite tack and ended up looking far more like the French than we might have expected.

To the rich historical literature on the fiscal dilemmas of the nineteenth century and the Jim Crow era we add an original analysis of trends in state tax revenues over time. Together, these accounts paint a picture of a punishing regime affecting the poor of the South but never imposed on their counterparts in the northern and midwestern states. This historical legacy forms the backdrop for contemporary patterns of southern poverty, which are deeper and significantly more persistent than in other regions of the country.

TAX POLICY BEFORE THE CIVIL WAR

Although the most relevant periods for our purpose are the Civil War era, the Radical Reconstruction that followed, and the Redemption period that overturned the progressive achievements of Reconstruction, we must actually turn the historical dial back further to understand why the Civil War provoked the changes in tax policy that are so important today. Indeed, we must back up to the colonial era and the pathbreaking scholarship of historian Robin Einhorn, who has given us the most comprehensive understanding of fiscal policy in the early years of our nation. In her book American Taxation, American Slavery, Einhorn explains that northern states came into the nineteenth century with fairly mature property tax schemes, established during the colonial and Revolutionary War periods. Southern states, by contrast, had exemptions in place that put most land out of the reach of colonial taxation, and they had slaves—the most valuable property in the South—who were labeled and taxed as "persons" through poll taxes. The systems of property taxation in the South were therefore more underdeveloped and did not take shape in many ways until the antebellum period of 1830–1850.

By that time, class conflicts that set slaveholders and non-slaveholders apart intensified debates over appropriate systems of taxation. As Einhorn outlines in detail, the reapportionment of state legislatures throughout the nineteenth century threatened the influence of slaveholding elites as power shifted to burgeoning inland districts populated largely by non-slaveholding small landowners. As these small farmers "called for legislative reapportionment so that their majority number could be translated to majority power, they had to persuade slaveholding minorities that they would not impose heavy or prohibitive slave taxes."

The result was a spate of "uniformity clauses" that made it illegal to tax chattel more than other kinds of assets. With Maryland, a slave state, having included a uniformity clause in its state constitution in 1776, other slave states followed: Missouri in 1820, Tennessee in 1834, Arkansas in 1836, Florida in 1838, and Louisiana and Texas in 1845. Uniformity clauses had two important consequences. First, with most taxable wealth in the hands of slave owners, uniformity clauses acted as a pressure to hold down tax revenue altogether and set a pattern of low levels of financial support for the common costs of public administration in southern states. Second, the protection of slave owners set in motion efforts to tax others—particularly business owners and professionals—more, uniformity clauses or no. Louisiana added license fees and other kinds of taxes on businesses and particular professions in order to protect landed elites and slave owners. Differentiated rates and underassessment had the same impact. For example, the state of New York had a general property tax: one rule for taxation of all property. Elsewhere this was not the tradition: Mississippi favored landholders with the lowest ad valorem rate and slaveholders with a fl at rate that was even lower.

All in all, as figure 1 suggests, these differences in tax regimes meant that general property tax revenue was very low in most of the southern states, while it made up a considerable proportion of the public resources in the North. Low levels of taxation meant that the resources available to support the development of public institutions (schools, roads, ports, etc.) were far lower in the vast majority of southern states than in their northern counter parts. With the exception of Louisiana, which was a trade center and hence blessed with industry and other forms of property beyond land and slaves, the South entered the Civil War era with a much weaker tax structure for generating revenue and a far less generous tradition of providing for the poor than the rest of the country.

TAX REGIMES DURING THE CIVIL WAR

Financing a war of such huge scope was not an easy matter for either the Union or the Confederacy. Indeed, the genesis of the income tax was to raise federal revenue in the northern states for the pursuit of the Civil War. The Union made use of other devices as well, but as Yale political scientist Rose Razaghian has shown, it was able to fully finance 20 percent of its war costs through taxation, while tax revenue covered only 4 percent of the Confederacy's considerable military expenditures. With continued opposition to the taxation of slaves as property by southern elites, the Confederate States of America (CSA) turned to non-interest-bearing treasury notes and loans to finance the war efforts: a strategy that predictably resulted in hyperinflation. They indulged in "in kind" taxes by confiscating produce and other goods to fuel the army, a particularly harsh burden for poorer white farmers. Nonetheless, these means of raising revenue fell short.

By 1863, Confederate leaders were forced to consider new avenues to finance the war effort. Accordingly, Richmond mimicked the northern strategy by enacting a progressive...