Wealth tax doomed Emil Seidel

Milwaukee’s first socialist mayor blamed his 1912 re-election loss on his call to tax the assets of the rich

By MARK LISHERON | October 2019

Leading Democratic presidential candidates pinning their hopes for the future on a socialistic wealth tax might want to re-examine a lesson from the past. Even the country’s most famous elected socialists, Milwaukeeans all, found that taxing wealth was a bridge too far for most American voters.

In fact, Emil Seidel, Milwaukee’s first socialist mayor and the first socialist to lead a major American city, once wrote that he thought his support for a wealth tax directly caused his re-election defeat in 1912 — a perspective for which modern, left-leaning historians have little patience.

Emil Seidel, Milwaukee mayor from 1910-'12. MILWAUKEE PUBLIC LIBRARY PHOTOIt was Seidel’s call for a tax on the assets of the wealthy that he believed was the undoing of the socialists after just one two-year term.

“There was a tremendous growth in that kind of property which the socialists call capital and which is the property from which the fabulous fortunes are made today,” he wrote in 1928, 16 years after leaving office. “Yet, according to our tax laws and their construction, there is none or very little of this property on the assessment rolls. Therefore, most of the property escapes the property tax.

“A feeble attempt is made to reach this property by an income tax. But as the income tax yields only 10 percent of the total taxes collected, it is readily seen that this property escapes by far the greater part of its just share of taxes.”

The mayor and his socialist allies approved spending $18,000 (equivalent to over $485,000 today) to study the best way to put this “intangible” property — mortgages, stocks, bonds and other collateral — with a value to the city of $10 million a year on the tax rolls.

“The result was that the socialists were defeated in the spring of 1912 and have never gotten complete control of the city government since,” Seidel wrote in the socialist newspaper The Milwaukee Leader.

The Democratic and Republican parties called a kind of truce to gang up on the socialist upstarts, wrote Sally Miller, whose “Victor Berger and the Promise of Constructive Socialism” is perhaps the best look at Milwaukee’s contribution to American socialism. Berger, the city’s socialist icon, served briefly as a Milwaukee alderman before becoming the first socialist sent to Congress.

In 1912, the two powerful parties ran a single candidate, Gerhard Bading, in order to defeat Seidel and the socialists. Two years later, Seidel attempted a mayoral comeback but was soundly defeated.

Social engineering goals

Historians often allude to Seidel and his allies as “sewer socialists,” suggesting they were merely pragmatists interested in good government. The truth regarding their philosophy and ambitions is much different.

To say that the reform goals of Seidel and his Common Council allies — seven of whom were swept into office with him in 1910 in a backlash against municipal corruption — were far-reaching is an understatement.

“During the first year of our term, we introduced a total of 318 measures, 71 with a wider bearing on social welfare and social trends,” Seidel wrote in his unpublished autobiography.

The socialists sought to reform or regulate nearly everything in their reach, but most of the measures did not pass. Among the failures was Seidel’s wealth tax idea.

The motive for such taxation — to redistribute income from the top down for the purposes of social engineering — has changed little from Seidel’s time. And the prospects for a sweeping wealth tax, with its constitutional and enforcement questions, are no better more than a century later.

The origins of income taxation

Milwaukee’s socialists were hardly the first radicals to take aim at income inequality, but they were no doubt influenced by “Progress and Poverty,” Henry George’s 1879 broadside at the oil and railroad magnates who came to define the Gilded Age. George — who sold millions of copies of the book, becoming a sort of publishing plutocrat himself — first proposed a national land value tax, to be levied on the unimproved value of land.

Though popular with the working class, such a tax was unconstitutional.

A four-year depression that began in 1893, fueled by a disastrous series of tariffs on imported goods, prompted the Revenue Act of 1894, the first federal tax on income, which did not survive a Supreme Court challenge. It took the 16th Amendment to the Constitution to ensconce a federal income tax in 1913.

Emil Seidel served just one two-year term as Milwaukee mayor. MILWAUKEE PUBLIC LIBRARY PHOTOBy that time, the income tax had been in place in Wisconsin for two years, voters having overwhelmingly agreed in a 1908 statewide referendum to allow a change in the state constitution to accommodate it.

Wisconsin Progressives led by U.S. Sen. Robert M. La Follette and socialists led by Berger and Seidel wanted much more from the nation’s wealthiest people. It was nearly a decade under Democratic Mayor David Rose — whose slogan “All the Time Rosy” described the opportunities for the wealthy, grafters and political hacks — that ushered in Milwaukee’s growing Socialist Party.

It took another depression to revive the movement to reduce inequality by taxing the wealthy. Prodded by populists and progressives, President Franklin D. Roosevelt shepherded through Congress the Revenue Act of 1935 with its 75% income tax rate on people making more than $500,000 a year.

The income tax rate on the very rich climbed past 90% during World War II. It hovered around 70% for more than two decades and did not drop to 50% until 1982, before gradually settling at today’s 39.9%.

Current wealth tax plans

Taxing income, however, isn’t enough for today’s progressives. Current tax proposals take aim at the wealth itself — not just the salaries of rich individuals and the income generated when assets are sold.

Bernie Sanders proposes a hefty “tax on extreme wealth” — with a top rate of 8% — to pay for his Medicare-for-All plan and other expensive social programs. The Vermont senator’s plan even outdoes that of his chief Democratic presidential rival, Sen. Elizabeth Warren of Massachusetts.

Warren proposes an annual 2% tax on the assets of people with $50 million or more and a 3% tax on assets above $1 billion. The very rich would pay the wealth tax regardless of whether they sell the assets or whether the assets grow or shrink in value. 

And Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, proposes that the annual increase in the value of a wealthy person’s assets be taxed as income, even if those assets are not sold — in other words, unrealized gains. Not addressed are how to treat assets that lose value in a year and the inevitable constitutional challenge of such taxation.

Flaws and failure of wealth taxes

In Europe, where progressives often look for their ideas about government, nine of the 12 countries that established wealth taxes have repealed them. Yet it is the work of three economists from France, which repealed its wealth tax in 2017, that continues to stoke the fire of income inequality for the current crop of U.S. Democratic hopefuls.

Thomas Piketty, author of the 2013 best seller, “Capital in the Twenty-First Century,” and Emmanuel Saez and Gabriel Zucman, economics professors at the University of California-Berkeley, have helped provide the undergirding for the proposals of Warren, Sanders and others.

In addition to the questionable morality of imposing a punitive tax on one class of Americans, the ability of a wealth tax to fund the trillions needed for something like a Green New Deal or to eliminate even a small percentage of our national debt is far-fetched, Phillip Magness says.

Magness, a senior research fellow at the American Institute for Economic Research, says estimates provided by the French economists of how much money a Warren-brand wealth tax could raise are wildly optimistic.

He and other researchers also have pointed out how difficult it would be for the government to accurately classify and tax the diverse assets of the richest Americans.

And then there is the question of Article 1, Section 9 of the U.S. Constitution, barring a direct federal tax on people or their property unless a system can be devised to apportion the taxes by population, state by state. If the income tax required a constitutional amendment, Magness asks, why wouldn’t one be needed to impose a wealth tax?

Alan Viard, a resident scholar studying federal tax and budget policy at the American Enterprise Institute, shares many of Magness’ doubts about wealth taxes. However, polling consistently shows that at least in general, Americans support taxing someone else, especially the rich. In that sense, things haven’t changed a lot since the days of Emil Seidel, who died of heart failure in 1947.

“If Sen. Warren and Sen. Sanders continue to be front-runners for the Democratic nomination, you can expect the wealth tax to be discussed,” Viard says. “(Joe) Biden has not proposed a wealth tax, and if he’s nominated, maybe the talk will go away. But with the Democratic Party’s shift to the left, the issue of income inequality and how to deal with it isn’t going to go away.”

Mark Lisheron is a freelance writer in Austin, Texas. He spent 30 years as a newspaper reporter, including 14 years at The Milwaukee Journal and the Milwaukee Journal Sentinel.

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