Joseph W. Barr served the shortest term of any U.S. Treasury secretary. But thanks to the Alternative Minimum Tax, which he inspired, Barr may cast a long shadow over the finances of middle-class America.
This is a cautionary tale about how tax-the-rich rhetoric can rebound on the middle class. The story also shows that even the Internal Revenue Service can get one right.
President Johnson appointed Barr on Dec. 21, 1968. On Jan. 17, 1969, three days before President Nixon's inaugural, Barr testified before Congress's Joint Economic Committee.
His testimony, immortalized on microfilm at the Library of Congress, was unabashedly political.
"Mr. Chairman," said Barr, "may I warn you that if this sounds a bit more like a stump speech than a statement by the secretary of the Treasury, that is precisely what it is intended to be."
For what did Barr stump? Tax hikes on the rich.
"I will hazard a guess that there is going to be a taxpayer revolt over the income taxes in this country unless we move in this area," he said. "Now, the revolt is not going to come from the poor. They do not pay very much in taxes. The revolt is going to come from the middle class."
Why? "(W)hen these people see, as I see," said Barr, "that in the year 1967, there were 155 tax returns in this country with incomes of over $200,000 a year and 21 returns with incomes of over a million dollars for the year on which the 'taxpayers' paid the U.S. government not 1 cent of income taxes, I think those people are going to say it is time to do something about it, and I concur."
Inspired by this testimony, as the Urban-Brookings Tax Policy Center noted in a 2002 study, Congress that year enacted a "minimum" tax of 10 percent, a complex device theoretically designed to capture revenue from the 155 "rich" people who would otherwise exploit loopholes to escape income taxes.
Swatting at a gnat with a baseball bat, they swung and missed.
A 2001 study of the AMT by the Joint Economic Committee said that in 1967 there were 71.7 million U.S. taxpayers. The 155 "rich" who owed no income taxes that year equaled about 0.00022 percent of all taxpayers.
The real purpose of the new tax was not to capture revenue from the wealthy class, but votes for the governing class. "Although the minimum tax was small potatoes in terms of the revenue it yielded," said the Joint Economic Committee, "it was a hot potato politically; in 1969, more people had written to Congress to complain about the 155 people who paid no income tax than had written about the Vietnam War."