Alternate Approaches

Doing Debt Ceiling Battle the FDR Way

At times of national fiscal crisis, President Franklin Roosevelt ever so firmly believed, you don’t give the awesomely affluent a free pass. You pound them — and then you pound them some more.

FDR argued during World War II that no American ought to have an income, after taxes, over what today would total about $350,000.

FDR argued throughout World War II that no individual American ought to have an income, after taxes, over what today would total about $350,000.

By Sam Pizzigati

Against a Congress where zealously rich people-friendly conservatives hold the upper hand, how much can a President of the United States committed to greater equality realistically hope to accomplish?

The answer from today’s White House: not much. Advocacy for equality has to take a backseat, Obama administration insiders insist, once fanatical friends of the fortunate in Congress recklessly put at risk our nation’s full faith and credit.

But history offers another alternative. Back in 1943, halfway through World War II, a President of the United States confronted a debt ceiling crisis eerily similar to our own. That President, Franklin Roosevelt, faced a congressional opposition to inconveniencing the rich — with higher taxes — every bit as rabid as ours.

FDR’s choice, in the face of this opposition? He doubled down on equality.

Roosevelt’s debt ceiling battle actually began in the months right after Pearl Harbor. The nation needed dollars — and lots of them — to wage and win the new war. FDR wanted those dollars raised as equitably as possible.

That would require, FDR and his New Dealers believed, a steeply graduated income tax, with tax rates on income in the top income brackets much higher than rates on income in the bottom brackets.

How high should the top rates go? All the way, FDR proposed, to 100 percent. At a time of “grave national danger,” the President told Congress in April 1942, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year,” an income just shy of $350,000 in today’s dollars.

The year before, gun executive Carl Swebilius had pulled in $243,204 after taxes, the equivalent of over $3.7 million today. Steel exec Eugene Grace had grabbed $522,537, over $8 million today, in 1941 salary. But conservatives in Congress looked the other way. They never gave FDR’s plan any love.

Four months later, Roosevelt would try again. In his Labor Day message, FDR repeated his $25,000 “supertax” income cap call. Again Congress ignored him.

FDR would not back down. In early October, the President flexed his authority under the newly enacted Emergency Price Control Act and issued an executive order that limited top corporate salaries to $25,000 after taxes, a move, he pronounced, needed “to correct gross inequities and to provide for greater equality in contributing to the war effort.”

Roosevelt wanted wartime tax policy to ‘correct gross inequities.’

America’s wealthiest, New Dealers explained afterwards to the press, “should be willing to get along on more than $2,000 a month while marines endure tortures on Guadalcanal Island for $60 a month and room and board.”

FDR’s executive order would infuriate conservatives. They saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.” FDR’s salary cap, roared New Bedford publisher Basil Brewer, just might “lose the war.”

In Congress, meanwhile, lawmakers vowed to kill FDR’s executive order by any legislative means necessary. Roosevelt, in response, simply kept pushing. In January 1943, he reminded Congress that “the receipt of very large net incomes from any source constitutes a gross inequity undermining national unity” and asked lawmakers to make taxes on America’s highest incomes “fully effective.”

Roosevelt also asked Congress, in his 1943 budget message, to raise the nation’s debt ceiling. Conservatives indicated they would — if the ceiling bill included a rider that repealed the President’s $25,000 salary cap executive order.

Lawmakers would not go along with a debt ceiling hike, California Republican Bertrand Gearhart told reporters, until FDR’s “thoroughly un-American” salary cap, “fraught with such disaster to the Republic, is wiped from the books.”

At this point, no “realistic” observer could have faulted FDR if he simply threw in the towel. The 1942 mid-term elections the previous November, after all, had significantly strengthened the congressional conservative camp, in large part because millions of New Deal voters — soldiers overseas and workers who had migrated far from home for wartime factory work — couldn’t vote.

FDR’s aggressive wartime advocacy for equity never let regressive tax notions get traction.

But FDR threw in nothing. To reporters and Congress, he reiterated his support for the $25,000 salary cap. Of course, the President added, he would “rescind” his cap in an instant if Congress passed legislation that limited all individual after-tax income, not just salary, to $25,000.

And if Congress couldn’t see fit to go that far, the President helpfully suggested, he hoped lawmakers would enact “steeply graduated rates” that brought taxes on top-bracket income up to the 90 percent neighborhood.

Eventually, both the House and Senate would pass the debt ceiling bill — with the salary cap repeal rider attached. Most Democrats went along, noting, as Senator Alben Barkley put it, “the importance of increasing the debt limit.”

Roosevelt well understood that importance, too. He would let the higher debt ceiling bill become law, without his signature. But FDR quickly signaled no surrender in his continuing battle to make sure that “not a single war millionaire will be created in this country as a result of the war disaster.”

Congress, Roosevelt pointed out, “had authorized the drafting of men into the armed forces at $600 a year regardless of what they had earned in civilian life,” but, with the salary cap repeal, had “refused to reduce the salary of a man not drafted no matter how high his income might be.”

The President, to be sure, had definitely lost the debt ceiling battle over his executive salary cap, as he no doubt knew he would. But sometimes a President can win by “losing.” FDR did not prevail on the salary cap. He did prevail in his far broader struggle to shape the wartime finance debate.

Roosevelt’s relentless campaign to cap top incomes kept that debate focused on taxing the rich. Conservatives didn’t want to do that taxing. They wanted a national sales tax instead, as do many conservatives today. But FDR’s aggressive advocacy for equity never let that regressive sales tax notion get traction.

Sign up for To MuchThe war revenue debate would be fought on Roosevelt’s terms — not on whether to tax the rich, but on how much. And, in the end, that “how much” would turn out to be quite a great deal. By the war’s end, America’s wealthy would be paying taxes on income over $200,000 at a 94 percent statutory rate.

Americans making over $250,000 in 1944 — over $3.2 million today — paid 69 percent of their total incomes in federal income tax, after exploiting every tax loophole they could find. In 2007, by contrast, America’s 400 highest earners paid just 18.1 percent of their total incomes, after loopholes, in federal tax.

None of the debt ceiling “deals” that House and Senate leaders advanced last week asked any of these top 400 — or any other rich Americans — to pay a penny more in taxes than they do now. In the 2011 debt ceiling struggle, inequality has clearly triumphed.

So what ought we learn, amid this triumph for greed, from FDR’s debt ceiling battle? Maybe this: We really can have a more equal America. We just need to fight for it.

Sam Pizzigati edits Too Much, the online monthly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. For more on FDR’s inequality-busting 1940s, check Pizzigati’s latest book, The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.

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32 comments for “Doing Debt Ceiling Battle the FDR Way”

  1. I was brought here from a Working Families Party newsletter, and I just wanted to say: great read. I appreciate the historical context, too; we don’t get a lot of that in this discussion.

    As a staunch egalitarian, it makes me sick to my stomach that the rich were able to triumph today through sheer stubbornness. I’m embarrassed to share the same soil as them.

    I’ll be passing this along, for sure.

    Posted by Matt Albrecht | August 2, 2011, 3:32 pm
  2. “…We really can have a more equal America. We just need to fight for it.” Isn’t that why we elected Obama? I am not even sure his heart is with us anymore. He should stand up to the rightists and gullible Tea Partyists even half as strong as FDR is described as doing in this article. The idea that this massive debt bill passed without a single cent of revenue is just mind blowing. It is such a travesty to the idea of fairness it feels a call to action. It is time for strict term limits, severe restrictions on campaign financing, and a primary run against Obama.

    Posted by Richard Morse | August 2, 2011, 3:38 pm
  3. I just wrote a note to Sen Nelson, fl About what I’m going to write here, and that is about an Assessment.
    We have a experienced a phenomenon where people who were given tax breaks about ten years ago have been kept from paying large sums of taxes. While some are like cry babies and Taking Candy From the Baby has proven more then difficult with every bit of resistance manifesting itself, there are those who are almost offended at not paying a greater fair share of their taxes.They have accumulated profits beyond their needs and have even been forced into investments that further drain the economy of the middle class such as higher priced real estate and now gas.
    I.e. if someones earning were taxed at the Clinton era rate of $60,000 more then at the BUsh rate then in ten years an amount of $600,000 plus potential earnings would have bloated that persons savings.
    It’s a lot more for certain corporations with loopholes and other tax dodging manifestations causing a reduction in federal revenue and a growth in the debt ceiling.
    So I am wondering whether a “voluntary” assessment could become manifest without using the word Voluntary but without making it a crime to not contribute or pay at least some of the taxes that were so unwisely lessened.
    Certain matters would have to be considered, like a chart showing the difference, the IRS willing to collect and record these payments, and perhaps even some competition saying that this party paid this much but this party refused to, i.e. EXXON payed 4 billion but Chevron didn’t pay anything and then Chevron say we are working on it and then pays 2,5 billion, still well below the previous rate without the loopholes that would really be about 25 billion by now.
    It’s probably a waste of my time writing about this and I don;t even know who you are but it does seem that our nation is way too much in debt and that immediate relief has to start and there really is a lot of work that has to be done and the corporations have gone too far in getting their way and sometimes the results are deadly and that is more then a shame, and for who. people who have too much already.

    Posted by Karl S Schwartz | August 2, 2011, 3:41 pm
  4. The FDR policies and the advocacy of them was reionforced and supported by a strong and growing labor movement and more left wing parties. We now have a declining labor movement, but we also have a growing unemployed, and former middle class that must be appealed to by a challenger to Obama in the Democratic primaries. Such as a Robert Kennedy, but he has never run for political office, perhaps his brother former Congressman Joe Kennedy?

    Posted by Arnold Gore | August 2, 2011, 3:52 pm
  5. I don’t think the conditions are the same. First, WWII was a factor. Secondly, the article doesn’t say what the percentage of Democrats and Republicans were…who had the voting upper hand? When the rich are your supporting base, it’s only natural for a party to support the hand that feeds them. That is why the Republicans are trying to destroy the unions, largely because they are the supporters of the Democrats. In the present situation, the Republicans are purposely attempting to discredit and prevent the president from anything that is a positive for him. Politics plays more of a role in congress than doing what’s best for the people. It’s a major conspiracy.

    Posted by Maurice Kelhoffer | August 2, 2011, 4:07 pm
  6. FDR had leverage at that moment in History. After taking the US through WWII successfully he could apply pressure to the rich, the politicians and almost everyone.
    We do not have that at this point. The US is not through with the economy, jobs or the foreign wars.
    As a result leaders find it very difficult to lead.

    Posted by Ed Pena-Paris | August 2, 2011, 4:13 pm
  7. President Obama has invoked FDR as an inspiration in his speeches on more than one occasion. But his actions are definitely not like President Roosevelt’s were. FDR was a leader; Obama does not have the same understanding of leadership. Leaders don’t follow public opinion — they create it. They are steadfast in their support of a position — not chasing after a compromise that indeed will not satisfy anyone. Obama needs to read this article.

    Posted by Gerrie B | August 2, 2011, 4:17 pm
  8. Pres. Obama, however, is dealing with an innately racist republican-tea party , congress. Whatever, he initiates is challenged.

    Posted by steven lopez | August 2, 2011, 4:46 pm
  9. FDR’s technique might work very nicely today IF we had a president with a spine. Unfortunately, we do not.

    But is there any way that someone else — or more than one Liberal someone-else — could wage such a campaign, with the help of Too Much?
    (Or, that Too Much could wage it with the help, perhaps, of Bernie Sanders)

    The American people seem to be on board with the principle already.
    Perhaps Bernie Sanders?

    Posted by Judy Brewton | August 2, 2011, 4:52 pm
  10. FDR was just another corporate whore until working people started breaking shit and scared the bejesus out of the ruling class. Maybe it’s time.

    Posted by Unbelievably Depressed | August 2, 2011, 4:55 pm
  11. So can someone tell me why the
    President and his fellow
    Democrats didn’t press the
    tax icrease on the wealthy issue?

    Posted by mary mccarthy | August 2, 2011, 5:00 pm
  12. I’m hoping that it has occurred to you to get the editorial cartoonists on board?

    A strong editorial cartoon can do the work of many, many voices — and many, many dollars.

    Posted by Judy Brewton | August 2, 2011, 5:38 pm
  13. The lesson would seem pretty obvious, except a few things are missing:

    Today’s situation (incorrectly IMO) has not been characterized as a wartime situation. People are still not ready to sacrifice for the common cause, and unfortunately Roosevelt’s marvelous analogy to draftees’ salary is not relevant today.

    The Republic Party keeps talking about “class warfare” because the charge is effective even among the middle class. People who are socialism-adverse will not consider the goal of a “more equal” America to be acceptable, yet they might be receptive to the same measure if presented in other terms.

    My takeaway: Persevere. It worked for the Tea Party, however shortsighted.

    BTW, speaking of WWII wage/price controls, how about an article on how the US wound up with the perversion of employer-provided healthcare coverage: Wage controls prevented higher salaries, so employers offered more fringe benefits — such as medical insurance. And with the boom after the war, it managed to stick. A model born of circumstances totally unlike the times we have now.

    Posted by Randall | August 2, 2011, 5:52 pm
  14. But that was war time. The rich were willing to accept the new tax rate because they KNEW that war meant profit for the wealthy… and a thinning out of the poor.

    Today the wealthy control the country and they are not about to allow tax hikes. They have discovered that there is no money to be made in the middle-eastern mess (unless they are in oil like the Bush family). Roosevelt would have a hard time getting such measures passed today.

    Posted by Gaynor | August 2, 2011, 5:55 pm
  15. excellent article….should be forwarded to President Obama and his staff as well as Democratic congressional members.

    Posted by m arin | August 2, 2011, 6:16 pm
  16. Has anyone sent this to President Obama? Maybe it’s time to start modeling his presidency on someone other than Lincoln.

    Posted by Theresa Ann Panica | August 2, 2011, 6:45 pm
  17. This is the first time a debt ceiling has been linked to a tax law.
    Obama is a republican!I will NOT vote for him again.

    Posted by Carol Gray | August 2, 2011, 7:34 pm
  18. Unfortunately, Obama doesn’t have the guts of FDR. He has completely capitulated to the Republicans’ extortions (and more), yet tries to call it a “compromise.” How lame is that?

    Posted by Tyko Kihlstedt | August 2, 2011, 9:06 pm
  19. as my family falls apart due to the increasing strain of trying to make a living in a country that has forgotten us workers, this makes me want to take my pitch fork to wall street.
    unfortunately in the post 9/11 world, I would probably spend the rest of my life in prison just for showing up near “ground zero” with anything other than a suit and tie.
    Thanks America! Thanks Congress!

    Another disenfranchised american.

    Posted by disenfranchised | August 2, 2011, 9:08 pm
  20. Well done article. Very informative. Several problems though, Americans are still adjusting to the new reality of diminished prosperity. It is the illusion of plenty for all that has been maintained long after it ceased to be true and this has increased American tolerance for inequity.

    Posted by Israel Martinez | August 3, 2011, 9:44 am

    Posted by JOHN S EGGLER | August 3, 2011, 10:32 am
  22. The situations then and now are different in an important way. We were at war and Roosevelt could count on more public support. Today, a shockingly low percentage of eligible voters actually make a trip to the booth. Many people also tend to ignore issues until it directly effects their lives. We’ll see how they react in 2012 to these large cuts, although the politicians were slick enough to have the cuts phased in over several years so their effect on 2012 elections may not be severe. In any case, Democrats may be held just as responsible. Roosevelt was a strong leader, unlike Obama who has tried to compromise with every Republican budget proposal. Maybe the Republicans left him no choice in the end if they were to follow through on their blackmail and allow the government to default, an act of gross irresponsibility that would cause Roosevelt (and the founding fathers) to spin in their graves. Treasonous tactics.

    Posted by William Roberson | August 3, 2011, 11:18 am
  23. I hope that you send this piece to the President, each of his financial advisors, cabinet members, administrative staff, and to all Congressional leaders on both sides of the aile as well as to the major press.

    Posted by Ethel Paley | August 3, 2011, 2:15 pm
  24. This all sounds great, but then men like FDR, Truman, Churchill, Ike, and others were on this planet.
    Today we have an entire Democratic Party and their “leader” scared shitless of a conservative minotrity which barks loudly and PLAYS TO WIN.
    No matter that opinion polls reveal the vast majority of Americans want taxing on an equal par (for a change)and hands off Social Security, Medicare, and Medicaid.
    Our brave leader and his cadre shit when ordered to do so by Boehner and McConnell, the vampire turtle. Obama and associates call it “compromise”.The Koch brothers, Rove, and their ilk rule – somehow defying real time and laying the blame for the Bush administration excesses on the current administration.
    If you are able to ressurect FDR or Truman, please do so quickly. it’s only goping to get worse.
    Augie Wiedemann

    Posted by Augie Wiedemann | August 3, 2011, 7:19 pm
  25. Inspiring article! It makes me even more frustrated that Obama, who has brains, diplomacy and tenacity, was unable to frame the current debate in his terms. Is he afraid he won’t be re-elected if he uses words like “equity” in tax reform? I’m still wondering how the right wing in Congress managed to frame the debate in their terms and effectively hold Obama hostage.

    Posted by Marje | August 3, 2011, 7:43 pm
  26. I Wonder what if President Obama would have used President Roosevelt’s Debt Ceiling method what would the Washington DC pols have to say about that. Oh I know, ahhhhhhhhhhhhhhhhh. Thank you.

    Posted by Arnold Carter | August 4, 2011, 12:18 am
  27. Sorta explains why Roosevelt’s relatives along the Hudson hated him so.

    Posted by Carolyn | August 4, 2011, 8:20 am
  28. When people come to Congress with an agenda paid for by the corporate and the rich, there is no point in pretending they will want to negotiate. “The word that was not heard often enough in negotiations, was NO.” I’m proud of the Democrats who knew enough to vote NO. It seems to me that one expense we can do without is congressional salaries for the bought and paid for.

    Posted by Alice Overton | August 4, 2011, 3:25 pm
  29. read this people!!!!!!!!!!!! wake up & smell the coffee!!!!!!!

    Posted by jeanne | August 4, 2011, 3:37 pm
  30. I appreciate this article on FDR and the debt ceiling. The situation back then was remarkably similar to that which we have now. Though our current economic depression still remains rooted in the greed of banks and other financial institutions whose true regulation is also being blocked by Republicans and some Democrats alike. However, the lessons of history seem to be ignored by many including this administration. With the widespread unemployment I have wonder why I have not heard anything from the Obama administration about the re-enactment of a WPA project? In its day this project put 8 million men and women to work. It was done by executive order and therefore without blockage from Congress. In view of the pressure to create jobs in all states, I doubt that in an election year that two thirds of the Congress could be found to vote such a large scale employment project down. As in the time of FDR, our national infrastructure is crumbling. Here in NY we see it on our much used bridges and roadways. Why has this simple lesson not reached those that closely advise the president? Has your Institute for Policy Studies considered it? The executive order stands as a means for action and the institution of a WPA like project is a viable answer to countless men and women who would rather work then extend unemployment benefits. Thank you for your consideration of this matter. Sincerely, Vered Lieb, Ph.d

    Posted by Vered Lieb | August 5, 2011, 11:39 am
  31. I agree with this article. President Roosevelt was a wise man. He had no prejudice against the wealthy people in this country, he was simply looking out for our country. Roosevelt wanted to raise the money for the war effort as fairly as possible. In 1942, FDR told the Congress that in a time of “grave national danger” (or a grave national crisis like we have now), no citizen should be making more than $25,000.00 (equal to $350,000.00 in our time) after taxes. Although Roosevelt allowed the higher debt ceiling bill to become law without his signature, he refused to rescind his $25,000 cap on salaries. Unlike the Bush Administration, Roosevelt wanted to make sure that not a single war millionare would be created as a result of the war disaster. Besides decreasing taxes for the wealthy, the Bush Administration created many millionaires as a result of the Iraq and Afghantistan Wars. When we look at Roosevelt’s actions at this time in history, we become increasingly aware of the serious mistakes that the Bush Administration made.

    Posted by Mary Kalinowski | August 5, 2011, 8:51 pm
  32. An Alternative to Capitalism (what we need here in the USA)

    Several decades ago, Margaret Thatcher claimed: “There is no alternative”. She was referring to capitalism. Today, this negative attitude still persists.

    I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:

    John Steinsvold

    Perhaps in time the so-called dark ages will be thought of as including our own.
    –Georg C. Lichtenberg

    Posted by John Steinsvold | August 15, 2011, 10:12 pm

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