Karl Marx’s Gift to the IRS

While our new President was speaking to Congress for the first time this year, seven speakers put on a Zoom webinar labeled “In Plain Sight: The Racism Hiding in Our Tax Code” — hosted by the m4bl.org.

Moderators Makani Themba, Chief Strategist at Higher Ground Strategies, and Andrea Ritchie, Writer, Lawyer & Activist, joined five other speakers who were experts on law, race, women’s issues and taxation from activist non-profit organizations in the U.S.

Issues they discussed covered far more than IRS’ taxes!

Their focus included state property taxes that fund education; sales taxes that harm the poor; state taxes that are not shared with cities and counties; unequal revenue spending; tax credits that favor those with money; income inequality; wealth divergence; regressive, progressive and flat taxes; revenue sharing for cities who are broke; the balance between military and domestic tax spending; cannabis taxes based on money made by harming the environment; taxes for reparations to African Americans; public health taxes; and taxes on the poor.

Key issues closely related to the title of this zoom group talk, were:

(1) disparities in choice of groups that the IRS doesn’t go after for tax cheating, a subject that our current President has also been recently discussing.

(2) The figure of 380 billion dollars of lost tax revenue from unpaid taxes by richer people was tossed out. (See this article from the Center of American Progress supporting that figure),

(3) the confusing amount of jargon and verbiage used by the IRS in numerous booklets filled with too many pages, and

(4) last but not least, disparate treatment of taxation on two types of income; one for the rich vs. the other for the middle class and the poor, i.e., “unearned income” vs. “earned income”.

A Brief History of the Internal Revenue Service

Source: IRS History Timeline

After the Revolutionary War against Britain in 1776, on February 21, 1787 Congress declared “the Congress shall have the power to lay and collect taxes, duties, imposts, and excesses, to pay the debts and provide for the common defense and general welfare of the United State.

Two years later Congress put Alexander Hamilton in charge of the Department of the Treasury.

To pay for the War of 1812 against Great Britain, and possibly the burning down of the White House during that war, Congress passed new taxes on refined sugar, carriages, distillers and auction sales. However, Congress repealed all taxes after the war ended on 1817, and abolished the office of the Commissioner of the Revenue.

In 1836 Construction began on the New Treasury Building which opened in 1842. And here we now arrive at the Civil War era.

On July 1, 1862, President Lincoln signed the second revenue measure of the Civil War into law. This law levied internal taxes, and established a permanent internal tax system.

“Congress established the Office of the Commissioner of Internal Revenue under the Department of the Treasury. On July 17, 1862, George S. Boutwell became its first commissioner.”

In 1863 the Internal Revenue office collected $39.1 million. By March 1st, the 1867 Revenue Act authorized the Secretary of the Treasury to purchase any weighting and measuring instruments to prevent and detect fraud by spirit distillers. The Internal Revenue office developed a system of taxing alcoholic spirits. What?

Are you wondering about why alcohol was taxed long before the Prohibition era of the early 20th Century?

My theory is that it coincided with the rise of the WCTU (Women’s Christian Temperance Union) movement. It was also synchronous with the first wave of the Women’s Rights movement.

In the 1860’s several white and black women in the U.S. published stories and poems in women’s magazines about men who drank away their paychecks in taverns and left their families drowning in debt—back when there were no government safety nets.

Around the time of the Civil War the Internal Revenue office taxed mostly wealthy and/or propertied white men’s assets. Now, over 150 years later, it is the middle class and poorer classes that Democrats are calling for taxes to be lightened up on while the wealthy and corporations would be taxed more.

How did this amazing flip from overtaxing the few wealthy Americans to overtaxing the marjority of less wealthy Americans come about?

This is where Karl Marx comes in with his revolutionary book, Das Kapital.

Karl Marx’ Gift to the U.S. IRS

Exactly 150 years before September 14th 2017, in 1867 Karl Marx published the first volume of his book Das Kapital, Kritick der polischen Oekonmie.

In that same year the Treasury Department Revenue Service was going after taxes on the makers of distilled spirits.

The second and third volumes of Das Kapital  were released by Marx’ friend Friedrich Engels in 1885 and 1894. Soon after that an English version of those books were available in the United States.

In his first volume of “Das Capital” Karl Marx identified a split between two types of income that white men (and a few privileged white women) received in America and Europe back in the late 19th century.

Das Kapital suggested that workers received “earned income” (earned by the sweat of their brows). Capitalists (those who inherited wealth or built their wealth off the backs of workers’ labor) received “unearned income”.

The Explosive Reaction to Karl Marx’ Book

Das Capital was a bombshell of a 3-volume book. It set off anger all over the globe. But it  has lasted for centuries.

Karl Marx was the last of the “classical” writers on Political Economy, e.g., historical white male philosophers from Europe, the British Isles, and ancient Mediterranean.

Starting before the end of the 19th century, Political Economy was replaced by the new field of Economics— a field still highly dominated by white male writers in the 21st century. Economists were outraged by Karl Marx’ books and criticized them harshly.

My Note: On the other hand, studies of Home Economy, aimed at women, lasted well to the mid-20th century. Marx himself opposed women working outside the home. He felt it would serve the Capitalists by giving them two workers for the price of one.

As for Marx’Das Kapital’s lasting effect, according to Wikipedia, “Das Kapital” is the most cited book in the social sciences published before 1950”.

And Das Capital has lasted well into this century, especially via the IRS’s use of “earned income and “unearned income” today as a framework for collecting Federal taxes from the American people, thus segregating us into two unequal levels of income – the rich and the not rich.

Income Inequality and the IRS

Around the turn of this century, Robert Kiyosaki picked up on these two types of income, “earned” and “unearned income” in his popular Rich Dad Poor Dad Series. Kiyosaki created his Cash Flow Quadrant chart. It shows four classes of income.  His quadrant shows that Employees and the Self-Employed, i.e., the middle class and poor), make “earned” income, while Business Owners and Investors, i.e., the rich, make “unearned” income.

Back around August 2017 I wrote several Huffington Post articles arguing that IRS taxes are to blame for the rapid growth of wealth inequality,— particularly affecting the Self-Employed who sit underneath Employees at the very bottom of Robert Kiosaki’s wealth hierarchy. (nowadays I’d add Independent Contractors and the Homeless to that hierarchy under Self-Employed.)

Only 154 years after these two highly disparate classifications of income, “earned” and “unearned,” were brought to light by Karl Marx, are we finally realizing that American values of equal rights and opportunities are being squashed by the way money is collected, taxed, and spent by our governments.

It is high time to overhaul the gross unfairness in our tax codes to stop the growth of wealth inequality in this nation!

Why? A healthy economy is one that is in equilibrium, i.e. balancing everyone’s needs in our markets, not just those of a few who argue that they are somehow anointed by God and their ancestors as more “special” and “entitled” to be richer than the rest of us.


#1 Mara Lynn Keller on 05.23.21 at 3:59 am

Thanks, Nancy, for these insights. I was wondering about the difference between earned and unearned income. While I think Marx had a good analysis of the dynamics of capitalism, namely that the owners of the means of production are the ones who take all the profits while the laborers produce the valuable products and their labor is exploited to advantage the owners; I don’t think his analysis was entirely accurate. While the aristocracy of the 19th century probably did nothing to earn the income from their lands; business men did add labor value to the production of goods. But Marx’s equations did not give them any credit. So the dichotomy is skewed. Do you know if anyone addresses the value of management; or the value of risk-taking as part of the equations? Sweden has experimented with worker co-ownership and that seems to have been a good step forward toward disspelling the inequity between workers and owners.

#2 Nancy Humphreys on 06.21.21 at 3:48 pm

Mara, In the 19th century landed aristocrats were superseded by the industrial capitalists. If you watched TV series like Downton Abby or read 19th-century English and French novels you surely noticed that the landed gentry were all barely surviving by selling off parcels of their lands, the source of their wealth. This goes for American plantation slave owners as well who lost their “property” after the Civil War. Capitalists in the 20th century grew wealthy by accumulating wealth and handing it down to their heirs, not by selling their wealth. As to earned and unearned income, how Karl Marx used these two words is quite different from how the IRS uses them. Marx was for the working classes. The U.S. Internal Revenue Service uses those terms for the benefit of the wealthy over the not-wealthy. And last, labor value wealth has long been superseded by by the growth of monetary value wealth. Value today is all about money! Period! Read my next two posts and I think you’ll have the answer to your question. Thanks for asking!

Leave a Comment