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Tax History: How FDR Ignored Taxes During His Uneasy Presidential Transition

Posted on Oct. 19, 2020

Franklin D. Roosevelt was “somewhat annoyed,” according to news reports. Having managed to lose his “income tax papers,” he was feeling the pressure of the annual filing deadline, then just two weeks away. It was no great problem, he told reporters; the records were easy enough to replace. But it was irritating.

If Roosevelt was annoyed, he might be forgiven. After all, he had other, more pressing matters on his mind as he spoke to reporters on February 27, 1933: Just five days later, he was due to be inaugurated as the 32nd president of the United States.

Roosevelt’s lost records, in fact, may have been the smallest of the many irritations afflicting him during his wait for Inauguration Day. Presidential transitions were much longer in those days before the 20th Amendment — six weeks longer than they are today. And the transition of 1932-1933 must have seemed endless, both for the country and for the president-elect. During the 116 days between Roosevelt’s November 8 election and his March 4 inauguration, America suffered through some of the darkest days of the Great Depression.

Even worse, Americans suffered alone: Political leadership was all but absent during the painful interregnum. Historians have described the handoff between Herbert Hoover and Roosevelt using words like “rocky,” “unseemly,” and “awkward.” It was all those things and worse. In hindsight, neither of the main characters comes off looking especially sympathetic.

Today, Americans are pondering another transition. If it seems presumptuous for anyone to be measuring for drapes in the Oval Office at this point, consider this: Planning for transitions isn’t a matter of wishful thinking, it’s the law. Accordingly, both the Trump White House and the Biden campaign have been hard at work on transition planning for months.

That work, moreover, won’t be wasted in the event of a Trump victory. As David Marchick, director of the Center for Presidential Transition, told NPR earlier this year, even when a president wins reelection, “history shows that almost half of the officials in office at the second inauguration leave within six months.” That sort of turnover requires preparation.

Still, transitions are most challenging when they involve a change in presidential leadership — and doubly so when they involve a switch in party control. If current polls are any indication, such a transition is a decent possibility this year.

Which means it might be a good time to take a fresh look at the troubled transition of 1932, a case study in how not to manage presidential transitions. It’s especially useful for anyone interested in the discontinuities and uncertainties of tax policy formulation, since the Hoover-Roosevelt transition featured some especially dysfunctional debate about taxation.

A Bad Start

The transition got off to a bad start — no surprise, perhaps, since it came hot on the heels of a bruising political campaign. Most campaigns are unpleasant, but the contestants usually manage to rise above the fray afterward. Not so with Hoover, who found it hard to accept his loss.

When meeting with FDR at the White House shortly after the election, Hoover addressed most of his comments to the president-elect’s advisers, all but ignoring Roosevelt himself. Meanwhile, Hoover invited his Treasury secretary, Ogden L. Mills, to lecture Roosevelt on specific policy issues ranging from the gold standard to international banking to the proper treatment of European war debts. By most accounts, Hoover was determined to show FDR the error of his ways — to convert him to more sensible, more Hoover-like policies.

As the meeting wrapped up, Roosevelt was not amused. And Hoover, for his part, was not impressed, judging the president-elect to be “amiable, pleasant” but also “very badly informed and of comparably little vision.”

In December Hoover tried to enlist Roosevelt in various joint efforts, including the appointment of a panel to negotiate with European countries about war debt repayment. But FDR was unwilling to lend his name to such projects. “I think you will recognize that it would be unwise for me to accept an apparent joint responsibility with you when, as a matter of constitutional fact, I would be wholly lacking in any attendant authority,” he wrote to Hoover. In fact, Roosevelt was concerned that any cooperation would weaken his new presidency before it had even begun. As Amy Davidson Sorkin said of the episode in The New Yorker, Roosevelt “seems to have had an instinct for how power grabbed at the wrong time and on the wrong terms could be a diminishment.”

Fiscal Misfire

The debt commission wasn’t the only point of friction between Hoover and Roosevelt; that same month, they also crossed swords over tax policy. And on that subject, their conflict managed to embarrass a few leading Democrats, including the vice president-elect, John Nance Garner.

Hoover was keen to do something about the nation’s budget problems. Tax receipts had fallen sharply as the Depression worsened, and spending reductions had not kept pace. Even as he neared the end of his term, Hoover was determined to enact fiscal policies that would slow the river of red ink.

The lame-duck president urged the lame-duck Congress to pass a manufacturers’ sales tax. Lawmakers had rejected such a levy just a few months earlier when drafting the Revenue Act of 1932. But Hoover liked the tax, as did his Treasury Department. And more than a few Democrats had shown themselves open to the idea during that earlier debate. So Hoover asked lawmakers to take a second look.

Crucially, Hoover asked Garner, then finishing his term as speaker of the House, to give the proposal a vote on the House floor. Garner agreed, as did the Democratic chair of the House Ways and Means Committee. Neither embraced the levy outright, but their flexibility was widely noted by political observers — including the president-elect.

And Roosevelt was having none of it. On December 29 the Chicago Daily Tribune reported that the president had expressed “horror” at the prospect of a sales tax — as well as the idea that he had somehow given Garner a green light for the floor vote. The paper also implied that Garner was irritated with Roosevelt’s disavowal. “Speaker Garner, whose budget balancing plans were dropped on the concrete with a thud when the governor turned thumbs down on the sales tax, was back in the speechless condition of preelection days,” the paper reported.

Undone by Roosevelt’s opposition, the sales tax died before it reached the floor. As with the debt commission, Roosevelt had chosen to preserve his own political capital rather than joining in pursuit of shared objectives. In fact, it’s not entirely clear whether Roosevelt shared Hoover’s passion for balanced budgets. To be sure, he had paid lip service to the idea during his campaign for the presidency. But Roosevelt always viewed recovery and economic reform as his most important goals.

In any case, Roosevelt was uninterested in letting Hoover’s fiscal conservatism dictate the limits of the nascent New Deal. He was therefore more than happy to rebuff the sitting president. As the Chicago Daily Tribune observed on December 29, “In deciding to oppose a general manufacturers’ sales tax, Governor Roosevelt again has taken issue with President Hoover.”

Of course, he had also taken issue with his own vice president. And not for the last time.

Unreliable Negotiator

It’s unclear whether Roosevelt told Garner one thing about the sales tax, only to tell the world something else when it became convenient. What is clear, however, is that Roosevelt engaged in exactly that sort of duplicitous behavior barely a week later, also on the subject of taxation.

After the sales tax debacle, Democratic leaders gathered in New York City to develop alternative plans for lame-duck tax legislation. Roosevelt claimed to be on the sidelines in these talks, but observers considered him pivotal. “Although theoretically Mr. Roosevelt still insists that he will not take responsibility for the Government until he becomes President, he is actually wielding an important amount of influence,” The Manchester Guardian reported.

On January 7 Democratic leaders emerged from the New York talks with a bold plan to boost income tax rates, especially in the lower brackets. They also floated the idea of slashing exemptions. Together, these changes would have raised taxes not on the very rich (a favorite target of Roosevelt’s rhetoric), but on something closer to the middle class.

The blowback was immediate — as was Roosevelt’s disavowal. Everyone knew that FDR had been deeply involved in the discussions. But everyone also knew that FDR was unwilling to take the heat for unpopular ideas.

Indeed, Roosevelt was determined to keep his powder dry, even if it meant — once again — pulling the rug out from under Garner. The speaker had taken the lead in announcing the new plan. But when liberals began to complain, the president dispatched another top Democrat, incoming Speaker of the House Henry Rainey, to throw cold water on the proposals. Later, Roosevelt issued his own statement expressing distaste for them.

Soon enough, the new plan was dead, and with it any hope for fiscal legislation in the lame-duck session. Hoover, still pushing for a fiscal package to stanch the bleeding, was left to contemplate the end of his term with no tax legislation to fix the problem (or help counter the profligacy he expected from the New Deal).

And Garner, having tried twice to piece together a fiscal deal, took another drubbing for the team. It was good practice for the vice presidency.

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