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Taxes, Socialism, and Other Unintended Consequences

By Alex Planes - Dec 30, 2012 at 11:00AM

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Learning from the market’s past to understand its present.

On this day in economic and financial history ...

On Dec. 30, 1969, President Richard Nixon signed the Tax Reform Act into law. The act made sweeping changes to the U.S. tax code, but its most notable contribution was the creation of an Alternative Minimum Tax. The addition of the AMT to the tax code was largely a response to a revelation the year prior that 155 people earning more than $200,000 (over $1 million in inflation-adjusted terms) paid no income taxes for the 1967 tax year. Although it was called an "alternative" tax, the original AMT was really an additional tax, which it remained atop any other high-income taxes until further reforms in 1982.

Nixon's signing statement  revealed ambivalence toward the Tax Reform Act. "Congress has passed an unbalanced bill that is both good and bad," he wrote, clarifying that "the tax reforms, on the whole, are good; the effect on the budget and on the cost of living is bad." Nixon commended the benefits to low-income taxpayers and the "fairer share" paid by high-income taxpayers but took issue with the bill's preference for spending at the expense of saving.

Since 1969, the AMT has been "patched" many times and changed several other times. From 1982 onward, the AMT was substantially modified five times and has been patched on an annual basis since the early 1990s. Despite these frequent patches, about 4 million taxpayers paid the AMT in 2011 -- and because the tax is not indexed to inflation, that number is expected to grow at a rapid rate for the next decade.

Making Ma Bell
The telephone monopoly known as the Bell System began on Dec. 30, 1899, when AT&T (T 0.05%) took over the assets of American Bell, its former corporate parent. Originally created in 1885 to build out a long-distance telephone network, American Telephone and Telegraph laid the first line from New York to Chicago in 1892 and finally reached San Francisco in 1915. Its operations quickly surpassed American Bell, which was first created to exploit the telephone patents of Alexander Graham Bell, and which primarily manufactured early telephone equipment.

AT&T grew into a national monopoly as telephones became an essential part of 20th-century American life. This monopoly survived two antitrust efforts, but a third proved successful in 1983, and the company that once employed a million people and accounted for 1.4% of the national GDP was broken apart. The AT&T we know today is the result of its acquisition by SBC Communications, one of the post-breakup Baby Bells. The other Baby Bells, with the exception of CenturyLink (LUMN -2.94%), are now either part of this reconstituted AT&T or are part of Verizon (VZ -0.37%). These two companies now combine to employ 426,000 people, less than half at Ma Bell's peak employment. However, their combined annual revenue of $241.6 billion is worth 1.6% of American GDP, a larger slice of the economic pie than Ma Bell once captured.

They have the plants, but we have the power
General Motors (GM -5.05%) has been on the receiving end of several massive strikes over the years. One of the defining events in GM's labor relations history began on Dec. 30, 1936, when employees belonging to the United Auto Workers began one of the first sit-down strikes in the United States. The evening shift at the GM Fisher Body Plant Number One in Flint, Mich., simply refused to work. They locked themselves into the plant -- one of only two GM plants with the body dies needed to create auto frames -- and sat down, beginning a 44-day strike that crippled the company's ability to produce cars.

GM's reaction was swift and merciless. has a brief overview of the strike's major incidents:

GM argued that the strikers were trespassing and got a court order demanding their evacuation; still, the union men stayed put. GM turned off the heat in the buildings, but the strikers wrapped themselves in coats and blankets and hunkered down. On January 11, police tried to cut off the strikers' food supply; in the resulting riot, known as the "Battle of the Running Bulls," 16 workers and 11 policemen were injured and the UAW took over the adjacent Fisher Two plant. On February 1, the UAW won control of the enormous Chevrolet No. 4 engine factory. GM's output went from a robust 50,000 cars in December to just 125 in February.

Both Michigan Gov. Frank Murphy and President Franklin D. Roosevelt were sympathetic to the strikers. Political pressure on GM eventually brought the strike to a close, and workers earned a 5% raise and some basic freedoms on their lunch breaks.

Back in the USSR
The Union of Soviet Socialist Republics was formally established, in the aftermath of the Russian Revolution, on Dec. 30, 1922. The Soviet Union, as it was popularly called, would become one of the two leading political and economic forces of the 20th century, alongside the United States. A full accounting of the Soviet Union's influence on modern life has already spanned many thousands of pages -- in short, this was one of the defining moments of the 20th century.

In search of black gold
America's love of oil stretches back more than 100 years, but enterprising businessmen searched for ways to make petroleum profitable long before the advent of the internal combustion engine. In fact, the very first oil company in America was incorporated on Dec. 30, 1854  in Albany, N.Y.

The Pennsylvania Rock Oil Company was capitalized with $250,000 (about $61 million when adjusted for inflation) but struggled to find the oil it sought and was forced to reorganize a year later in Connecticut. By 1857, the company's inability to discover meaningful amounts of "rock oil" for use in gas lamps forced it, debt-laden, into the hands of a Connecticut financier, who brought Edwin Drake on board to manage the exploration efforts. Reincorporated again as the Seneca Oil Company in 1858, the country's first oil company finally struck oil in Titusville, Pa.

Edwin Drake  became an industry legend as the first successful oil driller but never managed to capitalize on the technological innovations that made his well work. The Seneca Oil Company likewise failed to maintain a leading role in the American oil and gas industry, although its name lives on in Seneca Resources, a segment of the National Fuel Gas Company  (NFG -0.45%) that was known as Mars Natural Gas Company until 1976. Like its namesake, Seneca Resources also explores for oil in Pennsylvania.

The American oil industry kicked into high gear during the last years of the 19th century and became a dominant global force in the 20th. The Dow Jones Industrial Average (^DJI -0.82%) was slow to recognize the importance of oil to the American economy, as it included several natural gas companies from the very beginning, while the first oil company wouldn't join until 1924. That company, Standard Oil of California, is still part of the Dow today as Chevron (CVX -1.50%), although it was removed in 1999 and didn't rejoin until 2008.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,775.43 (-0.82%) $-253.88
AT&T Inc. Stock Quote
AT&T Inc.
$20.96 (0.05%) $0.01
Chevron Corporation Stock Quote
Chevron Corporation
$144.78 (-1.50%) $-2.20
General Motors Company Stock Quote
General Motors Company
$31.76 (-5.05%) $-1.69
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$50.75 (-0.37%) $0.19
Lumen Technologies Stock Quote
Lumen Technologies
$10.91 (-2.94%) $0.33
National Fuel Gas Company Stock Quote
National Fuel Gas Company
$66.05 (-0.45%) $0.30

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