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October 6, 2004
Historical Perspective -- Profiles in Tax History: Randolph E. Paul
Joseph J. Thorndike

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Paul in Profile: Randolph Paul, Treasury general counsel from 1942 to 1944, helped establish the modern federal tax system. (Getty Images) Randolph Evernghim Paul was an architect of the modern federal tax system. As Treasury general counsel during World War II, he helped transform the income tax from a narrow levy on the rich to a broad tax on the middle class. Paul was also one of the most influential Keynesians in the Roosevelt administration, arguing consistently and cogently that taxes should be used to regulate the nation's economy.

During the late 1930s, Paul served as an unofficial Treasury adviser on tax matters. In 1938 he declined the position of assistant secretary for tax policy, choosing to remain in private practice. Five days after the Japanese attack on Pearl Harbor, however, he accepted an appointment as special assistant to Secretary Henry Morgenthau. In August 1942 he was named the department's general counsel.

Paul in Politics

Paul was a passionate advocate for the income tax, insisting that it was "the most direct and equitable method of reaching taxpaying ability." Wartime revenue needs had forced Treasury officials into a frantic search for additional revenue, and Paul repeatedly argued for broader, steeper income taxes.

Paul rejected calls for a national sales tax, complaining that it would be unjust, unwise, and unworkable. Sales taxes were profoundly regressive, imposing almost intolerable burdens on the lower class, he told lawmakers. A new federal sales levy would also impose new administrative burdens on government, business, and the taxpaying public. Fans of the sales tax, including many business leaders and a large contingent of congressional lawmakers, insisted that the levy would raise enormous, much-needed revenue. But Paul predicted that revenue yields would be eroded by necessary exemptions. If lawmakers wanted a reliable source of new revenue, Paul argued, they should simply raise individual and corporate income taxes.

For the most part, Paul got his way. In 1942 President Roosevelt persuaded Congress to expand the income tax dramatically, adding millions of middle-income Americans to the tax rolls. Paul also managed to win congressional support for wage and salary withholding, an administrative reform considered necessary for mass income taxation. Indeed, withholding marked a turning point in the administrative and economic history of the income tax.

Paul on Prices

Throughout the war, Paul warned darkly of the danger posed by inflation. "The demands of total war play no favorites," he cautioned in the days after Pearl Harbor. "To produce more tanks, planes, and guns, and to feed our armies and our allies, we shall have to accept not only fewer automobiles, but also less heat, less clothing, and even less food." Swollen wartime incomes would chase this dwindling supply of consumer goods, he predicted, making inflation all but inevitable.

Policymakers throughout the Roosevelt administration shared that worry, and the federal government battled inflation with an array of economic weapons, including wage and price controls. But Paul insisted that taxes were a necessary part of this assault on inflation. "Price ceilings and wage controls, by themselves, will check, but not halt, the upward course of prices," he said. "Price and wage controls will be successful only if they are buttressed by fiscal measures designed to restrict civilian spending and thereby to relieve the tremendous pressure of consumer purchasing power on prices."

Paul believed that income taxes were the best fiscal tool for controlling inflation. Steep taxes on personal income would drain inflationary pressures from the economy, protecting the nation's wartime productivity and helping smooth the eventual reconversion to peacetime production.

In general, Paul brought to his official duties a broad and flexible view of taxation. "We must discard old notions that taxation is for revenue only," he said. "We must use taxation as an instrument of inflation control. We must recognize its function of distributing the economic burden of the war in a fair and equitable manner." When the war ended, Paul continued his fight for an activist tax policy. The fiscal system must necessarily become a central tool of economic regulation, he counseled. By raising and lowering taxes lawmakers could smooth irregularities in the business cycle, promote economic growth, and fund the nation's Cold War struggle with the Soviet Union.

Paul in Practice

Paul's career got off to a pedestrian start when he took a job as switchboard operator at a New York law firm shortly after graduating from New York Law School in 1913. In 1918 he accepted a job working for George E. Holmes, a noted specialist in tax law. Paul applied himself to the same subject, and over the next two decades, he rose to prominence as one of the nation's leading tax attorneys.

In 1922 Paul organized his own firm, Lynn, Paul & Havens. In 1938 he joined Lord, Day & Lord, where he stayed until joining the Treasury Department. After leaving government service in 1944, he organized Paul, Weiss, Rifkind, Wharton & Garrison, where he remained until his death in 1956. During his years in private practice, Paul served a range of well-heeled clients, including Henry Ford, the Standard Oil Co. of California, and General Motors.

From 1941 to 1942, Paul was a director of the New York Federal Reserve Bank, where he worked closely with bank chair Beardsley Ruml, treasurer of R.H. Macy & Co. In 1943 Ruml became a leading figure in the political debate over withholding and current collection, proposing that the federal government forgive a full year's tax payments to help ease the transition to pay-as-you-go taxation. By then, Paul was ensconced in his Treasury office, and he strongly opposed the "Ruml Plan" as a giveaway to wealthy taxpayers.

Paul on Paper

Paul was a prolific writer. During the 1930s and early 1940s, he published a series of books on federal tax issues, including Studies in Federal Taxation (1937, 1938, 1940) and Federal Estate and Gift Taxation (1942). In 1947 he completed Taxation for Prosperity, a manifesto arguing for progressive income taxation in the postwar era.

Paul's most important literary achievement was Taxation in the United States, a sweeping history of American taxation from its founding to the Cold War. The book offered a carefully reasoned argument for broad-based income taxation, insisting that those levies offered a reasonable compromise between progressive ideals and revenue imperatives. If the United States were to prevail in its economic and military contest with the Soviet Union, Paul argued, the great mass of the American people must shoulder a heavy tax burden. The income tax would distribute this burden more fairly than any of its likely alternatives.

Paul in Passing

Randolph Paul exited the world in the manner he might have wished. On February 6, 1956, he was testifying before a congressional committee in the Old Supreme Court chamber just off the Senate floor. For roughly 40 minutes, he outlined his complaints about President Eisenhower's tax and budget policies, chastising the administration for tolerating inequities in the federal tax system and neglecting vital nondefense spending on schools, roads, and slum clearance. Suddenly, Paul slumped forward in his chair, and his wife, Muriel Paul, rushed to his side. Twenty minutes later, a Capitol physician pronounced him dead.

Paul was eulogized by lawmakers and tax officials of all political stripes. Sen. Alben Barkley, D-Ky., described him as a "tax scientist" who excelled in one of the law's most arcane specialties. The Washington Post praised Paul's breadth of vision, specifically endorsing his expansive view of federal tax policy. "He saw fiscal issues in the large context of the national economy," the editors wrote, "and with the understanding of an economist and social planner."

For further reading on Randolph Paul, see the Tax History Project's Web site, at