“Eisenhower Defeats Truman” and Other Such Tax Talk

“Eisenhower Defeats Truman” and Other Such Tax Talk

Who doesn’t remember that iconic image of Harry S. Truman on Election Day holding up the newspaper with the headline “Dewey Defeats Truman”? While that defeat didn’t actually happen in the 1948 election, an appropriate headline for Truman in the 1950s could have been “Eisenhower and Tax Policy Defeat Truman.”

Post-presidential life has long been fodder for the news media, and President Truman’s financial struggles after leaving the White House got a lot of attention. Unlike his predecessors FDR and Hoover, Truman had little money and was living on a small military pension. Finally, in 1953, he signed a contract for $600,000 with Life magazine for his memoirs that would also be serialized in the magazine. To create an income stream, the Life payments were to be paid over 5-6 years, enabling him to live out his retirement in a financially stable and affluent manner. [1]

Truman was fairly certain he would get to keep more of the $600,000 payment than the average Joe. At the time, the tax code required that the installment payments would all be taxable in the first year. But Truman assumed he would get special tax dispensation from Congress allowing him to report the income over the 5-6 year period – thus generating a special tax break of $165,000. 

Except it didn’t happen.

Somewhere in the process, Eisenhower learned about it and nixed the plan. Given politics, that didn’t seem too harsh, until you look at how Eisenhower’s 1948 memoir was taxed. That’s where it seems to be a bit of backstabbing between the two presidents.

Upon his return from Europe, Eisenhower became president of Columbia University. Cashing in on his experience as the Commander of the Allied Forces, he signed a $1 million contract for his memoirs. Under the tax code at the time, the advance would be taxed as ordinary income at a rate of 75%. President Truman personally intervened and had the IRS deem Eisenhower a non-professional writer. As a result, Ike’s advance would be subject to capital gains rates of 25% instead of ordinary income tax rates. Historians have calculated that his tax savings was approximately $400,000. [2]

But six years later Ike didn’t return the favor to the haberdasher from Independence, Missouri.  Instead of intervening with the IRS, Ike did nothing to help Truman. As a result, Truman had to pay ordinary income tax. This stung even more due to his well-known financial struggle.

In the context of presidential relationships, it appears to be a rather unfair outcome. Historical scrutiny of the Truman-Eisenhower relationship through the late 40s and 50s, would lead to the conclusion that the two men didn’t see eye to eye. [3] But what if we apply a tax lens to the situation of the two book deals? Was Eisenhower’s action towards Truman’s memoirs really unfair?

When it comes to taxation, public policy is about creating a system and structure that benefits the general public and encourages (or deters) certain behaviors. The AICPA has been clear in laying out the guidance for effective policy. It should:

·  Focus on both fairness and efficiency

·  Provide transparency, neutrality and certainty

·  Be predictable and reliable [4]

Given these criteria, Eisenhower clearly felt that by making an exception for Truman, he would not be acting fairly in the context of tax policy. Further, Truman’s earlier decision to make an exception for Eisenhower had political blowback. It seemed unfair to make an exception for one person – regardless of what he did for the country.

That tax policy has been consistent right up to the present. With the divisiveness of today’s political environment, it seems like it was good policy, despite its unfortunate impact on Truman. As a result, when we see headlines about Obama’s $60 million advance or the fact that George W. Bush received $15m for his memoirs, we can rest easy knowing that they did not get any special tax dispensation for the advances. Eisenhower is the only president to benefit from a special tax rate - perhaps his reward for making the difficult decision in the early hours of June 6th, 1944, to launch the D-Day invasion that saved the world.

 

Notes

[1] Chicago Daily Tribune, September 11, 1953“Grant Truman a $165,000 Break on Book”

[2] Chicago Daily Tribune, June 2, 1948 “Revenue Bureau Confirms Ike’s Big Tax Favor”

[3] One great book that discusses the Eisenhower-Truman relationship is The President’s Club by Nancy Gibbs and Michael Duffy.  In the book, they noted that with the tax savings, Ike bought Mamie a mink coat.  Interesting financial choices!

[4] For more information on the AICPA’s guidance on tax policy, see https://www.journalofaccountancy.com/issues/2002/feb/guidingprinciplesofgoodtaxpolicy.html

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The ‘Other’ Truman Doctrine or What We Can Learn From Harry S. Truman’s Retirement Planning

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