Antitrust and the Corporate Tax, 1909–1928

Abstract

Between the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914, the question of what to do about “trusts” dominated American political life. Before 1889, the dominant form of amalgamating competing businesses was the trust, because corporations could not hold shares in other corporations, and instead the shareholders would exchange their shares for trust certificates. But in 1889 New Jersey (the “traitor state”, according to muckraking journalist Lincoln Steffens) changed its corporate law to allow for holding company structures, setting of a great wave of amalgamations in areas like oil, tobacco, sugar and steel. This paper will focus on one attempt to address the “trust problem” by means other than the Sherman Act (which faced some resistance in the courts, as the government lost the E.C. Knight case in the Supreme Court in 1895 and barely won the Northern Securities case in 1905). This was the corporate tax act of 1909, which as will be seen below, was primarily intended as an antitrust measure. However, after the enactment of the Clayton Act and the creation of the FTC in 1914, the corporate tax was less needed as an antitrust measure, and between 1919 and 1928 its antitrust features were largely eliminated.