According to F.A. Hayek, progressive income taxes are a fraud; John Stuart Mills calls it a “mild form of robbery”; J. R. McCulloch characterizes it as “simply hateful arbitrariness”; and Milton Friedman stated that it does nothing that it is purported to do. I have shown from these distinguished scholars over the past six essays that progressive income taxes are discriminatory, pitting one class of citizens against another because of envy, inviting cheating by the taxpayers. Furthermore, they reduce savings and capital formation, hinder productivity, strangle innovation and business expansion, thereby blocking the answer to the problem of unemployment, and fall heaviest on the middle-class and the poor as the wealthy live off their investments which are taxed at half the rates of the upper income bracket. Those are just the beginning of its ills! I have also quoted from our founders, as well as these men who warned that such a system knows no limits, that with a progressive income tax in place, the government has the power to take 100% of your earnings, and during the previous century for a span of approximately ten years, it did almost that for those in the highest marginal tax bracket. The consensus of all these men ─ Madison, Jefferson, Yates, Melancton Smith, Adam Smith, Hayek, Friedman, and others ─ is that such a system is unjust, tyrannical, oppressive, and unethical! The obvious question then becomes, “How did we come to have such a system of taxation and why is it that it continues to be the basis of the revenue stream for our government?”
Allow me to reiterate what I stated in the first essay of this series, that government has both the right and expectation for citizens to provide the means it requires to carry out the obligations society has placed upon it. Citizens in turn should not harbor resentment toward the payment of taxes to the government which they established, provided, as in the words of Thomas Jefferson, it is a “wise” government, one “frugal” with the “bread of labor” produced by the individual citizens. “We the people”, in Article I, Section 8 of the Constitution, granted the central government the power to “lay and collect taxes”, which at first glance would appear to include the income tax. However, after stating that taxes can be levied and collected that same clause went on to specify that the taxes to be levied were to be of the nature of “Duties, Imposts and Excises” and that they “shall be uniform throughout the United States.” Section 9 of Article I of the Constitution further states that “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” The import of this added clause is that an income tax would be unconstitutional, as it is a direct tax and is not proportioned according to the census. This proportionality requirement means that in order to levy a direct tax it must be proportioned according to the census numbers of each state. Therefore, a state which contains 15% of the nation’s population would be required to supply 15% of the aggregate revenue required by the central government, regardless of its economic condition or the ability of its residents to pay that amount. So it was, then, in every instance when an income tax was attempted, even though it may have been allowed for a short period of time (as during the Civil War), it was eventually ruled unconstitutional and subsequently abandoned.
It was during the Civil War that the income tax was first introduced by both the Union and the Confederacy to finance their respective war efforts. The defeat of the South brought about the cessation of their income tax, but it continued in the newly re-united nation until, due to protests, it was eliminated in 1872. In Springer v. United States, a case in which William Stringer sued claiming that the income taxes levied on his earnings as an attorney were unconstitutional, the Supreme Court, in a 7 – 0 vote, upheld the government’s position that the tax was permitted under the Constitution. In 1894 Congress again debated the issue of an income tax on both individuals and corporations during the passage of the Wilson-Gorman Tariff Act, and in the debate the argument made by those favoring it was “the wealthy are not paying their fair share.” This time, however, in Pollock v. Farmers’ Loan & Trust Company, a closely divided Supreme Court ruled that this tax imposed by the Act was unconstitutional. In the majority opinion the justices ruled that it amounted to a direct, unapportioned tax and was unconstitutional, thus violating the above referenced Article I, Section 9 of the Constitution.
The Progressives (the American version of the Italian Fascists) were not to be deterred. The campaign platform of the Democrat Party in both the 1896 and 1908 elections included a “plank” advocating the instituting of an income tax. In April 1909 Senator Joe Bailey, a conservative Democrat from Texas, introduced a bill that would authorize the income tax. Though he was opposed to the concept, his introduction of the bill was a blatant attempt to embarrass the Republican Party in the upcoming 1910 elections as he expected them to oppose the measure. Thus Democrats would be able to paint the Republicans as “favoring the rich over the ‘little man’” (sound familiar?). However, his plan backfired when the liberals in the Republican Party, led by the Progressive Teddy Roosevelt (yes, he was a Progressive, just like in the Democrat Party) came out in support of the bill. In a panic, the conservatives of the Republican Party met and devised a strategy in which they told those supporting the bill that they would support instead a constitutional amendment authorizing the income tax, believing that surely the state legislatures would defeat the amendment, thus derailing Bailey’s campaign strategy. Senator Norris Brown of Nebraska then introduced what is now our 16th amendment which passed the Senate by a vote of 77 – 0 and the House by a vote of 318 – 14! Much to the surprise of the Republican Senators who had advocated this strategy, the legislatures, due to a concentrated campaign by the Democrats across the country with a “soak the rich” slogan, bowed to the pressure of their residents and ratified the amendment. Thus the amendment became a part of our Constitution on February 12, 1913.
As you can clearly see, nothing has changed in over one hundred years ─ the same arguments (based upon class warfare and envy as pointed out by Hayek) made by the Progressives to enact the income tax are still parroted by the Fascists dominating the Democrat Party today.
During World War II, in an effort to smooth out the government’s “cash flow”, a proposal was made to change the income tax from an annual payment method to the employer-withholding system we have in place today. In 1942 plans were set in motion to pass legislation allowing for the withholding of taxes. Congress feared if they were to raise the tax rates outright and thereby increase dramatically the amount of the check individual taxpayers would have to write, the citizens would revolt and refuse to pay. So the notion of withholding was sold to the public as both a patriotic step to support the war effort and as a means to make things “easier” for them to pay their taxes (rather than having to set money aside during the year to cover their tax liability). In order to help “sell” this duplicitous scheme on the citizens of the nation, the government enlisted the aid of Donald Duck ─ that’s right, Mickey Mouse’s sidekick ─ to produce some short propaganda films promoting the idea. Despite Donald’s best effort, however, the public still was not swayed until a plan was hatched offering to expunge all taxes owed in 1942 in exchange for supporting the withholding option starting in 1943. And so it came to pass that our birthright of freedom from oppressive taxation was sold for a “pot of pottage” ─ a one-year forgiveness of taxes!
Now Congress can raise our tax rates on our incomes at will with only the threat of not being re-elected the only barrier preventing it. Furthermore, our employers are obligated under the threat of severe penalties to withhold from our earnings the taxes dictated by the Internal Revenue Service. It should not come as a surprise that the Progressive/Fascists of today want to ignore the original intent of the amendment since they rebuff attempts to point back to the original intent of other parts of the Constitution. Erik M. Jensen, writing in The Heritage Guide to the Constitution on the 16th amendment stated:
“The general understanding among contemporary scholars is that the taxing power is so broad that Congress alone determines what can be reached by an income tax. This view of unbounded congressional power conflicts with the original, limited role of the amendment however, and it requires rejecting several old Supreme Court decisions that took the language of the amendment seriously: for an unapportioned tax to be authorized by the Sixteenth Amendment, it must be on ‘incomes’” [emphasis added].
With all of this before us, then, why did politicians press for an income tax and why do we continue it if it is so detrimental to our economy and an invasion upon our freedom, liberties and unalienable rights? You need look no further than the emboldened words in the quote you just read ─ the answer is there in a single word: power! Money is power, and the more you possess and control it, the more power you have ─ which is not necessarily an evil thing. Without money you are powerless to provide for your basic necessities of life and to care for your family. This is why we work ─ we exchange parts of our lives (time) for an agreed upon amount of money from our employers in order that we might buy things such as houses, food, clothing, medicine, etc, and to fulfill that unalienable right to “pursue happiness.” This is why I call those who promote and defend the income tax Fascists. The income tax is all about supporting the state which through its tax rates and heavy-handed enforcement methods determines just how much of your earnings it deems appropriate to allow you to keep. Remind yourself of the wording being used by those on the left regarding the current debate over extending the reduced tax rates put in place in 2001 ─ that to extend them for the “wealthy” (who are arbitrarily defined to be anyone earning over $250,000 per year) is something the government “cannot afford”. What they are saying is they “cannot afford” to let you keep your own money you worked and gave up a portion of your life to earn!
Besides this, there is this misguided notion of equality those on the left, be they Socialists, Communists or Fascists, always want to push. Hence the class warfare they have waged ever since the notion of an income tax was first proposed. They fail to understand the true nature of the equality of man (and I use the word “man” here in its broad context of “humanity”). True, “all men are created equal and are endowed by their Creator with certain and unalienable rights”, but that equality has to do with the essence of what each individual is and nothing more. No two individuals will ever be equal in talent, abilities, opportunities (or “luck” if you prefer that concept), intellect, or hard work, so why should they be consigned by an outside force to be equal in what by their efforts and other unequal traits they earn? Yet such is exactly the driving force behind the concept of “wealth redistribution”. It is pure, unadulterated power that drives these statist ideologues (Obama, Reid, Pelosi, et al) in their attempt to force an equality upon the citizenry that is not only completely contrary to the law of nature, but also against the liberty and individualness of each and every citizen.
This is the reason behind the class warfare and envy rhetoric (as Hayek so ably underscored) the leftists constantly fall back upon to push this form of taxation. To close out this week’s post I give you perhaps the most damning evaluation ever given against our current tax system. In the May 26, 1956 issue of U.S. News & World Report, T. Coleman Andrews, the former head of the Internal Revenue Service, gave an interview in which he completely shredded the very tax system the agency he had formerly led was tasked to enforce! This link will take you to a copy of the full interview, albeit the quality of it is very poor: (Interview with T. Coleman Andrews, former head of the IRS). In his remarks you will see many of the points I have been setting forth in the previous six essays of this series, but these are coming from one with much greater authority than I. Herewith are the highlights of what he had to say in that interview [with emphasis added]:
“For absolutism in one form or another is the inevitable end of ‘deeply graduated’ taxes on income and inheritances, and absolutism in any form is slavery….we’ll continue to penalize outstanding ability and success until the will to achieve has been destroyed throughout the nation and we’ve all been reduced to the aimless status of an indifferent conglomerate of bone, tissue and blood….
Our country’s economic growth has been produced with the direct and indirect savings of the people, and those savings have come from the people who have had enough on the ball to do better than just earn a living. If we keep on at the present rate of taxation, we will come eventually to the point where no one will have anything to invest and the ‘man on horseback’ will be upon us. The Government will own everything and we’ll be forced to do the bidding of commissars imbued with the idea that they know better how to spend our money than we, and vested with the authority to do it.
We’ve done it” [i.e. raise revenue] “for the whole 43 years of the income tax to enforce social reforms ─ to reduce everybody to the lowest common denominator economically. I don’t believe in using tax legislation to force social reforms upon the people or to punish sin.”
When asked the question “Shouldn’t everybody have the same income? President Franklin Roosevelt said nobody should have more than $25,000 ─”, he replied
“You know, I don’t subscribe to such socialistic demagoguery as that. I say everybody should have what he can make honestly, with a minimum of taxes. Everyone should be able to keep a much larger share of his income than he can at present, and everyone’s right to expect to be protected in his possession of what he makes should be respected, especially by the Government.“
He was next asked whether or not he thought the purpose of the income tax was to destroy the middle class and whether or not it was a conscious purpose or merely the result of the policy. His response was classic Hayek:
“There was no question in the world about the consciousness of that purpose. Go back to 1894. In that year an income tax was adopted which was part of the Tariff Act of 1894. That was declared unconstitutional about a year later. That tax was deliberately, avowedly, and unashamedly enacted to get at the ‘rich’ people. There wasn’t any apology for it at all. On the contrary its proponent boasted that it was aimed at the rich and would hit only 85,000 out of 65 million people, which according to my arithmetic was about one eighth of 1 per cent of the population. And to this day the ‘soak the rich’ purpose prevails. I heard it the other day in a committee hearing in Congress ─ the whole idea is to get at the rich. It was conceived in vengeance and it has been that way ever since. It has never been anything different….
I am convinced that this law has reached the point of incurable infirmity, and I doubt that any full-scale income tax, rigidly enforced, can be made a primary source of a great nation’s income without leading eventually to dictatorship, which I am convinced is happening under the present law….
I don’t believe we ought to take it away from people just because they’ve earned it. I don’t think we ought to use tax legislation to enforce social ends….
We’re confiscating property now. That’s one of the reasons why I don’t like the income tax….every time we talk about these taxes we get around to the idea of from each according to his capacity and to each according to his needs. That’s socialism. Its written in the Communist Manifesto. Maybe we ought to see that every person who gets a tax return receives a copy of the Communist Manifesto with it so he can see what’s happening to him.”
When he was asked whether or not he felt that everyone should be taxed equally, either at the same amount or same percentage, he continued to hit at this being a punishment for achievement.
“Of course not. That would merely shift injustice from one class to another. I want to end the ‘soak the rich’ business because we don’t soak the rich ─ we penalize outstanding ability and ultimately destroy ourselves.
We’ve been soaking the rich so long that there aren’t any rich any more. But there are people with a lot of knowhow, and instead of a tax climate that encourages achievement of one’s full potentialities, we have one in which the reward for outstanding performance is forced down as performance goes up. Thus, instead of soaking the nonexistent rich, we penalize high performance and foul the spark plugs of our hopes for sustained and growing leadership. It doesn’t make sense does it?…
Asked if there should be a distinction drawn between taxing earned and unearned income (recall the statement of Jensen’s that Congress’ power is now so broad that it alone can determine what is included as taxable income) and his answer was emphatic:
“No, I do not. Why penalize investment? We’re doing it now by penalizing success and we’re digging our own grave as a nation when we do. Investment puts people to work. It buys machinery….There are only two ways in the world that business activities can be financed. One is through savings. The other is through Government handouts. May the Lord deliver us from the latter.”
Yes indeed – Lord, please, deliver us from the latter! Next week ─ the solution.
-Epaminondas
