Income tax

World Magazine ^ | Marvin Olasky

[tim_h]

As many of us have been filling out income tax forms over the past few weeks, it's been hard not to wonder: How did we get into this mess in the first place? Why did our ancestors ever agree to a complicated system with a morass of different rates, which means a bureaucracy waiting to happen? The answer: As with so many expansions of governmental power, the income tax was first sold as a minor measure. Some politicians and journalists issued warnings, but only after enactment of the tax did the full consequences become apparent. The warnings began in 1894, when Congress passed a bill imposing the first-ever peacetime income tax. Tied to a tariff-reduction measure, the bill required all citizens with incomes of more than $1,000 to pay a 1 percent tax. Since the dollar was worth much more then than it is now and incomes were lower, only about one out of every 100 Americans was affected. Leading newspapers were nonetheless furious. The New York Times, then a conservative Republican publication, called the income tax law "a vicious, inequitable, unpopular, impolitic and Socialistic scheme ... the most unreasoning and most un-American movement in the politics of the last quarter century." The Washington Post, then a conservative Democratic newspaper, argued that record-keeping requirements would force an employee to be "catalogued by his employer, as though he were a beast of burden." The Post called the graduated income tax an "abhorrent and calamitous monstrosity" that "represents a repudiation of the spirit as well as the letter of Democracy.... It punishes everyone who rises above the level of mediocrity.... The fewer additional yokes put about the necks of the people, the better for the commonwealth." The Chicago Tribune also predicted that the income tax would lead to distrust: "The tax can only be collected by prying into the private affairs of the people by arbitrary means hateful to the citizens of the republic." The Dallas Morning News complained that the income tax "attacked constitutional guarantees for tenure of property, for freedom of industry, for freedom of contract and for personal security." In 1895 the Supreme Court declared the income tax measure unconstitutional. It ruled that any such tax had to be levied in proportion to population, and not differentially by income level. The Washington Post lauded the court's decision: "This is still a land where honest men cannot be made to pay tribute." The New York Times predicted that "neither the Democratic nor the Republican party will ever attempt to revive the corpse that the Supreme Court buried yesterday." But the corpse was soon walking. Progressive Era politics created pressure for more federal spending, and the politics of class warfare led to support for having the rich pay more. In July 1909, Congress sent an income tax amendment to the states for ratification. Again The New York Times was in opposition: "When men get the habit of helping themselves to the property of others they are not easily cured of it." The Washington Post, however, was starting to become a house organ for the government bureaucracy: It changed sides and argued that an income tax was needed to "wipe out the deficit [then $89 million] without impairment of the public service or calling a halt upon needed public improvements." The Post argued speciously that the income tax would place a check on spending habits: "Congress will have to go slow in making appropriations unless the President is to be put in an embarrassing position. He will not want to increase the income tax, and if he had to do it would not hesitate ... to put the blame where it belonged. The provision will be a whip in the hands of the president to keep Congress toeing the mark of economy." The Dallas Morning News was even more optimistic, arguing the constitutional amendment would give Congress only authority to levy an income tax: "There would still be the question of whether the Congress would exercise the power thus given." New York and Massachusetts both rejected the amendment, but smaller states supported it. In February 1913, the 16th Amendment, authorizing an income tax, was ratified. By October, Congress had passed implementing legislation. But no one simply looking at the present was upset: Taxes were only on the rich, and rates were low. Only those who looked ahead were concerned. The New York Times soberly reported that the new income tax had established a "rock of credit from which abundant streams of revenue will flow whenever Congress chooses to smite it." The Times predicted, "We may be sure that it will be smitten hard and always harder, until the national conscience, if there is such a thing, revolts against the inequality and injustice of such a plan of taxation."

[tim_h]

This article describes public attitudes toward the income tax at the end of the 19th century. How could these people retain such self-control, wisdom, and a sense of honor?

The poignant quote from The Washington Post "[The tax] punishes everyone who rises above the level of mediocrity..." sheds some light on the reasons for such a high level of taxation today. In the 20th century the mob, the masses decided to pretend that they had some claim on the natural elite. The apes wanted the world for themselves. They blithely dismissed the men responsible for the flowering of the Western civilization as evil or irrelevant or at best as convenient beasts of burden.

For the mass-men are content to live under any political system. The chief traits of their personality are mortal fear of being responsible for their own lives, and violent hatred for achievement, wisdom, and virtue. Their minds are weak, their spirits weaker still, and they would have no use for freedom even if they had it. And you'd better believe it.

[kevkrom]

We absolutely need to abolish the income tax and resort instead to a single-rate, single-stage national retail sales tax instead. Such a system would eliminate the "hidden" taxes in the system and would also eliminate the social engineering that goes on with income taxes.

[Willie Green]

Corporate income taxes are NOT a cost that can be passed along to the consumer. This is because the tax obligation can only be determined after sales have been transacted and costs have been deducted from revenues. Corporate Income tax is imposed only on the profit that is made, IF a profit is made.

In a competitive free market, there is no guarantee of either sales or profit. Thus there is no guarantee that there will be a Corporate Income Tax obligation to "pass along" to the consumer.

NRST advocates who insist that corporate income taxes are "embedded" in the sales price of a product are just plain wrong. This assumes that companies can dictate market price in order to cover any costs that they incur when price is actually determined by supply and demand in a competitive market. Any attempt to raise the product price to accomodate the income tax would have to overcome lower priced product from competitors who did not incompetently attempt to incorporate such "costs" in their pricing strategy. The result would be that the company that attempted to "pass along" the tax would actually lose sales volume, possibly even to the point of losing profitablility. Conversely, the lower priced competitors who did not attempt to "pass along" the tax would gain sales volume and enhance their profitability.

The skewed logic utilized by NRST advocates to claim that corporate income tax is paid by the consumer is completely bogus. To accept their convoluted logic is to deny how businesses actually operate in a competitive market. Further evidence of corporations' inability to "pass along" their income tax obligation is published every day in the business section of our nation's newspapers: "ABC Corporation fails to meet 3rd quarter expectations" or "XYZ Inc. incurs 2nd quarter loss". Once again, with future sales and tax obligations (if any) being unknown, it is IMPOSSIBLE for companies to "pass along" their income tax obligation to the consumer.

The Ivory Tower "experts" who concoct this theory are in denial of how business actually operate in a competitive free market. Their fundamental assumption that companies can dictate the market price of their product to accomodate income tax liability is fallacious and reflective of marxist influence.

[billsux]

Gee, wouldn't a sales tax unfairly burden the lower income people?

[kevkrom]

Gee, wouldn't a sales tax unfairly burden the lower income people?

Not really. Despite what Willie Green cut-and-paste above, taxes are indeed an embedded cost in everything that is sold today. That same lower income person is already paying 20% or more, on average, in the price of everything he or she buys, due to the cascading effects of income taxes (which act as a subtraction-method value added tax).

Even still, the sales tax proposals that have been floated go further to address that potential problem. There are basically two potential avenues for redressing apparent "regressiveness" in the system: 1) exempt items that can be classified as "necessities", or 2) provide some form of rebate or allowance to offset the costs of taxes on subsistence-level spending.

I'm personally in favor of the Americans for Fair Taxation's (AFFT) "FairTax" plan, which takes the latter approach. The "FairTax" has been introduced in the House of Representatives as HR 2525. Most questions regarding a national sales tax can be answered by reading the materials on that site -- and there's a committed group of FReepers that will be more than happy to address other questions.

[PayNoAttentionManBehindCurtain]

Where and how did the goverment get their monies to run the country before the income tax?

[LS]

Two sources: 1) land sales and 2) import tariffs. Until the late 19th century, land sales were STILL the biggest money maker and could be today. Who is the largest landowner in the country? Uncle Sam. You say, "Well, if the government sells all its land, it won't have any to sell later." But the market adjustment of prices would dictate that with each new sale, the price of the next would be higher, until theoretically the government could literally sell a few hundred acres and make lots of money.

Given that, I don't think it's a realistic choice and I think the real alternatives are a flat income tax and a national sales tax. I favor the former.

I don't like the notion of making businesses into tax collectors. At least with the IRS, there is ONE AGENCY that everyone can hate. It helps keep it in line. But I'm afraid that a sales tax would become quite insidious and much easier to increase.

[DeaconBenjamin]

Tariffs. Note that the first income tax was sold as a tariff reduction measure.

As we all know, no legislature would ever impose a tax without reducing other taxes.

[kevkrom]

and I think the real alternatives are a flat income tax and a national sales tax. I favor the former. I don't like the notion of making businesses into tax collectors.

And I go the other way, because I don't like the notion of individuals having to report their private finances to the government. As long as there's a determination of "income" as the basis for the tax, there will be an invasive, intrusive IRS checking your personal financial information to determine if you're complying. A flat tax would also not get rid of hidden, VAT-style cascading of taxes.

[tymesf]

We didn't need any income tax. We didn't have all the military infrastructure. Without the income tax we surely would have lost the arms race with russia.

Also, there is debate over whether the 16th amendment was properly ratified. Even if it wasn't, We need the income tax or something similar to maintain our standing army, navy, and air force, not to mention our nuclear arsenals, government research laboratories, and other sensible interests.

What should not be allowed is income tax (or any other taxation) that is used for funding government raids based on nothing but possession of prohibited objects and free speech. I also don't recall anything in the Constitution giving the government authority to develop systems to pay for other people's retirement or medical bills, but that's just me.

I'd happily pay more taxes than I pay now if it was all necessary for defense spending, legitimate government upkeep, and reasonable research.

[FreeYourMind]

I think the national sales tax is a good idea as well. I think you'd need to place some restrictions on it (unprepared food, water, medicine, and other essentials), but by and large it would end up working out pretty well...the more you consume, the more you pay. I have no idea how big a tax it would need to be, but I'm assuming it would be something like at least 15 or 20%. I'd pay that to forget about the nightmarish income tax we have to deal with every year.

[tim_h]

Hmm.

I see that nobody is proposing a repeal of the income tax, replacing it with nothing, and cutting spending. How odd and how disappointing.

[supercat]

I see that nobody is proposing a repeal of the income tax, replacing it with nothing, and cutting spending. How odd and how disappointing.

Harry Browne proposed precisely that. Hasn't gotten him very far...

[ancient_geezer]

In 1895 the Supreme Court declared the income tax measure unconstitutional. It ruled that any such tax had to be levied in proportion to population, and not differentially by income level.

Ahhhh, not quite:

Pollock v. Farmers' Loan and Trust Co.(1895), 157 U.S. 429

• "The people of the United States constitute one nation, under one government, and this government, within the scope of the powers with which it is invested, is supreme."

• "Without the States in union, there could be no such political body as the United States. Both the States and the United States existed before the Constitution. The people, through that instrument[the Constitution], established a more perfect union by substituting a national government, acting, with ample power, directly upon the citizens, instead of the confederate government, which acted with powers, greatly restricted, only upon the States."

Pollock v. Farmers' Loan & Trust Co.(1895), 158 U.S. 601:

• "We have considered the act only in respect of the tax on income derived from real estate, and from invested personal property, and have not commented on so much of it as bears on gains or profits from business, privileges, or employments, in view of the instances in which taxation on business, privileges, or employments has assumed the guise of an excise tax and been sustained as such."

• "If that[rents from land] be stricken out, and also the income from all invested personal property, bonds, stocks, investments of all kinds, it is obvious that by a r the largest part of the anticipated revenue would be eliminated, and this would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way what was intended as a tax on capital would remain, in substance, a tax on occupations and labor. We cannot believe that such was the intention of congress."

• "We do not mean to say that an act laying by apportionment a direct tax on all real estate and personal property, or the income thereof, might not also lay excise taxes on business, privileges, employments, and vocations. "

• Mr. Justice WHITE, dissenting.

  16. The injustice of the conclusion points to the error of adopting it. It takes invested wealth, and reads it into the constitution as a favored and protected class of property, which cannot be taxed without apportionment, while it leaves the occupation of the minister, the doctor, the professor, the lawyer, the inventor, the author, the merchant, the mechanic, and all other forms of industry upon which the prosperity of a people must depend, subject to taxation without that condition.

[ancient_geezer]

I see that nobody is proposing a repeal of the income tax, replacing it with nothing, and cutting spending.

Been tried before with the Continental Congress under the Articles of Confederation. Didn't work too neat, ever hear the expression "not worth a Continental"? That was due to the valueless script being issued as a consequence of that war's debt that could not be honored for lack of authority to collect a tax to pay the debts and general expenses of the new United States of America? We damn'ed near found ourselves right back under England's rule because of it, or worse yet the French owning our hides.

One of the dominant reasons the Constitution was written was to assure the power to lay and collect taxes was available to the Federal government. With the perferred mode through the levy of indirect taxes collect from business or the individual as opposed to Apportionment upon the states:

Alexander Hamilton, Federalist #12:

• "A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."

• "The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury."

Patrick Henry, Virginia Ratifying Convention June 12, 1788:

• "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."

Alexander Hamilton, Federalist #21:

• The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Its repugnancy to an adequate supply of the national exigencies has been already pointed out, and has sufficiently appeared from the trial which has been made of it. I speak of it now solely with a view to equality among the States. Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth, must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained. Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of State contributions, has any pretension to being a just representative.

• It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. ... Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country.

• Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard.

James Madison, Federalist #39:

• "The difference between a federal and national government, as it relates to the OPERATION OF THE GOVERNMENT, is supposed to consist in this, that in the former the powers operate on the political bodies composing the Confederacy, in their political capacities; in the latter, on the individual citizens composing the nation, in their individual capacities. On trying the Constitution by this criterion, it falls under the NATIONAL, not the FEDERAL character;"

James Madison, Federalist #45:

• "The change relating to taxation may be regarded as the most important; and yet the present [Continental] sic Congress have as complete authority to REQUIRE of the States indefinite supplies of money for the common defense and general welfare, as the future [Constitutional] sic Congress will have to REQUIRE them of individual citizens;"

James Madison, Elliots Debates Vol 3 p128-132:

• "Mr. Chairman, in considering this great subject, I trust we shall find that part which gives the general government the power of laying and collecting taxes indispensable, and essential to the existence of any efficient or well-organized system of government:"

• "If a government depends on other governments for its revenues -- if it must depend on the voluntary contributions of its members -- its existence must be precarious."

• "If the general government is to depend on the voluntary contribution of the states for its support, dismemberment of the United States may be the consequence."

Constitution for the United States of America:

• Article VI "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

• Article I Section 8. "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
  to pay the debts and provide for the common defense and general welfare of the United States;
  but all duties, imposts and excises shall be uniform throughout the United States; "

[tim_h]

Harry Browne proposed precisely that. Hasn't gotten him very far...

Yes, and that's why it's disappointing. The reason why it's odd is that I am still hoping Americans want to live in a free society. I mean it is odd, isn't it? how much attitudes have changed.

Well. I guess, we'll keep trying.

[ancient_geezer]

I see that nobody is proposing a repeal of the income tax, replacing it with nothing, and cutting spending.

Been tried before with the Continental Congress under the Articles of Confederation. Didn't work too neat, ever hear the expression "not worth a Continental"? That was due to the valueless script being issued as a consequence of that war's debt that could not be honored for lack of authority to collect a tax to pay the debts and general expenses of the new United States of America? We damn'ed near found ourselves right back under England's rule because of it, or worse yet the French owning our hides.

One of the dominant reasons the Constitution was written was to assure the power to lay and collect taxes was available to the Federal government. With the perferred mode through the levy of indirect taxes collect from business or the individual as opposed to Apportionment upon the states:

Alexander Hamilton, Federalist #12:

• "A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."

• "The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury."

Patrick Henry, Virginia Ratifying Convention June 12, 1788:

• "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."

Alexander Hamilton, Federalist #21:

• The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Its repugnancy to an adequate supply of the national exigencies has been already pointed out, and has sufficiently appeared from the trial which has been made of it. I speak of it now solely with a view to equality among the States. Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth, must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained. Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of State contributions, has any pretension to being a just representative.

• It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. ... Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country.

• Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard.

James Madison, Federalist #39:

• "The difference between a federal and national government, as it relates to the OPERATION OF THE GOVERNMENT, is supposed to consist in this, that in the former the powers operate on the political bodies composing the Confederacy, in their political capacities; in the latter, on the individual citizens composing the nation, in their individual capacities. On trying the Constitution by this criterion, it falls under the NATIONAL, not the FEDERAL character;"

James Madison, Federalist #45:

• "The change relating to taxation may be regarded as the most important; and yet the present [Continental] sic Congress have as complete authority to REQUIRE of the States indefinite supplies of money for the common defense and general welfare, as the future [Constitutional] sic Congress will have to REQUIRE them of individual citizens;"

James Madison, Elliots Debates Vol 3 p128-132:

• "Mr. Chairman, in considering this great subject, I trust we shall find that part which gives the general government the power of laying and collecting taxes indispensable, and essential to the existence of any efficient or well-organized system of government:"

• "If a government depends on other governments for its revenues -- if it must depend on the voluntary contributions of its members -- its existence must be precarious."

• "If the general government is to depend on the voluntary contribution of the states for its support, dismemberment of the United States may be the consequence."

Constitution for the United States of America:

• Article VI "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

• Article I Section 8. "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
  to pay the debts and provide for the common defense and general welfare of the United States;
  but all duties, imposts and excises shall be uniform throughout the United States; "

[nagdt]

Like we don't pay in enough, we were just asked to give the IRS 1,000 bucks they OVERPAID us last year. Jeez.. damn indian givers..

[tim_h]

And by "we" I mean simply "like-minded people", not the Libertarian Party, of which I know little.

[tim_h]

Wow, you are ancient. What are you, 250 years old? Are you a vampire?