-Caveat Lector-   <A HREF="http://www.ctrl.org/">
</A> -Cui Bono?-

    January 24, 2000
  (82 days until you file your Tax Returns and pay any Balance Due)
***and if you don't comply, your Slavemaster will tighten those shackles
even tighter to squeeze more blood from you in the form of Penalties and
*my apology for the lenght of this Post*

                                                         Before the
Income Tax
                                                               by G.
Edward Griffin

                        This report is adapted from two earlier articles
by G. Edward Griffin appearing in the April 13, 1987 and February 29,
1988 issues of THE
                        NEW AMERICAN. Mr. Griffin, a journalist and film
producer, is the author of The Creature From Jekyll Island: A Second
Look at the Federal

                        It is a sobering thought that the federal
government could operate - even at its current level of spending -
                        collecting any taxes whatsoever. All it has to
do is create new money through the Federal Reserve System, a process
                        called monetizing the debt. As a matter of fact,
much of the money it now spends is obtained that way. The politicians
                        who authorize that process know that this is not
true debt, because no one in Washington really expects to repay it. It
                        is merely a means of raising money to run the
government without increasing taxes. Actually, the inflation that
                        from monetizing debt is just as much a tax as
any other, but, because it is hidden and so few Americans understand
                        how it works, it is far easier to collect than a
tax that is out in the open.

                        So the question arises: Why does the federal
government bother with taxes at all? Why not just operate on monetized
                        debt? The answer is twofold. First, if it did,
people would begin to wonder where the money is coming from, and that
                        might cause them to wake up to the reality that
inflation is a tax. Thus, open taxes, at some level at least, serve to
                        perpetuate public ignorance regarding the
reality of deficit spending. But the second reason is more to the point
                        this report. It is that taxes, particularly
progressive taxes, are weapons by which social planners can wage war on
                        class of citizens for the benefit of another.

                        Tool for Social Planning

                        The January 1946 issue of American Affairs
carried an article by Beardsley Ruml, who at the time was chairman of
                        the Federal Reserve Bank of New York. Ruml
devised the system of automatic withholding during World War II, so he
                        was well qualified to speak on the nature and
purpose of the federal income tax. His theme was spelled out in the
                        of his article: "Taxes for Revenue Are

                        In the introduction to the article, the
magazine's editor summarized that Ruml's "thesis is that, given control
of a central
                        banking system and an incontrovertible currency
[a currency not backed by gold], a sovereign national government is
                        finally free of money worries and need no longer
levy taxes for the purpose of providing itself with revenue. All
                        therefore, should be regarded from the point of
view of social and economic consequences."

                        Ruml explained that, since taxes are no longer
needed to raise revenue for the government, there are only two
                        purposes remaining. The first of these is to
combat increases in the general price level. When people have money in
                        their pockets they will spend it for goods and
services, and this will bid up prices. The solution, wrote Ruml, is to
                        the money away from them and let the government
spend it instead. This, too, will bid up prices, but never mind about
                        that. Ruml explained it this way:

                        The dollars the government spends become
purchasing power in the hands of the people who have received them.
                        The dollars the government takes by taxes cannot
be spent by the people, and therefore, these dollars can no longer
                        be used to acquire the things which are
available for sale. Taxation is, therefore, an instrument of the first
                        in the administration of any fiscal and monetary

                        The other purpose of taxation, according to
Ruml, is to redistribute the wealth from one class of citizens to
                        This must always be done in the name of social
justice or equality, but the real objective is to override the free
                        and bring society under the control of the
master planners. Ruml said:

                        The second principal purpose of federal taxes is
to attain more equality of wealth and of income than would result
                        from economic forces working alone. The taxes
which are effective for this purpose are the progressive individual
                        income tax, the progressive estate tax, and the
gift tax. What these taxes should be depends on public policy with
                        respect to the distribution of wealth and
income. These taxes should be defended and attacked in terms of their
                        on the character of American life, not as
revenue measures.

                        Ruml's view will not be startling to anyone
familiar with how the income tax came into existence. Beginning with the
                        War Between the States, the Marxist philosophy
of class conflict became manifest in America. Many people wrongly
                        believe that Marxism is a battle of the poor
against the rich. In reality, it is a campaign against the middle class
- the
                        class that Karl Marx called the bourgeoisie. In
The Communist Manifesto, Marx wrote: "The distinguishing feature of
                        Communism is, not the abolition of private
property generally, but the abolition of bourgeois property." In order
                        accomplish this, he called for a "heavy
progressive or graduated income tax."

                        Soaking the Rich?

                        Once this concept of class warfare had been
transplanted to America, it found nourishment in the labor movement
                        and eventually blossomed into a powerful
political movement known as populism. The populists claimed that the
                        farmers and the urban working class were being
exploited by rich industrialists, largely through the unfair way in
                        taxes were levied. At that time, the nation's
revenue was drawn primarily from internal excise taxes on the sale of
                        items as tobacco and liquor, and from tariffs on
imports. Today, tariffs are viewed as a means of protecting jobs for
                        American workers, but in the political debates
of the 1890s they were seen as subsidies for big business, a means of
                        protecting them from the rigors of foreign
competition, thus allowing bloated profits that would not be possible
                        political protection. Furthermore, since these
tariffs were passed along to the consumer in the form of higher prices,
                        they were viewed as nothing but a tax levied
against the little man to perpetuate the unearned profits of the rich.*

                        The populists advocated the elimination of
tariffs and the institution in their place of a progressive income tax.
                        move was perceived as an act of justice and
revenge. The rich, at long last, were going to be forced to pay their
                        share - and more. In the House of
Representatives, Congressman Thomas J. Hudson of Kansas expressed the
                        prevailing populist sentiment: "I know that many
wealthy men are generous and charitable.... On the other hand, the
                        majority of the very wealthy are haughty,
overbearing, autocratic, mean, and it is that class in particular that
the income
                        tax is designed to reach."

                        Yes, working, middle class Americans were in the
firm majority, and any politician who promised to "soak the rich"
                        was assured of victory at the polls. How ironic
it was that those same politicians came from some of the wealthiest
                        families in the world. Little did the common
voters realize that in their greed to shift the tax burden to others,
they were,
                        in fact, placing that burden more heavily on

                        Our "progressive" income tax is not progressive
at all. In fact, it is not even proportionate. If we had a flat-rate
                        tax with no exemptions or deductions, a person
with 20 times the income of another would pay 20 times as much tax.
                        By contrast, a progressive or graduated income
tax may require a person with 20 times the income of another to pay
                        considerably more than 20 times as much tax. But
the way it was designed to operate is quite different. The same
                        year that the income tax was adopted, Congress
also created the tax-exempt foundation, a device whereby, under
                        cover of charity and education, those family
dynasties with great wealth can avoid paying either income tax or
                        inheritance tax, while their fortunes remain
under their control and continue to operate for their benefit.

                        Not far behind the super rich come the very
rich, who also share in the spoils system. Over the years, the tax laws
                        have become twisted and turned into a Gordian
knot of exemptions, deductions, depreciations, shelters, and credits.
                        Those with sufficient wealth can well afford to
hire professionals to trace these convoluted paths, but the common man
                        must be content with "standard" deductions and
the crumb of a "simplified" tax return.

                        The federal income tax was never meant to treat
all citizens alike. It will never be fair because it was designed to be
                        unfair. Furthermore, it is difficult to imagine
a tax that is more cumbersome and expensive to administer. So that each
                        individual's income may be determined, the
taxpayer must produce documentation on every aspect of his financial
                        life. In order to assure compliance, a virtual
army of agents, auditors, and computer technicians must be maintained at
                        public expense. In the dust of this roving army
are the hordes of camp followers, the accountants and tax attorneys, all
                        of whom consume massive chunks of the national
wealth without producing anything except paperwork and
                        procedures just to measure income. In the
process, every detail of our lives is recorded and made available to the
                        bureaucracy. The right to privacy and protection
against arbitrary search and seizure is trampled underfoot.

                        The income tax cannot be reformed. Its heart and
soul are favoritism. Its muscle is political power. Its nature is waste
                        and tyranny. It must be completely replaced.

                        But what should replace it? The world has been
exposed to just about every kind of tax imaginable at some point in
                        history. Nations have tried property tax,
production tax, excise tax, import tax, manufacturing tax, carriage tax,
                        tax, chimney tax, liquor tax, tobacco tax,
income tax, sales tax, value-added tax, and even a tax on death. The
                        have almost always been the same. The taxes
become despised by the people and often lead to revolt or civil war.

                        Past Precedent

                        Fortunately, in our search for a fair tax that
raises sufficient revenue, we do not have to begin from scratch. It may
                        come as a surprise to learn that much of the
work has been done and that the bulk of the plan has been drafted.
                        Furthermore, it has actually been tested in
America and found to be entirely workable. Where is this plan to be
                        It is hidden where it is most unlikely to be
discovered by the general public or Congress. It is in the Constitution
of the
                        United States.

                        After the Revolutionary War was won there was no
way the colonists were going to create a new centralized
                        government with the power to tax. They had had
enough of that with England. So when the Articles of Confederation
                        were finalized, they granted no taxing power at
all. Whatever was needed had to be requested from the states, and
                        the states were under no firm obligation to pay.
Within a few years the impracticality of this arrangement was painfully
                        obvious. The federal government had almost no
funds with which to operate and, in fact, Congress did absolutely
                        nothing for four years.

                        It is possible that the United States would have
disintegrated into 13 separate nations with no way to protect
                        themselves from foreign aggression had it not
been for a series of tax revolts within the states. The most famous of
                        these was Shay's Rebellion of 1786-87 in
Massachusetts. In protest over excessive taxes levied by the state, a
                        brigade of 2,000 armed insurgents blockaded the
Springfield courthouse. The band was eventually dispersed by a
                        few cannon volleys, but the incident served to
dramatize the fact that none of the states was really prepared for
                        action on any sizable scale. The disturbance
emphasized the need for a stronger central government, and a
                        convention was called for the purpose of
revising the Articles of Confederation.

                        Constitutional Convention

                        Once the convention was assembled in
Philadelphia, the delegates quickly abandoned the idea of trying to
revise the
                        Articles. They were too flawed for repair.
Everyone now agreed that the central government simply could not
                        unless it had some power of taxation. But what
would that power be?

                        The overriding concern for all was that the new
tax must act equally on the majority and the minority. Regardless of
                        which citizens might find themselves in the
majority, they must not be allowed to tax others in any way beyond what
                        they tax themselves. There was unanimous consent
on this principle.

                        Another principle was a direct outgrowth of the
tradition of no taxation without representation. The colonists had just
                        fought a war to establish that point.
Conversely, if one has representation, then he must pay taxes. Since the
                        purpose of representation was to consent - or
object - to the levying of taxes, it follows that no one should have a
                        in these matters who is not paying those taxes.
All citizens are entitled to equal protection under the law, but only
                        those who pay taxes shall be entitled to vote.

                        In an attempt to apply these broad principles of
taxation, the convention delegates struggled with very practical
                        problems. The seaboard states with extensive
commercial shipping were reluctant to give up their right to collect
                        import duties, because it was their main source
of revenue. Those from the industrialized areas were fearful of taxes
                        placed on manufacturing. Those from the
agricultural provinces were hostile to land taxes. All parties were
                        that sooner or later a political majority would
seize control and force them, as a potential minority, into tax
                        After months of debate, it began to appear that
the states were in hopeless deadlock. Then - many are convinced it
                        was by divine intervention - a compromise was
reached. No, it was more than a compromise. It was an absolutely
                        brilliant plan for taxation. Unfortunately, it
was never given a formal name. Those who drafted it were content merely
                        describe it in terms of its features. For the
purposes of this report, however, we shall call it the "Uniform
                        Apportionment Tax."

                        The Constitution acknowledges two kinds of
taxes: direct and indirect. Direct taxes, as the name implies, are
                        directly to the person who ultimately pays them.
Examples of direct taxes are income and property taxes. Although
                        they may be thought of as taxes on income or on
property, remember that only people pay taxes: Money and property
                        do not. Direct taxes, therefore, regardless of
what they may be based on are charged directly to the ultimate taxpayer.
                        Indirect taxes, on the other hand, are levied on
a commodity with the expectation that the taxes will be passed along to
                        the consumer as part of the market price of the
commodity. Examples of indirect taxes are import and excise taxes.
                        The taxpayer always knows when he is paying a
direct tax, but is often unaware of the indirect tax.

                        Danger of Direct Taxes

                        Direct taxes were viewed by the Founding Fathers
as dangerous because they give government great power over its
                        citizens and also because, in order to assess
such taxes, agents must have the authority to snoop into the private
                        lives of the citizens. They agreed, therefore,
that direct taxes are safer if administered by the states, where elected
                        representatives are closer to the people and
easier to control.

                        Indirect taxes, on the other hand, were viewed
as less dangerous, because people could avoid them if they wanted
                        merely by not purchasing the items being taxed.
This assumes the establishment of taxes only on those items that are
                        considered nonessential, such as liquor and
tobacco, often called luxury taxes. Furthermore, the process of
                        indirect taxes does not endanger the
individual's right of privacy.

                        For these reasons, the delegates to the
Constitutional Convention agreed that indirect taxes would be more
                        appropriate for the federal government. The
compromise that allowed the states "to form a more perfect union"
                        consisted of two provisions:

                        1) The federal government was to derive its
primary revenue from indirect taxes, and these were to be uniform in all

                        2) In the event of war or similar emergencies,
the federal government, with the consent of Congress, would have
                        authority to levy direct taxes "passed through"
the states to their citizens, but these were to be proportional to the
                        number of representatives that each state had in

                        This process is called apportionment. In other
words, if there were 100 representatives in Congress, and the state of
                        Virginia had seven of them, the voters in
Virginia would have to pay seven percent of the direct national,
                        tax. The specific wording establishing the
Uniform Apportionment Tax is found in Article I of the Constitution, and

                        Representatives and direct taxes shall be
apportioned among the several states which may be included within this
                        Union.... 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
                        uniform throughout the United States.... No
capitation [a head tax, sometimes called a poll tax], or other direct,
                        shall be laid, unless in proportion to the
census or enumeration herein before directed to be taken.

                        A sample of the extensive historical record of
the founding era demonstrates the reasoning of the men who created
                        the concept. Alexander Hamilton, who was to
become the first Secretary of the Treasury, wrote in The Federalist,

                        Imposts, excises, and, in general, all duties
upon articles of consumption, may be compared to a fluid, which will in
                        time find its level with the means of paying
them. The amount to be contributed by each citizen will in a degree be
                        his own option, and can be regulated by an
attention to his resources. The rich may be extravagant, the poor can be
                        frugal; and private oppression may always be
avoided by a judicious selection of objects proper for such
                        impositions.... If duties are too high, they
lessen the consumption; the collection is eluded; and the product to the
                        treasury is not so great as when they are
confined within proper and moderate bounds.... 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

                        Emergency Measure

                        It was a cardinal point to these discussions
that the power of direct taxation through apportionment was to be
                        exercised only to pay for debt incurred as a
result of war, insurrection, or similar emergencies, but not for the
                        operation of the federal government. That
function was to be financed by indirect taxes alone. James Madison

                        When, therefore, direct taxes are not necessary,
they will not be recurred to.... It can be of little advantage to those
                        power to raise money in a manner oppressive to
the people.... Direct taxes will only be recurred to for great
                        purposes.... If this country should be engaged
in war - and I conceive that we ought to provide for the possibility of
                        such a case - how would it be carried on?... How
is it possible a war could be supported without money or credit? And
                        would it be possible for a government to have
credit without having the power of raising money? No; it would be
                        impossible for any government, in such a case,
to defend itself. Then I say, sir, that it is necessary to establish
                        for extraordinary exigencies, and to give this
power to the general government.

                        To the Founding Fathers, the primary purpose of
apportionment was to block the central government from using the
                        power of direct taxation - except in times of
great national emergency. The barrier was not in the formula of
                        distributing the tax load among the states, but
in the procedure for doing so. To lay a direct tax, Congress had to do
                        certain things that no government wants to do.
Since each tax is a separate project, each would have to be written into
                        a revenue act. The purpose and the amount of the
tax would have to be clearly stated, and then debated and voted
                        upon. When the tax was collected, the revenue
act would expire, and the door to more money would be closed.

                        How different this is from the ongoing power of
general taxation, under which the purpose is seldom known, the
                        amount is always in doubt, and the process is
endless. The rule of apportionment, therefore, was the greatest
                        on the power and reach of government that had
yet been devised by man, and it is little wonder that it became a thorn
                        in the side of federal politicians in the years
to follow.

                        Of course, the Uniform Apportionment Tax was not
flawless. In truth, there can never be a perfect tax if the people
                        cannot afford it. When Hamilton became the first
Secretary of the Treasury, he persuaded Congress to authorize the
                        nation's first indirect tax. It was an excise on
whiskey, a few luxury items, auction sales, and negotiable instruments.
                        was excellent in theory, but it was a heavy tax
- resulting in a whopping 25 percent increase in prices - and it led to
                        full-scale revolt. Rumors quickly spread that
the government was about to extend these taxes to all articles of
                        consumption, including food and clothing. This
would be the European experience all over again. Excessive excise
                        taxes were what had driven many immigrants to
seek refuge in America. So it is not surprising that this first
                        experiment was met with large-scale public

                        The biggest ruckus came from the Western
farmers. Because there was a shortage of money along the frontier, it
                        become common to use whiskey as a medium of
exchange. Grain was too bulky for transport, so the farmers grew
                        rye, distilled it into whiskey, and moved their
produce into national trade in that form. For the frontiersman,
therefore, a
                        tax on whiskey was not an excise tax or luxury
tax at all. It was a 25 percent tax on their basic crop, and they
                        complained that no other farmers and no other
producers of manufactured goods had to pay a similar tax - which was
                        quite true. By 1794 the entire region was in
open revolt. Tax collectors were tarred and feathered and their houses
                        were burned to the ground. When a judge of the
Supreme Court declared a state of insurrection in western
                        Pennsylvania, President Washington called out
the militia from adjacent states and, in a show of force, led these
                        troops in full-dress uniform.

                        Fortunately, military confrontation was averted:
The rebels surrendered in return for amnesty, no one went to jail, and
                        within a few months the excise tax was repealed.

                        First Direct Tax

                        In 1798, Congress levied its first direct tax.
It was in the amount of $2 million and was apportioned among the states
                        on the basis of the current census, which was
also the basis for the number of representatives each state had in
                        Congress. The purpose of the tax was to
extinguish part of the debt incurred by the Revolutionary War. Reduction
                        the national debt was viewed as one of those
rare emergencies that would justify resorting to the extreme measure of
                        a direct tax. In this case, the tax was levied
on dwellings, land, and slaves. It did not provide for any deductions or
                        exemptions, but, sadly, it was progressive in
nature, with larger homes paying more per $100 of value than others.

                        Herein lay one of the hidden flaws in the tax
concept of the Founding Fathers. They had inherited the feudal concept
                        noblesse oblige, the obligation of noblemen to
take care of their inferiors and assume greater responsibility of
                        government. By 1776, however, especially in
America, this concept had lost its virtue. In a republic such as ours,
                        is no justification for allowing class
distinctions into the law - and that includes tax law. If one class can
be exempted
                        from taxes on the basis of class, rank, or
wealth, then that same group can be singled out later for extra taxes on
                        same basis, depending merely on the political
majority at the time. The principle of taxing those with wealth at a
                        higher rate than others must have seemed
harmless at the time - perhaps even humanitarian - but it was destined
                        fester into a huge boil that would torment
Americans for many generations to come.

                        All of these issues aside, the fact remains that
the first direct tax in the United States was entirely constitutional.
                        Congress had stated the purpose and the amount.
It had been debated and passed. Most important, once collected,
                        the tax would expire. In spite of these
constraints, however, the tax met with considerable resistance and, in
fact, soon
                        led to a second revolt, this one among German
settlers along the Eastern Seaboard. Pennsylvania's quota of the $2
                        million tax was $273,000, which fell mainly on
land and houses. The valuation of houses was estimated by counting
                        the number and size of windows, a practice
inherited from England. But when the tax assessors arrived, the German
                        residents thought they were reviving the hated
European hearth tax. They organized into small bands and set out to
                        assault the assessors and drive them from the
district, which they did in short order. When some of the rebels were
                        arrested and put into prison, an auctioneer
named John Fries led a march on the courthouse and freed them.
                        President John Adams once again called out the
militia. Fries was captured, tried, and convicted of treason, but later
                        received a presidential pardon.

                        Early Decentralization

                        By the time Thomas Jefferson became President,
the nation had already experienced two uprisings over taxes - small
                        to be sure, but revolts nonetheless. Hamilton
and Adams had wanted to forge ahead with a powerful central
                        government, and for this they needed revenue.
The political tide now turned back to Jefferson's views of limited
                        government. In his first Annual Message,
Jefferson urged repeal of all internal taxation and a return to a
reliance on
                        tariffs alone. He said:

                        Considering the general tendency to multiply
offices and dependencies and to increase expense to the ultimate term
                        of burden which the citizen can bear, it
behooves us to avail ourselves of every occasion which presents itself
                        taking off the surcharge; that it may never be
seen here that, after leaving to labor the smallest portion of its
earning on
                        which it can subsist, government shall itself
consume the whole residue of what it was instituted to guard.

                        Jefferson was not just making a speech to please
the voters. He followed through. He cut government spending to the
                        bone and even put much of the Navy into drydock.
Meanwhile, Treasury receipts from tariffs were growing rapidly with
                        the expanding nation. Lower taxes left the
consumer with more money to buy imported goods. Jefferson proved his
                        point. At the end of his term, the government
actually had a surplus and had accelerated repayment of the federal debt
                        - all as a result of tariffs alone.

                        The second time a direct tax was levied in
accordance with the apportionment requirements of the Constitution was
                        1813, principally to pay for the War of 1812.
Another direct tax was assessed two years later for the same purpose.
                        The first was for $3 million and the second for
$6 million. The terms of assessment and proportion among the states
                        were similar to those of the first revenue act.
One interesting variation, however, was that the states were given the
                        option of levying the tax entirely on their own
according to whatever method of distribution they wished, saving the
                        federal government the expense of administering
the project. The states could take a 15 percent discount if they paid
                        within six months, and a ten percent discount if
they paid within nine months.

                        The first part of the 19th century was a period
of great growth and prosperity for the United States. Excise taxes had
                        been repealed, and the debts of war had been
repaid. By and large, the central government was weak regarding
                        internal affairs, which meant that the people
were strong. The bureaucracy stayed out of the way and let Americans
                        get on with their lives. Commerce flourished,
wealth was created, and the standard of living for the common man
                        soared. The Old World watched in amazement and
envy. Then, with the War Between the States, the long retreat from
                        greatness began.

                        With the outbreak of war between the northern
and southern states, there was urgent need on both sides for massive
                        armies and equally massive funding. In the
South, almost the entire amount was raised by fiat money - paper bills
                        no backing in gold or anything of tangible
value. In the North, however, Congress struggled to raise revenue in
                        accordance with the Constitution. War was
exactly the kind of "exigency" foreseen by the Founding Fathers when
                        established the principle of apportionment. So
on August 5, 1861, Congress enacted the nation's fourth direct-tax
                        revenue bill for the stated amount of $20
million. It was similar to the previous bills except that this time
slaves were no
                        longer taxed as property - only land,
"improvements," and dwellings. The big departure, however, was that it
                        contained a provision to tax incomes. Congress
did not like the idea of having to get taxes on a piecemeal basis. It
                        wanted a continual flow of income without having
to justify its specific purpose and without stated amounts. It looked
                        for a way to bypass the apportionment process.

                        But how? All direct taxes had to be apportioned.
That is what the Constitution mandated. The solution was easy:
                        Since an excise tax is an indirect tax and does
not have to be apportioned, they simply redefined the income tax as
                        an excise tax.

                        The "excise" tax was a flat three percent of all
income over $800 a year. Considering that the per capita income at
                        that time was only about $150, that was a
substantial exemption. Putting aside the merits or demerits of an income
                        tax in general, we are dealing here with the
concept of exemptions from that tax. This is, once again, the feudal
                        tradition of noblesse oblige, but under a
slightly different form. It is directly contrary to the concept of
taxation with
                        representation. If some are exempt from the tax,
for whatever reason, and if they continue to have representation, then
                        those who do pay it are denied an increment of
consent and representation which is in direct proportion to the

                        Inflation Tax

                        In retrospect, the war-emergency income tax
proved to be a relatively unimportant source of revenue. By far the
                        greater part came from government debt and fiat
money, which, incidentally, also was contrary to clear provisions of
                        the Constitution. The Lincoln Administration
raised a total of about $2.7 billion in bonds and "greenbacks." The
                        tax on property pulled in about $17 million. The
income tax, over the ten-year period it remained in force, raised about
                        $347 million. Wars are seldom financed out of
tax revenue alone. Inevitably, they are funded by government debt, the
                        monetization of which causes inflation - a form
of taxation few people understand. Americans in the northern states
                        paid, in addition to the property tax, a hidden
tax of a full one-half of all their savings as a result of a 50 percent
                        in the purchasing power of their money during
that period.

                        America's first income tax was sold to the
citizens as a temporary necessity, a wartime emergency. As such, it
                        contained a date for its own termination. As is
often the case in such matters, Congress managed to extend it a few
                        years longer, but it finally did expire in 1872.
By this time, however, the theories of Karl Marx were sweeping through
                        the intellectual and educational institutions of
America, and the populists were capturing political power. Politicians
                        dreamed longingly of a permanent income tax
because of the bountiful stream of revenue that would flow from it. But
                        the masses also were fascinated with the
progressive - or "graduated" - feature because it gave expression to
                        envy of the rich and salved their sense of hurt
over high protective tariffs. Senator William Peffer of Kansas expressed
                        this prevailing mood:

                        Wealth is accumulated in New York, and not
because those men are more industrious than we are, not because they
                        are wiser and better, but because they trade,
because they buy and sell, because they deal in usury, because they
                        reap in what they have never earned, because
they take in and live off what other men earn.... The West and the South
                        have made you people rich.

                        High Court Spike

                        With pressure from both the public and the
politicians for a progressive income tax, who could stand in the way?
                        five men did do exactly that. They were Justices
of the Supreme Court.

                        In 1893, President Grover Cleveland jumped on
the populist bandwagon, asking Congress to lower tariffs and make
                        up for lost revenue by taxing the income of
corporations. The bill was expanded to include personal incomes as well
                        and passed through Congress the following year.
Before it even went into effect, however, it was declared
                        unconstitutional by the Supreme Court. In the
case of Pollack v. Farmer's Loan and Trust Co., the High Court
                        declared that a tax is not lawful if it is
levied on income from investments, because that would be the same as a
tax on
                        property. As such, it is a direct tax, which
according to the Constitution must be levied in accordance with the rule

                        At the time of this ruling, the populists were
in firm control of the Democratic Party and were making inroads into the
                        Republican ranks as well. They castigated the
Supreme Court as a tool of the rich and an enemy of the people.
                        President Theodore Roosevelt advocated a
progressive inheritance tax in 1906, and in his 1908 message to
                        Congress called for a new income tax, suggesting
that it be worded in such a way as to prevent the Supreme Court
                        from striking it down. When William Howard Taft
became President, the political winds were at gale force. It was no
                        longer a question of if an income tax was to
become law, only of how.

                        In April 1909, Senator Joseph Bailey, a wealthy
Democrat from the South, introduced an income tax bill that he
                        expected to be opposed by the Republicans. But
the Republicans decided to steal the show by introducing a plan of
                        their own. Under the leadership of Senator
Nelson Aldrich of Rhode Island, and with the help of President Taft
                        they proposed an amendment to the Constitution
as a means of circumventing the Supreme Court. It is sometimes
                        claimed that these men were secretly opposed to
an income tax and resorted to this stratagem merely to appease
                        populist sentiment, while hoping that the
amendment would never be ratified by three-fourths of the states. There
                        ample reason, however, to believe that they
proposed the amendment because they truly wanted it.

                        Aldrich, in particular, is highly suspect in
this role. His daughter, Abbey, was married to John D. Rockefeller Jr.,
                        Aldrich was the man who arranged the secret
meeting on Jekyll Island in Georgia in November 1910 that led to the
                        creation of the Federal Reserve System. He also
played a pivotal role in making sure that the income tax law did not
                        apply to foundations. This made it possible to
shift the tax burden to the middle class by allowing tax-exempt status
                        the great fortunes of such families as
Rockefeller, Morgan, Carnegie, and Aldrich.

                        A Modern Serfdom

                        At the very least, it must be concluded that
these men, sensing the unstoppable clamor for a soak-the-rich income
                        decided to run to the head of the parade, lead
it away from Wall Street, and render the law harmless to themselves
                        and their friends. It is not paranoia, however,
to sense that there was more to it than that. It is quite possible that
                        represented a cabal of monetary and political
scientists that planned the entire scenario and even helped create the
                        public clamor that would serve as an excuse for
their action. Their objective, in this more sinister view, would have
                        been the creation of a modern serfdom with
themselves as lords and masters. The serfs would be convinced of their
                        self-importance by the delusions of
representative government and the socialist tax that they honestly
believed was to
                        their benefit. The age-old dream of contented
serfs would at last be realized.

                        The Senate approved the 16th Amendment by an
astounding vote of 77 to zero! The House followed suit with a roll
                        call of 318 to 14. The measure then went to the
states for ratification. On February 12, 1913, the 42nd state voted for
                        approval, and the following words became a part
of the United States Constitution:

                        The Congress shall have power to lay and collect
taxes on incomes, from whatever source derived, without
                        apportionment among the several States, and
without regard to any census or enumeration.

                        Casting the Die

                        The 16th Amendment was sold to the people with
solemn assurance that the income tax would be simple to compute,
                        fair to all, and would never apply to any part
of a person's income needed to sustain a decent standard of living. It
                        generally understood that only very large
incomes derived from investments would be taxed, not the wages of the
                        working man. That was, of course, a farce. The
very first federal tax form issued in 1913 listed wages and salaries as
                        income on which tax was to be paid.

                        The first tax was delicate by today's standards.
After a whopping exemption on the first $4,000 of family income, the
                        government took only one percent of the first
$20,000, two percent at $50,000, and the highest rate was seven
                        percent on incomes in excess of $500,000. These
were all astronomical incomes in 1913, so it was only the very
                        wealthy who paid any tax at all.

                        But the die was cast. Now that the federal
government had a direct and perpetual access to the wealth of its
                        and no longer had to justify its financial needs
through specific revenue acts, its spending began to rise like a hot-air
                        balloon. With each round of spending came a
reduction in the amount of exemptions, an increase in the tax rate, and
                        a compounding of the complexity. At first it was
the incomes of corporations; then of the very wealthy; then of the
                        well-provided widow and the highly paid worker;
and finally the wages of the janitor and the tips of waitresses.

                        No one in America fully understands the
constantly changing Internal Revenue Code. Agents of the IRS do not,
                        do not, congressmen do not, and most assuredly
taxpayers do not.

                        When one considers the complexity of the tax
code and the astronomical expense of operating the IRS itself, it is
                        obvious that every other tax that has ever been
tried in history is easier to compute and more efficient to collect than
                        the income tax. And every time there is a tax
"reform" bill rushed through Congress, the tax code always seems to
                        emerge more complex and unfair than before. It
is the nature of the beast.

                        The result of this reality is aptly described in
the beginning of Prentice Hall's booklet, Research in Federal Taxation.
                        Under the heading, "Opportunities Unlimited," it

                        Today's tax professionals face the prospect of
the most promising future in the history of their profession.... With
                        passing year the federal tax laws affect
American business and the individual taxpayer more and more. No
                        businessperson, however expert in the business
practices, can do without a tax advisor. He or she needs help on
                        business transactions that have tax
implications, because many daily business decisions are regulated to a
                        by the tax consequences and results. And the
great majority of taxpayers are becoming increasingly aware of the
                        impact of the federal tax on their income and
personal wealth. Their investments, provisions for retirement, wills,
                        business-connected (or sometimes even personal)
expenditures require tax planning.

                        America has become infested with a swarm of tax
professionals who are a drain on every business and private
                        transaction that occurs. A significant part of
everything we purchase goes to pay for a vast workforce of bookkeepers
                        and accountants who must maintain reams of
records to substantiate every cost of doing business, while producing
                        nothing to expand the physical or cultural
well-being of the nation.

                        Retarding the Economy

                        In the long run, any income tax, even one that
is based on the same percentage for everyone, will serve to lessen the
                        incentive to produce and, thus, will retard the
nation's economic growth - which, in turn, will lower everyone's
                        of living. One of the most powerful advocates of
this idea in 1879 was Henry George, better known for his advocacy of
                        a single tax on land. We do not have to agree
with his thesis on the single tax to appreciate the wisdom of his
                        opposition to a direct tax on income or personal
property. In his treatise Progress and Poverty, George wrote:

                        If I have worked harder and built myself a good
house while you have been contented to live in a hovel, the taxgatherer
                        now comes annually to make me pay a penalty for
my energy and industry by taxing me more than you. If I have saved
                        while you wasted, I am [milked] while you are

                        If a man built a ship, we make him pay for his
temerity as though he had done an injury to the state; if a railroad be
                        opened, down comes the tax collector upon it as
though it were a public nuisance.... We punish with a tax the man
                        who covers barren fields with ripening grain; we
fine him who puts up machinery and him who drains a swamp.

                        To abolish these taxes would be to lift the
whole enormous weight of taxation from productive industry.... The state
                        would say to the producer, "Be as industrious,
as thrifty, as enterprising as you choose. You shall have your full

                        Since the income tax was created in 1913, it has
been a long, bumpy ride and the American people have been jarred
                        into a state of annoyance. We no longer are
misty-eyed over political rhetoric that promises a utopia to be paid for
                        someone else. We have learned the hard way that
there is no free lunch. Our "lunch," in fact, has cost us a fortune.

                        It has been necessary to review some history and
taxation theory in order to come to an understanding of how we got
                        to where we are and, most important, to learn
from the mistakes of the past. Hopefully the information presented here
                        will help crystalize the thinking of those who
are opinion leaders. But specific proposals must be constructed in such
                        way as to have broad, immediate appeal to the
American public. With that objective in mind, let us turn, finally, to
                        now must be done to restore tax sanity to our

                        Presidential candidate Steve Forbes has made his
"flat-tax" plan a major campaign issue. A flat-rate income tax is
                        certainly an improvement over a graduated income
tax. But if a flat-rate tax were adopted, it still would be a direct tax
                        and would still allow Congress to have continual
access to our pocketbooks without ever having to explain or justify
                        why it needed the money. Tax reform will never
become a reality until Congress is once again required to live within a
                        modest means - as would automatically happen if
it had to depend only on indirect taxes - or, if extraordinary revenue
                        is wanted, to specify the exact amount and to
justify it in a specific revenue act.

                        Eliminate the Income Tax

                        The flat-tax plan is not the answer. What we
need is to follow the greatest proposal for tax reform the world has
                        seen, and it is already in our Constitution.
What we need is to take the chains off the rule of apportionment and put
                        them back where they belong, on the Congress of
the United States. What we need is to repeal the 16th Amendment.

                        This single act would accomplish almost
everything the current proposals for tax reform claim to seek. For the
                        time since 1913, the federal government would
have to prepare a realistic budget, because it would no longer be able
                        to rely on an ongoing, limitless supply of
revenue. Like the rest of us, it would have to live within its means,
                        would be from indirect taxes only. If it
exceeded this budget, it would have to face the voters with a specific
request for
                        a specific amount on a specific date. It is
difficult to conceive of a more effective plan for trimming the scope
                        reach of the federal bureaucracy. It would be
necessary to scrutinize the budget to try to discover the hidden
                        boondoggles and subsidies. Cut back the funds,
and these automatically would wither away. The rule of
                        apportionment is the only realistic answer.

                        Yes, we are talking about the elimination of the
income tax. Many people would naturally ask, "But where would the
                        money come from to run the government?" This
question presupposes that all the money the federal government now
                        receives is necessary. The reality is that - if
we were to cut out the waste, subsidies, foreign giveaways, transfer
                        programs, interest on the national debt,
transfusions into the International Monetary Fund, and support for the
                        Bank, plus the cost of running the IRS itself -
the federal government could easily operate, as it was intended to do,
                        indirect taxes alone. Many important sources of
revenue would not be affected by apportionment, most specifically
                        tariffs (for revenue only, not for subsidizing a
politically favored industry) and such excises as a gasoline tax for the
                        maintenance of roads, fees for admission to
national parks, postage stamps for the operation of the post office, and
                        similar items. It is totally workable.

                        *  Although sometimes referred to as a populist,
Patrick Buchanan's position for protectionist tariffs runs contrary to
                        the turn-of-the-century populists, who wanted to
replace tariffs with an income tax.

Source:  April 1, 1996 issue of The New American


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