-Caveat Lector- ~~for educational purposes only~~ [Title 17 U.S.C. section 107]
A short, sad history of taxation By John Seiler America was born in a tax revolt. The founders decried "taxation without representation." On Dec. 16, 1773, revolutionaries in Boston dumped tea into the harbor rather than let the British collect taxes on it. On July 4, 1776, the Declaration of Independence was signed, charging of King George III, "He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance." The new Constitution of 1787 severely limited taxation, basically allowing only small import duties - a fiscal constraint designed to prevent the federal government from growing too large. The states were free to use internal taxation, such as property and sales taxes, as they saw fit. The Civil War changed that when President Lincoln imposed the first income tax to help pay for the Union war effort. After the war, the tax lingered until several court cases, such as Pollock v. Farmers' Loan and Trust Co. in 1895, ruled it unconstitutional. Unfortunately, the 16th Amendment, ratified in 1913, allowed, "The Congress shall have power to lay and collect taxes in incomes, from whatever source derived ... ." The new tax promptly plunged the country into the recession of 1913-14. Revival came with U.S. industries providing war goods to the European combatants in World War I, which began in 1914. American involvement in the war in 1917 depended on using the new income tax to pay for soldiers and armaments. The income tax first was imposed mainly only on the rich, with the top rate being 7 percent on income more than $500,000 (about $10 million in today's money). But it taxed such fellows as Edison and Ford, meaning they had less money to invest in their inventions and factories. Two world wars, the New Deal and Great Society welfare programs and new regulatory agencies vastly expanded the government, so the middle class and the poor eventually had to be included, bringing us today's pervasive, confiscatory, x labyrinthine tax code. Although the poor today don't pay an "income tax," they do pay the 15.3 percent payroll tax for Social Security and Medicare (including the half of that tax supposedly paid by the "employer" but actually paid by the employee), which in reality is an income tax at twice the rate rich people paid in 1913. The IRS today has vast powers to confiscate wealth without a jury trial, to investigate any person or corporation, and to fine or jail those it considers offenders. Tax rationalizations Taxation supporters offer any number of reasons why we need high taxes: Taxes support government programs that protect or improve society. Death, or estate taxes, are an economic equalizer that keep hardened classes from forming. Most crassly, politicians use their proceeds to demonstrate effectiveness, bring government projects to their hometowns as pork projects, and thus win re-election. This is not, as you may have guessed, what the founders had in mind. One practical problem is that taxes, like government programs, are rarely sunsetted. The "temporary" 3 percent federal telephone excise tax was first imposed in 1898 to pay for the Spanish-American War, but is still on the books because President Clinton vetoed a repeal in 2000. The California public safety sales tax increment was made permanent in 1993. Philosophically speaking, a growing tax burden is an anathema to a free society. Taking nearly 50 percent of a person's labor - often for programs the person might object to strongly - is what the Declaration called "a long train of abuses and usurpations" of the liberties of a free people. It is despotism by taxation. Another problem is that government has no competition. Few people can opt out of Social Security, Medicare or other expensive programs. Without competition, government programs become bloated and inefficient, protecting their own turf instead of serving the people they're supposed to. Taxation and growth There's also a connection between taxation and economic growth. The income tax was, of course, but one factor in growth or recession; but it always was a factor. How do taxes affect growth? During the economic slowdown of 1960, candidate John F. Kennedy promised "to get America moving again." His tax cut proposal, enacted in 1964 just after his death, cut the top tax rate to 70 percent from 90 percent. That helped spark the boom of the late 1960s. Unfortunately, his successors, Presidents Johnson and Nixon, spent lavishly on the Vietnam War, the Great Society welfare state and the Apollo moon program. This brought about a 10 percent income tax surcharge passed in 1968 and inflation that pushed people into higher tax brackets, the notorious "bracket creep" of the 1970s, bringing "stagflation" through most of that decade. Late in the decade people finally had enough of inflation and taxes. The Proposition 13 tax revolt in California in 1978 ignited anti-tax fever across the land. After becoming president in 1981, Ronald Reagan cut taxes, dropping the top rate eventually down to 28 percent in 1986. He also reappointed Paul Volcker as Fed chairman, providing some check on inflation. Except for the recession of 1990-91 (following the Bush tax increase) and a small slump late last year (following state tax increases and other problems), the United States has enjoyed fairly steady growth. What about the current stock market decline? It still hasn't produced another recession and it is unclear if the economy will follow the market, or the other way around. One burden on the market is additional state tax increases earlier this year (which I wrote about in my June 23 Commentary story, "States of Taxation"), fluctuations in the dollar's value, President Bush's weak tax cuts last year - which expire in eight years, making planning difficult - and of course the corporate accounting scandals. Taxes hurt When I was in Sacramento last month, I was not surprised but still dismayed watching Democratic senators, such as Senate President John Burton, D-San Francisco, blithely propose tax increases as if there would be no ill effects either on the economy at large or families in particular. Burton said it was like a business taking out a loan. Hardly. A business loan is voluntary - and the lender gets his money back, with interest. By contrast, a tax increase means families rich and poor have less money to spend and invest, either in their own homes or in businesses. That means fewer jobs and a slower economy. It also means less freedom. The taxpayer is forced to give up his money for something he wouldn't pay for on his own, indeed for something he may vigorously oppose. He is forced to spend many hours or days a year filling out complex tax forms and worrying about a fine or a prison sentence. The history of American taxation since the 1913 income tax was imposed is clear: The founders were right to loathe it and patriots should seek to abolish it. As in 1776, taxation is tyranny. <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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