“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.” 16th Amendment to the U.S. Constitution
Well, it has been almost a month since tax day. A month since my husband and I waited until the last minute to file, since we owed the government money. A month since that final gulp, when we pressed the “send” button, and multiple hour’s worth of paperwork and annual income was on its way to the IRS. I grow weary of this dance every year, and resentful of how many hours of my labor are forced to line the coffers of that incompetent steward called the United States government. Currently 17% of my earnings go to the federal government in income, social security, and Medicare taxes. I pay 17%, yet GE pays nothing? There has to be a better way to get the basic necessities (notice I said basic) that the government needs to run without going into debt or hindering economic growth. Over the next couple weeks I will explore two different proposed ideas regarding changes to the income tax, but first, a little history.
Under the US Constitution, the government was authorized to impose 2 different types of taxes. The first, under Article 1, §8, cl. 1, are indirect taxes (excises, duties and imposts) which must be uniformly imposed throughout the country. The second, under Article 1, §2, cl. 3 and Article 1, §9, cl. 4, are direct taxes, which are to be imposed by the regulation of apportionment. Apportionment means that each state gets a number appropriate to its population. For example, Representatives are apportioned among the states, with the most populous getting the greater share. Direct taxes were to be charged to the states in this manner as well.
From 1791 thru 1802, the US only taxed alcohol, carriages, sugar, tobacco, property sold at auction, corporate bonds and slaves. After the War of 1812, America saw the first taxes on gold, silverware, jewelry and watches. But in 1817, all taxes were done away with, except those tariffs imposed on imported goods (wow, how did they ever manage?) Then, in 1861, the US government imposed its first personal income tax in and effort to help fund the American Civil war (3% on all incomes over $800, or $17,900 in 2010 dollars). In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. However, in 1895 The Supreme Court declared in unconstitutional (Pollack v. Farmers’ Loan & Trust Co.) because they considered it to be a form of direct tax, and direct taxes could only be levied via apportionment. In an attempt to circumvent this decision, Congress passed the 16th Amendment in 1909 (quoted above), which was then ratified by the states in 1913.
As we all know, once government gets a taste of an additional source of revenue, they get greedy for more. In 1913 the income tax was only 1% on net incomes of $3000 or more ($68,100), with a surtax of 6% on incomes of $500,000 ($11.4 million) or more. By 1945 the income tax was 94% on incomes over $200,000 ($2.4 million). In 1942, FDR even tried to impose a 100% income tax on salaries over $25,000 ($334,000) via Executive Order, but it was later rescinded by Congress. Today, our income tax not only includes earned income, but also investment, interest, and inheritance. A once simple tax has morphed into a monster 60,000 page labyrinth that has shackled the ordinary populace, shattered transparency, increased inefficiencies, encouraged corruption, and empowered the elite in Washington. It is ok to dislike paying taxes, but American citizens should never have to fear and agonize doing them.
Critics of the income tax have said that it discourages savings and investment, penalizes those who work hard, hinders economic growth and damages international competitiveness. Since income taxes are not border adjustable – meaning that the tax component imbedded in the retail price of goods cannot be removed when goods are exported – American companies are put at a disadvantage when goods are made here. Is there any wonder that so many move overseas? And what about those small businesses who cannot afford to move, pay an expensive tax attorney or hire a lobbyist to create loopholes to avoid taxes? How is the current system fair to them? Or to the 49% of us that actually still pay federal income tax?
I think it’s time to start thinking outside the box.
“Sending money to Washington to have it administered and sent back is like getting a blood transfusion from your right arm to your left arm with a leaky valve.” Ernest Hollings (b. 1922), U.S. Senator from South Carolina (1966-2005)