THE HISTORY OF TAXATION
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| Marx & Engles |
A friend of mine made the comment that "I oppose a flat tax because it implies that someone who earns $30,000 has the same ability to pay as someone who makes $100 million and they don't" Personally I favor a consumption tax but I would settle for a flat tax. I absolutely hate the graduated income tax which I believe has done a vast amount of damage to this country. Karl Marx advocated it as a way of pushing capitalist society to it's inevitable demise. Before I get into the flat tax or consumption tax I want to explain the history of the graduated income tax. Before the Civil War taxes were collected through various means. A direct tax of the people, such as an income tax was unconstitutional. Article 1 Section 8 of the Constitution reads The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.
Abraham Lincoln violated the Constitution, as he did on several occasions during the war by imposing the first graduated income tax in 1862. I consider Lincoln to be our second greatest president behind Washington but he would justify his income tax as a war measure in order to finance the war. In the same way that suspending Habeas Corpus and the Emancipation Proclamation were war measures. This tax confiscated 3% of incomes between $600 and $10,000 and 5% on those making higher than 10,000. By 1863 the Confederacy would also impose an income tax. Lincoln's tax would go away by 1875. After the war tariffs and excise taxes were bringing in enough revenue to run the government. The government was running surpluses which allowed them to pay down much of the government debt. The general public complained that the higher costs of goods disproportionately affected the poor. The same argument my friend is making with the flat tax. Because of the rise of the progressive movement and the desire to spread the wealth from the haves to the have not's the government tried to reimpose a graduated income tax in 1894. The Supreme Court correctly interpreted the Constitution and struck down this new law. The progressives then went to work to amend the Constitution.
There was a recession in 1907 and a greater push was made to impose a graduated income tax. Finally in 1913 the graduated income tax became law through the passage of the 16th Amendment. James Madison warned about the dangers of a graduated income tax when he said “The spirit of party and faction would prevail if Congress could tax one group of citizens and confer the benefits on another group. Richard Byrd, the Speaker of the Virginia House of Representatives said prophetically "A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house." The progressives sold the income tax to Americans by saying that only 7% of the wealthiest Americans would be effected by it. Americans making 4,000 dollars a year and above would be taxed. This is the equivalent of 80,000 dollars a year today.
Justice Stephen Field, who voted to strike down the 1894 income tax law hit the nail on the head. He said, "A small progressive tax will be but the stepping stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich.” His prophetic words would come true during WW1 under Woodrow Wilson. Hoover and Roosevelt raised the top rate from 24% to 63% through the depression and later into WW2. Calvin Coolidge had lowered Wilson's top rate to 24% and created a surplus. The 1920's under Coolidge was one of the most prosperous periods in history. Later in WW2 Roosevelt raised the top rate to 79 percent and eventually to 90 percent. He proposed a 99.5 percent marginal rate on all incomes over $100,000 in 1941 but this was voted down. Incredibly he signed an executive order taxing all incomes over 25,000 dollars a year at 100%. Congress voted this down also and he finally had to settle for 90%.
Abraham Lincoln violated the Constitution, as he did on several occasions during the war by imposing the first graduated income tax in 1862. I consider Lincoln to be our second greatest president behind Washington but he would justify his income tax as a war measure in order to finance the war. In the same way that suspending Habeas Corpus and the Emancipation Proclamation were war measures. This tax confiscated 3% of incomes between $600 and $10,000 and 5% on those making higher than 10,000. By 1863 the Confederacy would also impose an income tax. Lincoln's tax would go away by 1875. After the war tariffs and excise taxes were bringing in enough revenue to run the government. The government was running surpluses which allowed them to pay down much of the government debt. The general public complained that the higher costs of goods disproportionately affected the poor. The same argument my friend is making with the flat tax. Because of the rise of the progressive movement and the desire to spread the wealth from the haves to the have not's the government tried to reimpose a graduated income tax in 1894. The Supreme Court correctly interpreted the Constitution and struck down this new law. The progressives then went to work to amend the Constitution.
There was a recession in 1907 and a greater push was made to impose a graduated income tax. Finally in 1913 the graduated income tax became law through the passage of the 16th Amendment. James Madison warned about the dangers of a graduated income tax when he said “The spirit of party and faction would prevail if Congress could tax one group of citizens and confer the benefits on another group. Richard Byrd, the Speaker of the Virginia House of Representatives said prophetically "A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house." The progressives sold the income tax to Americans by saying that only 7% of the wealthiest Americans would be effected by it. Americans making 4,000 dollars a year and above would be taxed. This is the equivalent of 80,000 dollars a year today.
Justice Stephen Field, who voted to strike down the 1894 income tax law hit the nail on the head. He said, "A small progressive tax will be but the stepping stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich.” His prophetic words would come true during WW1 under Woodrow Wilson. Hoover and Roosevelt raised the top rate from 24% to 63% through the depression and later into WW2. Calvin Coolidge had lowered Wilson's top rate to 24% and created a surplus. The 1920's under Coolidge was one of the most prosperous periods in history. Later in WW2 Roosevelt raised the top rate to 79 percent and eventually to 90 percent. He proposed a 99.5 percent marginal rate on all incomes over $100,000 in 1941 but this was voted down. Incredibly he signed an executive order taxing all incomes over 25,000 dollars a year at 100%. Congress voted this down also and he finally had to settle for 90%.
One of the reasons that I hate a graduated income tax is that it fulfills Madison's warning. The spirit of party and faction would prevail. Politicians are able to reward who they want to and they punish who they want to. The Federal treasury was used by Roosevelt to reward silver miners, farmers (being paid not to plant crops), and the Tennessee Valley by building dams and providing cheap electricity. Roosevelt dealt with his enemies like Huey Long, and William Randolph Hearst by auditing them. We have seen how the Tea Party and other Conservative groups were neutered by Obama during the 2012 campaign when they were investigated and harassed by the IRS. Churches are threatened with losing their tax exempt status if their sermons do not meet with Obama's standards of political correctness. James Couzen's, an avid Roosevelt supporter said, “Give me control of the Bureau of Internal Revenue and I will run the politics of the country.” The IRS is much like the issue of illegal immigration because both parties benefit from it. Democrats want illegals for their votes and Republicans want them for the cheap labor. This is why nothing can be done about illegal immigration. When Nixon was picking a IRS commissioner he said “I want to be sure that he is . . . ruthless . . . that he will do what he is told, that every income-tax return I want to see, That he will go after our enemies and not go after our friends. It is as simple as that.”
This is one reason that I will probably not see real tax reform in my lifetime because, like illegal immigration, both sides benefit from the graduated income tax. The income tax is a revenue stream that provides opportunities for waste and corruption. The absolute worse curse that was ever placed on the American taxpayer was payroll deductions. The first was tried after the passage of the 16th Amendment from 1913 until 1917 but it was repealed because of employer complaints. After the passage of the Social Security Act in 1935 it was reenacted. Because of the cost of waging WW2 the Current Tax Payment Act was passed in 1943. This has been a curse because Americans have become so accustomed to taxes being automatically withheld from their check that they don't feel the pain. If they had to save that money themselves to pay at the end of the year the unwashed masses would converge on Washington D.C. with pitchforks. This is because the middle class, who are not the top 7% as it was originally designed, are paying taxes in addition to the wealthiest Americans. When you figure in Federal, State, and local taxes, American taxpayers are paying at least 50% or more of their income to one form of government or the other. A growing percentage of people are not paying taxes at all. That is if they are below a certain income level. I do not consider this to be fair. If you have children you are getting back money that you never paid in. Which is nothing but welfare and the rest of us are paying your way.
If the marginal tax rate was drastically cut and taxes like capital gains and corporate taxes were abolished the economy would take off like a rocket. How do you tax a corporation? They just pass the costs on to the consumer. We have the highest corporate taxes in the world. This is why Burger King moved to Canada. Of course you would have to throw in smart deregulation, along with controlling the money supply. Abolish Obamacare and replace it with a common sense safety net. These things would create jobs and put the unemployed and underemployed back to work. We must work to remove uncertainty from our economy. Certainty is the best thing that you can do for an economy. I am sick of class warfare and class envy in this country because I never got a good job from a poor man.
This is one reason that I will probably not see real tax reform in my lifetime because, like illegal immigration, both sides benefit from the graduated income tax. The income tax is a revenue stream that provides opportunities for waste and corruption. The absolute worse curse that was ever placed on the American taxpayer was payroll deductions. The first was tried after the passage of the 16th Amendment from 1913 until 1917 but it was repealed because of employer complaints. After the passage of the Social Security Act in 1935 it was reenacted. Because of the cost of waging WW2 the Current Tax Payment Act was passed in 1943. This has been a curse because Americans have become so accustomed to taxes being automatically withheld from their check that they don't feel the pain. If they had to save that money themselves to pay at the end of the year the unwashed masses would converge on Washington D.C. with pitchforks. This is because the middle class, who are not the top 7% as it was originally designed, are paying taxes in addition to the wealthiest Americans. When you figure in Federal, State, and local taxes, American taxpayers are paying at least 50% or more of their income to one form of government or the other. A growing percentage of people are not paying taxes at all. That is if they are below a certain income level. I do not consider this to be fair. If you have children you are getting back money that you never paid in. Which is nothing but welfare and the rest of us are paying your way.
If the marginal tax rate was drastically cut and taxes like capital gains and corporate taxes were abolished the economy would take off like a rocket. How do you tax a corporation? They just pass the costs on to the consumer. We have the highest corporate taxes in the world. This is why Burger King moved to Canada. Of course you would have to throw in smart deregulation, along with controlling the money supply. Abolish Obamacare and replace it with a common sense safety net. These things would create jobs and put the unemployed and underemployed back to work. We must work to remove uncertainty from our economy. Certainty is the best thing that you can do for an economy. I am sick of class warfare and class envy in this country because I never got a good job from a poor man.
Now that we know the evils of a graduated income tax lets talk about a flat tax. Things have changed since the 1800's. I get that. We are an entitlement society and many of these could be safely reformed or abolished. We can't go back to just tariffs and excise taxes to pay our way. A flat tax would be acceptable to me. It would at least eliminate most of the above mentioned problems associated with the graduated income tax. I look at the flat tax like this. If someone gives me a 10% discount card to Wal-Mart and I buy a 60.00 dollar boom box I will save six dollars. If Donald Trump buys a 1,000 dollar flat screen TV he is going to save 100 dollars. How is that not fair? Spending that 60.00 dollars is more painful to me than a 1000 dollars is to Trump but who cares? How can you be fairer that that? Just because he is rich doesn't mean that he doesn't have the right to a ten percent discount. I believe in trickle down economics. Tell me a time when we haven't had a pyramid of power. There will always be people at the top. All I ask is to live in a society where my talents and hard work can take me to the top. If hard work was all it took to get me to the top then I would be there. I have worked hard all of my life. It takes more than that and I blame nobody but myself for not being at the top of the pyramid. Your chances of rising to the top are much greater in a capitalist society than in a socialist society.
I praise God that I was born in the greatest country in the world but I fear for it's future, partly because we cannot get our economic house in order. My tax of choice would be a consumption tax. It is a durable tax in that even during recessions and depressions people still have to buy things. If people are not working they can't pay income taxes but they have to buy commodities and necessities. Drug dealers, prostitutes, and workers that are paid under the table will still buy things and a consumption tax will bring in revenue that an income tax will miss. Rich people have to pay a consumption tax. Tax everything at a lower rate. When I say everything I am talking about newspapers, haircuts, commodities etc. In conclusion I am not so much worried about what is fair as I am about removing obstacles to success.
What people fail to realize about the rich is that their wealth gives them options that most of us don't have. If the wealthy and corporations are taxed too much they can just move out of the country. Whoopi Goldberg or Alec Baldwin can leave the country and take their money with them if they don't like who is elected president. Instead of investing in business or entrepreneurial enterprises the wealthy can just put their money into cars, yachts, mansions etc. This helps a select portion of the economy but not the economy as a whole. Speaking of yachts we all remember how the yacht business was destroyed because Congress imposed a 10% luxury tax in the early 1990's. Yacht companies went out of business in America or moved to other countries. Congress lost not only the 10% luxury tax but the income tax of workers that lost their jobs. People like me.
I praise God that I was born in the greatest country in the world but I fear for it's future, partly because we cannot get our economic house in order. My tax of choice would be a consumption tax. It is a durable tax in that even during recessions and depressions people still have to buy things. If people are not working they can't pay income taxes but they have to buy commodities and necessities. Drug dealers, prostitutes, and workers that are paid under the table will still buy things and a consumption tax will bring in revenue that an income tax will miss. Rich people have to pay a consumption tax. Tax everything at a lower rate. When I say everything I am talking about newspapers, haircuts, commodities etc. In conclusion I am not so much worried about what is fair as I am about removing obstacles to success.
What people fail to realize about the rich is that their wealth gives them options that most of us don't have. If the wealthy and corporations are taxed too much they can just move out of the country. Whoopi Goldberg or Alec Baldwin can leave the country and take their money with them if they don't like who is elected president. Instead of investing in business or entrepreneurial enterprises the wealthy can just put their money into cars, yachts, mansions etc. This helps a select portion of the economy but not the economy as a whole. Speaking of yachts we all remember how the yacht business was destroyed because Congress imposed a 10% luxury tax in the early 1990's. Yacht companies went out of business in America or moved to other countries. Congress lost not only the 10% luxury tax but the income tax of workers that lost their jobs. People like me.
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