[What are taxes?] The greedy hand of government thrusting itself into every corner
and crevice of industry[which] watches prosperity as its prey and permits
none to escape without tribute.
The Rights of Man (1791)
Let us flee to the land of the barbarian
where we may live as free men.
Roman citizen, A.D. 4th cent.
Do not dig a hole for somebody else,
lest you fall in it yourself.
George Orwell once stated there is no such thing as staying out of politics. And taxes are an enduring political issue. The issue of better and fairer taxation for the 21st century will come to the forefront of politics and will be extensively debated up to the presidential election of this year. Moreover, I believe social themes will take a back seat to taxes and fiscal issues because of triangulation by both political parties. Regardless of which party wins Congress and the Presidency, changes to the tax code should be expected: We will get either more of the same socialism we have been getting through the back door; or the American people will wake from their slumber, regain their government, and demand a less intrusive and confiscatory tax code --- which will allow them to keep more of their hard earned money.
Prodding the issue of taxes, syndicated columnist Cal Thomas wrote: The next time there is a debate about taxes, it should focus on what is fair about big government and its demands for our money. Is it fair that tenacious and gifted workers, who play by life's rules, must hand over more than half their income to grasping government? Is it fair that middle-income people pay more than one-third of their earnings to government? Is it fair that government sees itself as our keeper and protector instead of the defender of economic and personal freedom?(1)
Interested readers on this subject of taxation from an historical perspective leading to the present are referred to two excellent books by Charles Adams, a scholar and tax consultant for The Cato Institute in Washington, D.C. These books are For Good and Evil --- The Impact of Taxes on the Course of Civilization(2) and Those Dirty Rotten Taxes --- The Tax Revolts that Built America.(3) While the former was reviewed in the Medical Sentinel,(4) both books are highly recommended and are analyzed in this report. It has been said that the most important office is that of a private citizen and this is particularly à propos with the issue of taxation. Human nature being what it is, it's natural the citizens of this great republic would want to be informed about what --- besides minor tinkering with tax rates, reforming the IRS, etc. --- is coming down the pipes to pick their wallets.
Two options have been discussed on and off since the exploits of the 1994 conservative revolution (i.e., which suddenly fizzled after the government shut down in December 1995). The first option is the possible implementation of a national sales tax, endorsed by House Ways and Means Committee Chairman Bill Archer (R-TX), Reps. Bill Tauzin (R-LA), James Traficant (D-OH), and John Linder (R-GA). This option would eliminate the dreaded, intrusive IRS and could conceivably be implemented by the sales tax machinery already operating at the level of state governments. The second option is the flat tax, different versions of which are promoted by Forbes magazine publisher Steve Forbes and House Majority Leader Dick Armey (R-TX). For his part, Texas Governor George W. Bush, the leading Republican presidential contender, has talked about cutting taxes in general as he has done in Texas, but, as of yet, hasn't disclosed a major tax overhaul plan. Yet, the drive towards altering the tax code has been in progress for the last couple of years and seems irresistible.
The present tax system is not only complex, intrusive and increasingly oppressive, but it also costs taxpayers $6 billion (for the IRS) to enforce and $200 billion (for us) to comply. On June 17, 1998, the House of Representatives passed by a vote of 219 to 209 the Terminate the Tax Code (H.R. 3097) bill sponsored by Rep. Steve Largent (R-OK) and other conservative Republican legislators. This legislation would have abolished the arbitrarily complex federal tax code, except for the Social Security and Medicare taxes by December 31, 2002. It would have called for the adoption of an unspecified and simpler tax code by July 4, 2002.
Unfortunately, the corresponding legislation was derailed in the Senate on July 28, 1998, when it failed to waive the Budget Act by a vote of 49 to 49. (A three-fifths vote of the entire Senate [60 votes] is required to waive the Budget Act.)(5) Then last year, the House also voted 223 to 198 to approve a $792 billion tax cut plan which would also abolish the estate (death) tax, perhaps the most anti-family tax of all for reasons we will discuss later. Unfortunately, President Clinton vetoed this tax cut plan. Perhaps, we should turn to the pages of history and the wisdom of the two aforementioned books, but before we do so we should consider two non-fatal lapses entertained by the author in these otherwise excellent books.
First, because governments have a natural tendency to usurp power, arrogate authority, and infringe over constitutional limits, it does not mean and it does not follow that "we are the inheritors of a flawed constitution with pernicious loopholes."(6) Although Adams corrects his error later on page 211, it must be noted that the alleged loopholes were not there to begin with; rather they were deliberately created by those men James Madison warned us about and for which the impeachment clause (Article II, Section 4) was written into the Constitution. What these usurpations of power require is that the people, as informed and vigilant private citizens, must make sure the Constitution is obeyed and enforced by our elected representatives --- to the full letter and spirit of the Founders. For example, if we deem the Sixteenth Amendment (i.e., authorizing income taxation without apportionment) to be deleterious to our liberties and contrary to our (and the Founders') vision of a limited government, then it should be repealed by the process specifically cited in the Constitution (Article V). Point of fact, the espionage, surveillance and intrusive nature of the IRS, made possible by the Sixteenth Amendment and which threatens every citizen, was not otherwise authorized in the Constitution.
The author's other implied reason for the possible amending of the Constitution --- namely, to follow the old English Parliamentary principle of separation of powers that the body which taxes and collects revenues should not be the same as the one that spends it --- is certainly an interesting and intriguing point that perhaps should be further debated and analyzed by our economists and, of course, our citizens.
Second, Mr. Adams, like most people, refers erroneously to our form of government as a democracy, but then correctly recognizes and laments the fact that a majority of the people could become tyrannical, if given state power and free access to other people's money. Unfair, oppressive, and indeed destructive taxation can ensue when a majority is able to tax a minority to extinction and their wealth to oblivion, even if initiated under the guise of good intentions. This is equally inimical when taxation is sought for redistribution schemes, incited by the politics of envy arising out of the twisted dreams of demagogues lusting for personal wealth and power.(7) Claiming to rule by the power of the majority of the people is why, incidentally, many tyrannical, communist governments call themselves a "people's republic," a "social democracy," or simply a "democracy." Our Founding Fathers, in their wisdom, intended our form of government to be, and created, a Constitutional Republic.(8) Although such terms as mixed or representative democracy have been used by historians and other scholars in the past, it's becoming clear that to eliminate the confusion, we should go back to the terminology of the Founders and call our form of government what it was always intended to be --- a Constitutional Republic.
If anything, in the name of democracy, as in Orwellian doublethink, we may be sliding into an oligarchy of the well-connected, public-private partnerships, not a mass democracy. Mr. Adams correctly quotes Madison in the Federalist (1788) writings "about the 'temptation' in tax making for the majority to 'trample on the rules of justice,' by over taxing of minorities without political clout." Furthermore, Mr. Adams notes, "at work is the Marxian concept of 'ability to pay,' based on arbitrary power to discriminate against the rich."(9) So, Adams atones for his non-fatal sins and does not dwell on what could otherwise have been errors of historic dimensions and regrettable constitutional ramifications.
Be that as it may, as it relates to these enchanting books, and noting these caveats, one would be hard pressed to find better books written in such entertaining and witty fashion, dealing with the history of taxation. Take for instance the momentous issue of the derivation, meaning, and the Founders' view on uniformity and apportionment in taxation, direct and indirect taxes, taxpayer compliance and rebellion, etc., and what these terms mean to ordinary citizens, as far as take home pay today and after the next election!
Consider the fact that Article I, Section 2, Paragraph 3 of the Constitution reads: "Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers."[Emphasis added.] And in Section 8, Paragraph 1, the Constitution lists prominently as the first duty of the Congress "[that it] shall have the Power To lay and collect Taxesbut all Duties, Imposts and Excises shall be uniform throughout the United States."[Emphasis added.] Obviously, when one realizes that tax freedom day (the date after which the U.S. government allows its citizens to keep the fruit of their labors) continues to be pushed back year after year (i.e., meaning that, on average, the federal government today seizes 40 percent of the income of working Americans in taxes), the form and extent of government taxation becomes of paramount importance to ordinary Americans.
So what do these terms --- i.e., uniformity, apportionment, direct and indirect taxes, etc., --- that the Founding Fathers and now Charles Adams considered so important mean to us today? Uniformity, as the Founders declared during the constitutional debates means "common to all," that is understood to be equally applied to all. In 1894, when Congress passed one of the income tax laws, the Supreme Court was divided on the question of uniformity. But in the end, the majority of the Court concluded this tax law was unconstitutional. Justice Stephen Field wrote in a concurring opinion, "Under wise and constitutional legislation, every citizen should contribute his proportion." Everyone contributes something to the cost of government. Exemptions were considered dangerous for "once it is decided that the many can tax the few, it will be impossible to take a backward step."(10) Unfortunately, in just five years, by 1899, the Court ceased challenging the tax laws and approved progressive taxation despite the original intent of the Founding Fathers. The way was paved for adoption of the Sixteenth Amendment to the Constitution in 1913.
Direct taxes (e.g., income taxes, death taxes), as opposed to indirect taxes (e.g., import duties, excises, and sales taxes) are imposed on the individual citizen and were frowned upon by the Founders. They considered this mode of taxation dangerous to liberty, and thus, it needed additional controls. Indirect taxes were preferred and when direct taxes were necessary, they had to be uniform as well as apportioned among the several states. That is, they had to be, as we call it today, a flat tax, or levied based on population count (e.g., poll taxes*), not individual wealth. With a flat tax, everyone (and there are no exemptions), no matter how small their income, contributes his share for the common welfare of the nation. For taxes to be laid for the general (or common) welfare, they would have to benefit everyone in the nation (as a whole), not be specific pork barrel spending for special interests or politically powerful pressure groups.
Of course, taxes were initiated in the House of Representatives which held the power of the purse and where only taxpayers voted. Taxes were to be modest, and wealth was to be taxed only once. Moreover, tax expenditures were restricted to defensive wars, not overseas police actions or aggressive wars, as we have today with United Nation peace keeping functions or sovereignty-eroding missions throughout the globe. What this means is that taxation could be limited because the size and scope of government was limited to it constitutional functions --- something that is not happening today with run away, big government spending, and government officials, who no longer obey the Constitution but instead find elaborate ways to circumvent it with impunity.
And then when the Sixteenth Amendment was passed in 1913, the wise and frugal government requiring uniformity and apportionment, as the protective dyke on dangerous direct taxes, was broken and the government floodgates of direct taxation on personal income were opened to abuse.
The flat tax in England in the latter part of the 19th century was considered a "winner" tax which, at less than 5 percent of personal income, allowed Victorian England to rule the seas. Unfortunately, under the influence of Karl Marx's Communist Manifesto (1848),** it became a "progressive," graduated income tax*** in 1894, ushering in Great Britain's socialist policies and precipitating England's slow decline to a second rate world power in the 20th century.
Yet even in Great Britain, progressive (graduated) income taxes did not pass without parliamentary opposition. One member of Parliament replied to the Chancellor of the Exchequer: "But where are you going to find a standard of what is right to take?...I think the standard will vary from Parliament to Parliament and from majority to majority; and the principle of taxation will depend on the wave of public opinion, and not on equality of taxation which has been insisted upon in our finances.I am anxious that this graduation should not become a kind of scaffolding for plunder...there is the possibility of inflicting injustice after injustice because you will have no standard to guide you and no landmarks to place along this road to taxation."(11)
Mr. Adams points out: "Fifteen years later, in 1909, a new British leadership was arguing for progressive income taxes, a 'supertax,' as it was called. The Prime Minister, Lloyd George, argued to the Commons that the proposed progressive rates were 'quite gentle,' and were perfectly fair, just an extra 2 1/2 percent on top of a flat 5 percent. No big deal."(11)
"With graduated taxation," writes Mr. Adams, "the floodgates were open to progressive rates, the rates soon accelerated to almost complete confiscationand the British income tax became a monster."(12) And yet despite this dire lesson learned from our British cousins, we followed suit in the U.S. and instituted progressive (graduated) income taxes and passed the Sixteenth Amendment in 1913, which allows Congress to collect taxes "from whatever source derived, without apportionment [or uniformity] among the several States, and without any census or enumeration."
Why was the income tax passed? The answer lies in the fact that its proponents appealed to the dark side of human nature and the politics of envy. Early on, in his introduction, Adams notes: "The initial income tax after the Sixteenth Amendment was class legislation against the rich. It was aimed at a small (5 percent) of the population, if that. It engendered a peaceful revolt of sorts. Many revolted with their shoes by leaving the country, others were able to avoid or reduce the tax by clever tax gamesmanship, which resulted in an insanely complex tax law. Then, during World War II, the tax enlarged to include the middle class, who accepted the hardship as a war tax. Somehow this wartime sacrifice carried over to the cold war. But the cold war is now over and the historical need for heavy taxation is also over.(13)
This election year, conservative Republicans are not the only ones talking about altering the tax code to decrease the tax burden on Americans, redistributive social(ist) Democrats and other demagogic politicians are coming up with taxing ideas going in the opposite direction. The trial balloon of the American version of value added taxes (VATs; targeting commercial and/or corporate transactions), as well as net worth taxes (intended to soak the rich, just like with the income tax), and even internet taxes are being floated by those in the establishment who cannot conceive of a devolution of government power, the ebbing of the tide of state power from all aspects of our lives.
Further in the book, he elaborates on the results of Marxian-inspired taxation: "The obvious objective of progressive taxation - soaking the rich --- has turned against the advocates. In the end, the rich have disappeared 'as if by magic.' But worst of all, the middle class have fallen into the ditch that was dug for the rich, just as the Russian proverb predicted." He writes: "Many of the rich have practiced the time-honored and ancient art of rebelling with their shoes. Today, that means transferring their wealth and often themselves to low-tax areas of the world. This is not limited to island tax havens offshore, like the Cayman Islands or Bermuda, but to many if not most of the advanced Western nations who welcome our rich with tax holidays and reduced taxes."(14)
And thus, the rich, super rich, and even ordinary, over-taxed citizens have left the country, transferring their wealth to tax havens and themselves to low-tax areas of the world. And like the authoritarian Roman Emperor Diocletion in the 3rd century AD,(15) our government has taken steps to bind citizens down to the land and has checked their flight with hidden, oppressive provisions in health care bills, like the Kassebaum-Kennedy law that forces expatriate Americans to give up their passports and prohibits their re-entry to America when they give up their citizenship to avoid taxes. Americans who leave the country have all their assets taxed again, and thereafter, yearly, for the next 10 years (for which the U.S. embassies now have more IRS than FBI agents to hound taxpayers).
So while American income taxation initially was directed to the super rich and was extremely progressive, not just because it was low but also because it exempted 98 percent of the population, it rapidly rose to absurdly extortionary levels. From 1913 to 1921 (i.e., through World War I and beyond), the top tax rate escalated from 7 to 77 percent; then rose to over 90 percent in peace time.16 And despite the fact that the top (richest) 1 percent paid 30 percent of all taxes in 1998, ordinary Americans are no longer exempted from taxation and pay 40 percent of their income to Uncle Sam in taxes. The middle class, as in the Russian proverb, has not only fallen in the hole they intended for the super rich, but has also lost a significant amount of privacy and freedom in the process, veritably living in a land of IRS informers.
And so because of perceived unfairness, consequent defiance by taxpayers, followed by increasingly oppressive government attempts to check tax evasion, "We have," writes Mr. Adams, "moved from an honor system to a spy system in the last twenty-five years."(16) Baron Montesquieu called these states of oppression and draconian punishments such as imprisonment for tax evasion an "extraordinary means of oppression." Adam Smith wrote that a tax evader is "in every respect, an excellent citizen, had not the laws of his country made a crime which nature never meant to be so." And William Blackstone wrote that tax crimes "destroy all proportion of punishment, and puts murderers upon equal footing with such as one really guilty of no natural, but merely a positive offense."(17)
Mr. Adams is also very critical of death (estate) taxes and describes how most family businesses have to close after the death of a proprietor because of the exorbitant estate (death) taxes exacted on the remaining family. "Ninety percent of family businesses disappear after the founder dies because the family can't keep the business and pay the death taxes. When the big corporations take over the small business, jobs are lost....There is a public policy issue here: Is the survival of family businesses and farms as important as retaining a tax that confiscates much of a family's wealth at death? The answer, so far as Congress is concerned, is --- family businesses and farms don't matter much. That is, the feds need the money more than the country needs family businesses and farms."(18)
What made England a great nation and super power in the 18th and 19th centuries? England became a great power because fair and modest taxation by the British government was kept in check by the then rebellious English populace. All this was abandoned when the British, and later the American people, were seduced by the false promises of socialism, and their governments opened the floodgates of progressive taxation and wealth redistribution supported by tax and spend policies. Tax reduction will not be possible until the government reduces spending, and this may not be possible until the American people wake from their slumber, become the tax rebels of years past, and with pitchforks, if necessary, force legislators to return to fiscal sanity and reduce a government run amok to its constitutional limits.
* A tax not as a requirement for voting, but as a tax of a fixed, specified amount levied per head on adult persons.
** The second plank of Karl Marx's Communist Manifesto reads: "A heavy progressive or graduated income tax."
*** Progressive taxes mean that the richer citizens carry a higher burden of taxation and pay proportionally more taxes than less affluent citizens. Graduated taxes are therefore levied in different brackets depending on income.
1. Thomas C. What's fair about our current tax system? The Macon Telegraph, April 15, 1998.
2. Adams C. For Good and Evil - The Impact of Taxes on the Course of Civilization. New York, Madison Books, 1993.
3. Adams C. Those Dirty Rotten Taxes - The Tax Revolts that Built America. New York, Free Press, 1998.
4. Book review. Medical Sentinel 1997;2(2):75-76.
5. Conservative Index. The New American, 1998;14(22):24 and 31.
6. Adams, Those Dirty Rotten Taxes, op. cit., p.60.
7. Ibid., p.74.
8. Faria MA Jr. Vandals at the Gates of Medicine --- Historic Perspectives on the Battle Over Health Care Reform. Macon, GA, Hacienda Publishing, Inc., 1995, p.209.
9. Adams, Those Dirty Rotten Taxes, op. cit., p.149.
10. Ibid., p.147.
11. Ibid., p.158.
12. Ibid., p.159.
13. Ibid., p.xiii.
14. Ibid., p.183.
15. Faria, op. cit., pp.133-137.
16. Adams, Those Dirty Rotten Taxes, op. cit., p.156.
17. Ibid., p.157.
18. Ibid., p.182.
Dr. Faria is a consultant neurosurgeon, Adjunct Professor of Medical History (1993-1996) at Mercer University School of Medicine, and author of Vandals at the Gates of Medicine (Macon, Georgia, Hacienda Publishing, Inc., 1995) and Medical Warrior: Fighting Corporate Socialized Medicine (Macon, Georgia, Hacienda Publishing, Inc., 1997). He serves as Editor-in-Chief of the Medical Sentinel, the official journal of the Association of American Physicians and Surgeons (AAPS).
Originally published in the January/February 2000 issue of the Medical Sentinel. Copyright ©2000 Association of American Physicians and Surgeons.