|Some tax history:|
Taxation and Representation
by Thomas R. Eddlem
As the crates of British tea splashed into the salt water on that cold Boston night, the band of patriots dressed as Indians could he heard shouting, "No taxation without representation!" and "Taxation without representation is tyranny!" Led by John Hancock, the early Americans at the Boston Tea Party set in motion the process that culminated a year and a half later when the 13 original colonies declared their independence from England. When the Founding Fathers fashioned our Declaration of Independence, chief among their complaints was the fact that the King was taxing them "without our consent." That Declaration asserted an English tradition dating back to the Magna Carta whereby governments derive "their just Powers from the Consent of the Governed."
Later, when the 13 states convened to draw up the Articles of Confederation, the Founders included provisions in that document (and later in the U.S. Constitution) which tied taxation with representation of those who would be taxed. The U.S. Constitution stipulates, "Representatives and direct taxes shall be apportioned among the several States which may be included in this Union, according to their representative numbers...."
In 1894, Congress spurned this principle of linking taxation and representation by enacting a national income tax -- the first direct tax on Americans during peacetime. The underlying motivation behind the 1894 income tax was made clear during congressional debates on the matter. Representative William J. Talbott (D-SC) argued that "the income tax is the most equitable and just way of taxation, putting the burden of taxation upon the shoulders who are most able to bear it, and [taking] it away from the shoulders of those who are least able to bear it." Representative Omer M. Kem (Populist-NE) stated: "A perfect tax is one which allows the citizen who is only able to obtain the necessities of life to go free, while it places the burden of government upon those who are able to bear it, and distributes the burden in proportion to their ability."
Starting with the income tax law of 1894, we can trace our nation's descent into socialism via federal legislation enacted during this century. When the Supreme Court overturned the 1894 tax law in the case of Pollock v. Farmers Loan and Trust, it marked the last great victory of the cause of non-partial taxation. When Pollock was overturned by a constitutional amendment and subsequent legislation in 1913, the forces for socialism began their assault on our economic freedoms in this country.
Class agitation from the Populist Party was, in part, responsible for the national mood which enabled proponents to slip the 1894 income tax law through Congress. Representative Thomas Hudson (Populist-KS) explained on the floor of the House that "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." This sentiment reflected the view of most Populists and many of the Western and Southern Democrats in Congress, though most Democrats were more cautious in their public statements.
A few congressmen tried to deny that their votes for the income tax were motivated by socialist sympathies. One key proponent of the income tax, Representative Uriel Hall (D-MO), even argued that the measure would inhibit radicals: "Had I the naming of this bill, had I the naming of any income tax bill of a kind like this, I would denominate it a measure to kill anarchy and keep down socialists .... I tell you when you oppose a measure of this kind, when you come to the great masses of the people and say that the wealthy of this Government shall bear none of its burdens, then you make a foundation for the argument of anarchy, socialism, and demagoguery, that eventually will sweep back and curse this country, as it did in France in the days of the French revolution."
Representative William Bourke Cockran (D-NY) responded by exclaiming, "Great heavens, Mr. Chairman, does the gentleman realize the character of that proposition? He proposes to relieve the anarchists of this country from any excuse for indulging in violence, by the suggestion that we ourselves should do the work of anarchy .... The men who offer this amendment as a sop to the discontented will be swept away by the rising tide of socialism. They will discover, when too late, that in overturning the barriers which separate liberty from anarchy they have liberated ten thousand furies who will sweep over them and overwhelm them in a mad procession of anarchy and disorder."
Wiping out the Tariff
The war for an income tax in the U.S. was not won solely on the basis of the prattling propaganda of a handful of Populists and Democratic socialists. The tax was excitedly promoted as a means to defeat the American tariff system. While the class warriors of the Populist and Democratic parties sought the income tax in the name of "economic justice," wealthy industrialists had visions of increased profits as a result of trade protection for their industries. (With an alternative source of revenue available in the form of the income tax, Congress could adopt trade policies inhibiting the flow of imports with little concern about the resulting drop in tariff revenues.)
Prior to the income tax, federal funds were raised largely through tariffs imposed on imported goods used by all Americans, rich and poor alike. Duties on the import of coffee, sugar, tea, and other common items formed the basis of most of the tariff revenue in the early years of our Republic. Since the tax burden fell equally on all citizens, it was always made certain that the federal tax burden was light. By 1894, that burden worked out to about $6 per capita annually, or about $125 in current dollars. By contrast, the annual per capita tax burden of the federal government today easily exceeds $5,000.
America's Founding Fathers determined that tariffs imposed the least burden on citizens of any form of taxation. During House debate on the first tariff measure in Congress in 1789, James Madison remarked that "a national revenue must be obtained; but the system must be such a one, that, while it secures the object of revenue, it shall not be oppressive to our constituents. Happy it is for us that such a system is within our power; for I apprehend that both these objects may be obtained from an impost on articles imported into the United States."
When Thomas Jefferson was elected President in 1800, he maintained the tariffs imposed by the Washington and Adams Administrations to fund the government, but abolished all taxes levied directly on American citizens and businesses -- the so-called "internal taxes." Jefferson rightly bragged about the new nation's achievement in his second inaugural address, noting that "it may be the pleasure and pride of an American to ask, 'What farmer, what mechanic, what laborer ever sees a taxgatherer of the United States?'"
By 1808, the last year of Jefferson's Presidency, 96 percent of the funds raised by the federal government were derived from customs revenue, with nearly all of the remaining revenue raised from the sale of federal lands. From that point until the War Between the States, there were almost no internal taxes on Americans.
Many proponents of the income tax of 1894 promoted the tax under the banner of "free trade." Uriel Hall (D-MO) asserted: "Let us wipe away the robber and unconstitutional tariff, and that brings us to the income tax as the logical result of that platform [of the 1892 Democratic Party convention]. I want you to go forward and lift the burden off the people and put some little of the burden on the wealth of this country." Representative Jerry Simpson (Populist-KS) boasted that the income tax bill took "a long stride toward removing restrictions on trade and a long stride toward ultimate free trade, [into which] we properly put the income tax, which is a direct tax, to supply the revenue to sustain the government in lieu of that which has been heretofore collected upon what the people have spent in support of their families."
Representative George W. Ray (R-NY), an opponent of the direct income tax, accurately summarized the content of the 1894 bill as comprising "tariff reform in spots -- in Republican districts and States -- and hence the bill now under discussion has been presented to this House and to the country. It is not free trade nor is it protection; it is not a tariff for revenue, because it wipes out the revenues, and will produce an annual deficiency of at least $80,000,000, unless there shall be attached to it an income tax feature, which it is hoped will relieve it in part at least from such result...."
The Civil War Tax
A different mood existed in 1861 when Congress first contemplated an income tax. Although money was needed to stop the Southern secession, there was still a reluctance among many in Congress to go directly to the citizens. Representative Roscoe Conkling (R-NY) in 1861 proposed an amendment to allow the states to preempt federal collection of their portion of the $20,000,000 direct tax by volunteering to pay their apportioned quota. Conkling's amendment reflects ideas expressed by America's Founders. For example, the Massachusetts ratifying convention of the U.S. Constitution requested that direct taxes not be laid by Congress until the states themselves were first asked to pay their quota. Conkling's amendment was adopted, became law, and, as a result, collection of the income tax was forestalled until 1863. By that time, though, the press of the war influenced Congress to overlook the unconstitutionality of the income tax; the legislation libeled the tax an "income duty" as a means of getting around the apportionment clause in the Constitution.*
* The Constitution stipulates that "No capitation, or other direct, tax shall be laid unless in proportion to the census or enumeration...."
After the War Between the States, some senators sought to retain the income tax in order to lower the tariff. Henry J. Raymond (R-NY), one of the first to argue in favor of replacing the tariff with an income tax, in 1866 suggested, "When we perfect our system of internal taxation; when we get it to a point where it will conform to the fundamental principles of political economy, the whole of this long list of manufactured articles that now figures on our tax bills will disappear, and we shall have left simply taxation upon the profits of labor .... I consider incomes to be the fairest subjects for taxation...." Senator John Sherman (R-OH), who was perhaps the most vigorous supporter of the income tax, argued, "The only discrimination in our tax laws that will reach wealthy men as against the poorer classes of people is the income tax."
But the American people in the late 1860s and early 1870s had able statesmen to counter the demagoguery of Sherman and his ilk. Senator John Scott (R-PA) directly challenged Sherman, arguing, "The safety of the poor man in this government is the justice of the principle embodied in all measures of legislation. If you may discriminate for him, you may discriminate against him; and perhaps it will not be long, if we go on at this rate, basing our legislation upon the ground that we intend to impose the burdens of the Government upon the rich and exempt the poor from them, until some man may be bold enough to claim that that doctrine shall be carried to its logical consequences, and that if the rich pay all the taxes, taxation and representation shall go together."
The reality of the income tax is that it has always been paid by the middle classes. In his classic work The Income Tax: The Root of all Evil, Frank Chodorov observed that it is only a matter of time before the income tax is carried to its logical conclusion: "At first it was just the incomes of corporations, then of rich citizens, then of well-provided widows and opulent workers, and finally the wealth of housemaids and the tips of waitresses. This is all in line with the ability-to-pay doctrine. The poor, simply because there are more of them, have more ability to pay than the rich. The national pay envelope contains more money than the combined treasuries of all the corporations of the country. Government could not long overlook this rich mine."
Support for a Repeal
The rich and poor alike objected to the inquisitorial nature of the income tax in post-Civil War America. Senator Cornelius Cole (R-CA) observed, "There has never been such a universal demand for the repeal of a tax as there has been for a repeal of this .... The people regard [the income tax] as more odious than any other description of taxation whatever; and not the least objectionable feature of it is its inequality."
Opposition to the tax was led not by the major press of the time, but by independent newspapers and small businessmen who had been organizing into chambers of commerce. Senator John Scott asked in 1872: "Has there been a petition presented ... for the reimposition of the income tax? I have heard many of them presented against its reimposition. I have presented many of them myself, though I do not know why it is that the reports of the Associated Press, as a general rule, do not contain the presentation of these petitions, especially when they come from Philadelphia. I do not know why that is; but I have presented many of them; and from the rural counties of my Commonwealth I have received very many letters, all asking me that this tax shall be removed, while I have not received one for its reimposition. This, then, is the demand of the people." After an eight-year campaign garnering millions of signatures on petitions, thousands of editorials from independent newspapers, and an organized effort by small businessmen throughout the nation, the Civil War income tax was allowed to end in 1872 without a formal repeal.
The debate over the income tax amendment, which in 1913 became the 16th Amendment to the Constitution, mirrored the 1894 debate except that fewer congressmen stood on the side of the principle of linking taxation with representation. The Senate supported the proposed amendment in 1909 without a single dissenting vote, even though a half-dozen Republican members of that Senate had voted against the income tax in 1894. In the House, only 14 representatives voted against the income tax amendment, with the 318 income tax supporters counting among them even erstwhile conservative hero Charles A. Lindbergh Sr. The only congressman who voiced a principled case against the income tax in either chamber was Representative Samuel McCall (R-MA), who as a freshman representative had voted against the 1894 law.
When an income tax was finally imposed on Americans in 1913, after adoption of the 16th Amendment, the only difference between it and the 1894 law was that the new tax was graduated. Like the 1894 law, the income tax of 1913 was merely the second title of a huge tariff reduction package. Estimates entered into the Congressional Record during debate predicted that customs revenue would be cut from $311 million in 1913 to $249 million in 1915 and that $83 million in new revenue would be generated from the income tax by 1915.
The battle over the income tax in the U.S. has been linked with the tariff issue throughout American history. The Civil War income tax was defeated after the people had been informed of the nature of the tax and businessmen had organized against it. Subsequent to the repeal of that income tax law, tariffs once again made up the bulk of the revenue for the federal government.
Any long-term strategy for relieving the American people of the inquisitorial, inefficient income tax must begin with a withdrawal of the United States from the World Trade Organization (WTO). Although the WTO was sold to the American public as a step toward international tax reduction (by cutting tariff revenues), the WTO and previous GATT agreements merely proposed to transfer tax collecting from the U.S. Customs Department to the IRS. To overturn the income tax will require that the American people demand that Congress abolish this tax and replace that remnant of Marxism with the system which America's Founders designed.