The Road to Taxpayer Rights

Taxesby Jon N. Hall    5/28/14
The first federal individual income tax in America debuted during the Civil War with the Revenue Act of 1861. That act provided for a single tax rate of 3 percent levied on incomes above $800.  After the war, the income tax was repealed and the feds relied on tariffs for funding. But tariffs are regressive and hit the middle class with higher prices. So in 1894 Congress passed the Wilson–Gorman Tariff Act, which included the first peacetime federal income tax: 2 percent on incomes over $4,000. But the new income tax was declared unconstitutional in Pollock v. Farmers’ Loan & Trust Co. The Supreme Court found that it violated Article I, Section 9, Paragraph 4: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”

So, if our federal overlords were to have their income tax, they would need to amend the Constitution, which meant they would need a little cooperation from the states. And that they got, but only after nearly two decades. The 16th Amendment reads: “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.”

That’s it, one little sentence, and it’s pretty much a blank check for Congress to tax as they like.

Even before the advent of the income tax in 1913, the power to tax was broad. With capitation (i.e. the head tax), the Constitution allows Congress to levy a tax on Americans merely because they exist. The top income tax rate in 1945 was 94 percent, and it stayed above 90 percent until 1964. So broad is the power to tax that recently the IRS has even taken to seizing bank accounts using civil forfeiture, “the power to seize property suspected of being produced by, or involved with, crime.”

Now, I happen to believe that an income tax can be a just and efficient way to fund government. But there needs to be limits on the power of the federal government to tax. We don’t have that right now.

I’ll throw caution to the wind here and claim that most Americans think there’s something fundamentally rotten with our tax system. But who’s going to fix it? It’s doubtful that Congress would volunteer to put any kind of restriction on any of its powers, especially the power to tax. And the judicial branch usually defers to Congress on matters of taxation.

The “several States” are partly responsible for federal taxation; the states ratified the original Constitution and the states ratified its amendments, including that blank check amendment 101 years ago. To be sure, the main culprit in federal taxation is Congress. But the states made the depredations of Congress and the IRS possible by ratifying an amendment that had no safeguards, no limits.

If, by amendment, the states paved the way for hideously high income tax rates, the despised IRS, the unfathomable Tax Code, and even the monstrous ObamaCare (which was allowed to stand only because it is a tax), then the states can rectify the situation by again amending the Constitution.

Not long ago, talk about amending the Constitution was discouraged in conservative circles — especially an Article V convention. It was thought that such a convention could get out of control, putting the Constitution at risk for the unintended. But on April 9 in “Amend the Constitution to control federal spending,” no less than George Will broached the taboo of Article V, writing: “Many prudent people … recoil from the possibility of a runaway convention and the certainty that James Madison would not be there to make it turn out well.”

From Phoenix, Mr. Will reports on efforts to call an Article V convention led by the Goldwater Institute, “the fertile frontal lobe of the conservative movement’s brain.” Although the Institute’s amendment is primarily about balancing the budget, it does touch on taxes:

Any bill for a new or increased general revenue tax shall require a two-thirds vote of both houses of Congress — except for a bill that reduces or eliminates an existing tax exemption, deduction or credit, or that “provides for a new end-user sales tax which would completely replace every existing income tax levied by” the U.S. government.

Whether you endorse those ideas on taxation or not, read Will’s article to learn about the Goldwater Institute’s safety measures to prevent a runaway convention.

In his 2013 book The Liberty Amendments (reviewed at American Thinker by Thomas Lifson), Mark Levin also embraces the Article V convention, and proposes several new amendments, including an amendment that would limit taxation:

SECTION 1: Congress shall not collect more than 15 percent of a person’s annual income, from whatever source derived. “Person” shall include natural and legal persons.

SECTION 2: The deadline for filing federal income tax returns shall be the day before the date set for elections to federal office.

SECTION 3: Congress shall not collect tax on a decedent’s estate.

SECTION 4: Congress shall not institute a value-added tax or national sales tax or any other tax in kind or form.

SECTION 5: This Amendment shall take effect in the fourth fiscal year after its ratification.

Great stuff, that. I like the way Levin couches Section 1: “shall not collect more than.” That evokes effective rates, not statutory rates. But Section 4 would get a rise out of proponents of the FairTax. Moreover, it’s at odds with the Goldwater Institute’s proposal above. (This writer stands with Levin on the issues of a national sales tax and a VAT.)

The one thing I’d take exception to in Mr. Levin’s amendment is the 15 percent. I’d put it at maybe 25 percent for the top 0.01 percent of earners. During the Clinton terms, the top effective personal income tax rate for the top 1 percent was 24.2 percent. But whatever the top rate is, the important thing is that we have a cap on what the government can take — a limit.

Getting two thirds of the states to agree to having an Article V convention, and then getting three fourths of those states to ratify an amendment seems a rather heavy lift. To pave the way for such a lift, conservatives in Congress need to come up with a new Contract with America that proposes specific limits put on taxation. It should be a solemn promise from conservatives and a continuing campaign issue until America gets a Taxpayer Bill of Rights.

But we need someone like the author of the original Bill of Rights. So will the new James Madison please stand up?

(NOTE: On April 10 on Fox Business, John Stossel had another terrific show headlined “Taxing Times”; also at YouTube. For other Stossel programs, see his full episodes webpage.)
Jon N. Hall is a programmer/analyst from Kansas City. • (1304 views)

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15 Responses to The Road to Taxpayer Rights

  1. Timothy Lane says:

    One must assume that a corrupt, dishonest federal government will look for any way around whatever loopholes are available. The Goldwater Institute proposal has a few such possibilities. For example, as written, it could be argued (and therefore would be eventually, and the courts wouldn’t intervene) that if some tax exemption was eliminated, then the same bill could raise rates and thus have the overall effect of a massive tax increase but only require an ordinary majority. I can understand their point; we don’t want to make tax reform too difficult. But we don’t want to allow it to be used to jack up taxes either.

    Similarly, creating a Fair Tax and simultaneously eliminating the income tax would never prevent them from restoring the income tax in all its plunder, and if they were able to include some sort of reform in the sales tax in the same bill, they wouldn’t even need a 2/3 majority.

    Additionally, any tax amendment needs to provide some sort of legal civil rights for taxpayers. (Right now, for example, I would favor defunding the entire system of IRS audits, and provide for automatic approval of 501c3 and 501c4 organizations. If the tax consumers of Obamacare aren’t audited, the taxpayers shouldn’t be. And the IRS has proven that it can’t honesty handle the approval function, and I doubt any other bureaucracy under Big Brother Barry’s control would be any more honest.)

  2. steve lancaster says:

    The only way to make a flat tax or fair tax work is to freeze the rate and make it impossible for the kleptos in congress to raise it and no deficit spending allowed. With that done the incentive for government to spend will depend directly on the productivity of the American people. We prosper and so does the government. A recession means cutbacks in spending for everyone.

    And, I know this is a tough issue for social conservatives, no, none, nada, tax exemptions for anyone, including charities, churches and political PAC’s everyone pays the same rate or it will not work.

    • Timothy Lane says:

      I don’t think it would be possible to come up with a flat-rate tax with no deductions whatever. This would mean that a desperately poor person would pay the same overall tax rate as a plutocrat. Clearly, there should be some floor (created by personal deductions), and perhaps a few others. (Of course, once you start including others, such as charitable contributions or mortgage interest, you eventually get others that are increasingly corrupt. But Congress already knows about those anyway, so in the long run the only way to mitigate this might be to require the IRS or whoever to send a complete copy of the income tax code to each taxpayer each year.)

      • Brad Nelson Brad Nelson says:

        This would mean that a desperately poor person would pay the same overall tax rate as a plutocrat.

        Why is “fair” no longer fair? A person who makes $10,000 pays $1000 at a 10% tax rate. A person who makes $100,000 pays $10,000. The rich guy who makes ten times as much pays ten times as much. How is the “plutocrat” then ripping off “the poor”?

        In all areas, we should reward productivity and not punish it. If someone doesn’t like being poor, there are ways to earn more money. It’s called working hard and getting an education.

        • Timothy Lane says:

          Note that I said “desperately poor” (and recall that I was responding to a libertarian who undoubtedly opposes all safety net programs). Such people can’t afford the money they would pay in taxes. My preference would be for a flat-rate tax that applies above a base designed to eliminate income taxes for the genuinely impoverished.

        • Rosalys says:

          A pure graduated income tax isn’t necessarily unfair. Correct me if I am wrong, but if there is an across the board exemption of say, the first $10,000 earned, then it is an exemption for the millionaire and at the guy earning $12,000 alike. Then everyone’s next, say $20,000 gets taxed at the lowest rate; amounts between $30,000 and $50,000 get taxed at the next rate, etc.. It’s not as if you when earn $249,999 that ALL your income is taxed at one rate, but when you get to $250,000 all of sudden it is ALL taxed at the next highest percentage. That’s why we can talk about effective rates. I may be a dolt, but for many years I didn’t understand this – and since I don’t have a high opinion of the intelligence of your average American today, I assume that there are other dolts out there (I speak not of the absolutely brilliant writers of columns on this site!)

          The inequality comes in the minutia, the deductions allowed for certain economic or political activity that are not there for others who choose not to or cannot engage in these certain activities.

          The politicians would scream (as they always do) that there would not be enough revenue to pay for all these programs they’ve got going. I have news for everyone – there isn’t enough revenue NOW to pay for all the gubmint spending and that is why we have deficits and a mind boggling national debt. If we were to return to government spending only on those Constitutionally mandated areas and to stop spending on all the crap that government has no business being involved with, there would be more than enough money to run government. THAT’s the problem.

          I can’t believe I spent this time actually defending a graduated income tax! :-O But I am in favor of a one rate flat tax with the first $20,000 exempt. No deductions. Uncomplicated and less open to manipulation and finagling!

          • Timothy Lane says:

            That is in fact the way the graduated income tax works in the US. Because this is usually done in $50 increments, someone can actually lose a tiny bit of money going from the top of one increment to the bottom of the next, but the actual tax tables (if you choose to use them) work as you suggested.

            One thing to remember is that FICA is only paid on a portion of income. (Some, such as steve lancaster, would prefer to get rid of FICA, but that will never happen unless the US goes totally bankrupt, and I doubt any of us want to go through that, nor would it necessarily lead to good results in the long run.) So any flat-tax rate must include FICA.

            • steve lancaster says:

              FICA is built on the assumption by government that you are too stupid, lazy and incompetent to plan for your own retirement. So, yes I would do away with FICA, however it is possible to create a retirement system that is not so oppressive.

              Chile in 1973 had a system much like ours with mandated contributions and payouts. The system was bankrupt and one of the first things Pinochet did was bring in the Chicago school of economics to get the economy going after the disaster of Allende.

              The first thing done was return the retirement system to a private market system and offer workers the choice of guaranteed payouts from the government or a choice of low-risk investments 95% opted for taking risk and owning their retirement. The privatized system even allows for wealth to be passed on to heirs.

              Chile is one of the most wealthy nations in South America, few Chileans desire to cross the border to live here because for all the faults of Pinochet their country is better off with free market capitalism than Cuba the Marxist paradise.

              • Timothy Lane says:

                Yes, I’ve heard about the Chilean form of social security (probably one of those ideas they got from Milton Friedman), and I understand there are some other countries that do this. Unfortunately, you’ll recall what happened when Bush and a handful of other Republicans (including Louisville’s own Anne Northup) tried a modest version of it.

              • Kung Fu Zu Kung Fu Zu says:

                I do not know the exact numbers as of today, but Singapore has a system whereby everyone has their own personal retirement account. I do not know the present percentages, but when I was there the employee put 20% of his salary into his account and the employer matched this or put in another 25%. (I can’t recall the exact no.)

                The account belonged to the individual and was part of his assets. It could be inherited. The person could use the funds to purchase a home or invest in certain approved stocks. Otherwise, it drew a fairly low interest.

                Additionally, each individual had a dedicated personal medical savings account which could be used for the medical costs for his family or himself.

                The contributions for both the retirement and medical accounts were tax free.

              • steve lancaster says:

                So where do we go? The current system of retirement is bankrupt, by even a democrat definition of bankrupt. As long as the government tit has some milk are we going to suck up to it just because we are fearful of what happens? Are Americans that timid and afraid that we have become Europeans just waiting for death?

              • Timothy Lane says:

                As societies age (which is happening to most “advanced” societies), they become more risk-averse. Perhaps it’s no surprise that countries such as Chile (under Pinochet) and Singapore (also under a dictator) could come up with a more modern retirement system.

                The US was unique once in that people here preferred freedom and opportunity to security. Unfortunately, the number of leeches and sheep has been increasing to where it may well be a majority now. If nothing else, we’ll learn in 2016 — if Slick Hilly can win despite a lack of genuine qualifications, simply on her strength as “the first woman” after Barry Screwtape Obama botched things up as “the first black”, then perhaps it will finally be time to admit that the US is now officially hopeless.

                “Wear a crepe of mourning for a civilization that held a promise of joy.”

              • steve lancaster says:

                You may be right, but for myself and my family I choose freedom. I will not be cowed, intimidated, or oppressed by communists, progressives and Islamist thugs.

  3. steve lancaster says:

    There are people who we used to call the deserving poor, although I think their numbers have never been very large. I could support some sort of negative income tax or even a minimum level of income before taxes must be paid. Remember there is no public charity clause in the Constitution.

    If we discard the current system we must discard all of it. Congress must not be able to select who will receive the benefits of the tax system. It must be simple, fair as a percentage of income and predictable. Also, no withholding from paychecks that only helps government to hide how much they are taking of our property.

  4. skepticlecynic says:

    This might be a good thing if done right and well but I am believing the the system is so fornicated up that it can’t be fixed. So, my take is to let all of these taxing authority thieves keep turning up the heat on us tax payers. In due time this problem will take care of itself.

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