There is a tradition here at A Beginner’s Guide to Freedom (more honored in the breach than in the observance) of writing snarky posts each year on Tax Day (you can find them here, here, and here). This year, however, I’d like to take a different approach and share a couple of truly worthy passages on the subject of the income tax by writers who are far more gifted than I. Please hit the links to buy the books from which these snippets are taken – they’re both very good reads.
The first is by the historian Charles Adams, from the introduction to Section V of his book, Those Dirty Rotten Taxes:
The Tyranny of the Income Tax
As the nineteenth century came to a close, the tax principles of the founders began to disappear. The idea of limited government was replaced with the zeal for paternalism in government at home and imperialism abroad. Wolves began to appear in sheep’s clothing. Words that once stood for the noblest ideals of Western society took on strange and alien meanings. The state could take away anyone’s property through crushing taxation and this was “social justice,” or “revenue sharing.” The Communist states called themselves “democratic” republics, and, in the end, taxes, for some, were the government’s word for stealing. Or as one famous Supreme Court justice, John Harlan, called it, legislative plunder under the guise of taxation. The income tax became the fuel for paternalism in government, just as excises and land and wealth taxes had done in Europe centuries before.
Rebellion against the income tax began with the very first peacetime tax law, even though the rate was a paltry 2 percent. But modern income tax rebellions have taken a different course from the tax rebellions of the past, which were punctuated by riots and violence. Our income tax rebellions are quiet rebellions, taking place on the political field, in the schemes of tax planners, in peaceful emigration abroad, in the underground economy, in the privacy of tax haven institutions, legal and not-so-legal.
Today, riot or violence over taxes is unthinkable. Riots usually come from the masses, and the income tax has been engineered to be oppressive primarily to the rich, unlike many taxes of the past that provoked rebellion because they were uniformly applied. An excise like Walpole’s tax on tobacco and wine hit all Britishers, and successful riots followed. The stamp taxes in America, again, applied to everyone. But the income tax, because of exemptions and low rates for the lower classes, makes riots unlikely. Even when it was first instituted, the rich were the targets, and, like half-starved crows, they did not sit around to be shot at. Their wealth, as if by magic, began to disappear. Violence made no sense when an accountant or tax professional with a briefcase could engineer a very successful tax rebellion, with no blood, no mess, no yelling, no damage to private property or public tax offices, no assaults or lynchings of tax agents.
There is probably no tax in the past two hundred years that has been more debated, discussed, cussed, ridiculed, praised, and in the end, evaded, than the income tax. The British, who as we shall see, invented the modern income tax, hated it so much that the generation of Britons who experienced the first income tax had to pass away before the British government would dare try to introduce it once again. When it was finally reintroduced in Britain, it came in such a mild form one could hardly believe it had been the reputed “tyranny” of the Napoleonic world. One of the last holdouts was France, and it took a world war for them to get on the income tax bandwagon. The United States also climbed aboard at that time.
In America, the debate raged hot and heavy. Harper’s magazine was especially hard on the tax, depicting it as the arch enemy of liberty, and a demoralizing force in society. The income tax would become a millstone around the neck of Liberty…
By the beginning of the twentieth century the income tax was on its way to becoming the engine for running the modern state, for financing wars, and introducing socialism in its many forms. This was not the kind of world the founders had envisioned, but each generation that comes to power introduces its own ways of governing. Now, as this century comes to a close, the income tax seems to have run its course, as all taxes usually do. We are once again searching for a better way to tax. Our income tax has evolved into a revenue system that threatens liberty at every turn, and no doubt, most of the problems are of our own making. One of the lessons of tax history that recurs so often is that all good tax systems tend to go bad, and our income tax is a shining example. The excise became anathema to the Netherlands and Spain, as did other taxes that have appeared on the world’s scene, which blossomed for a century or two and then disappeared in violence, economic decline, or collapse.
The story of our income tax goes back to Great Britain, which invented this monster and then passed it on to the world. This, then, is where we begin our study – where the income tax was born.
“The harvest of the Exchequer [revenue authority] has been very considerable while the misery inflicted on hundreds of thousands of taxpayers, both innocent and guilty, is beyond description. It is very difficult for officials, even with the best will in the world, to administer an inquisitorial law with humanity.” – James Coffield, A Popular History of Taxation, 1970
The second comes from Sheldon Richman, vice president of The Future of Freedom Foundation, in his book Your Money or Your Life (Chapter 1):
Man vs. State
Income taxation inaugurates a permanent war between the people, who want to keep what they earn, and the government, which wants as much of it as it can get. The government tries to make the war less obvious by deadening the pain when possible. The withholding tax makes it unnecessary for most Americans to write checks to the IRS; indeed, they eagerly await their refunds. But the war is part of the American psyche nonetheless. All Americans sense that an awesome power lurks, ready to grab an increasing portion of anything they earn. That adversary relationship has far-reaching consequences for a society founded on the principles of the Declaration of Independence, namely, the rights to life, liberty, and the pursuit of happiness. In the Declaration, Thomas Jefferson said that when government fails to protect rights or itself threatens them, the people have the right and duty to “alter or abolish” it. That surely indicates that according to the prevailing philosophy among Americans at the time, government was the dangerous servant. The people were the master. But the income tax turns that relationship completely on its head. The tax and all the powers that must accompany it turn the people into cowering servants, ever fearful of being accused of concealing income or information and being compelled to prove otherwise. People have lost money, homes, businesses, and liberty to the IRS. A few have committed suicide under the pressure of a tax investigation. The income tax may not be the root of all evil, as the libertarian writer Frank Chodorov believed. But it is the root of many evils. The income tax radically undermined the American revolution.
Every American should ask himself what is was like to live in the United States before there was an income tax. Imagine not having to give up more than 30 percent of your income to the federal government. Imagine living without fear of being audited by the IRS. Imagine starting the new year and not having to think about where you stored the previous year’s receipts. Imagine not worrying whether your records are good enough for the IRS. Imagine not having to pay a tax preparer hundreds of dollars to fill out complicated forms in order to minimize your tax liability and avoid audit. Imagine such a world in which none of those burdens existed.
Americans lived without these fears and burdens for more than one hundred years (except in the Civil War era). They built a decent society nonetheless. Late-nineteenth-century America was the freest society in history. People could run their own lives with little interference from government. Prosperity increased as never before. Products that once only the nobility could afford became mass consumer goods. Specialization and the division of labor increased productivity, which in turn raised living standards. Taxes, mostly excise taxes and revenue tariffs, took only a small portion of people’s wealth. The federal government played only a bit part in the lives of the people. (That role was enlarged by the Civil War but was still small by later standards.)
The government does not publish figures for how much of GDP the national government absorbed in the late nineteenth century. But it does have them going back to 1930. In that year, before the income tax affected ordinary people, federal receipts were just 4.2 percent of GDP. (Spending accounted for an even smaller part, 3.4 percent.) In 1942, the share of GDP extracted by the federal government hit double digits for the first time, exceeding 10 percent. It essentially has gone up ever since. Today it stands at more than 21 percent, the highest since World War II.
The income tax has been a key factor in the growth of government. When enacted, only the few richest people in America paid the tax. In 1934 individual income taxes provided about 14 percent of federal receipts. It became a tax for ordinary people during World War II, ironically under that reputed champion of ordinary people, Franklin Delano Roosevelt. Today, it accounts for more than 43 percent. Payroll taxes for Social Security and Medicare account for about 35 percent. As you can see, Americans’ incomes have provided a rich vein for the government to mine. The income tax makes it easy for the government to raise money. Its sheer complexity often makes it difficult for people to know what any given change in the tax code will mean for their own situations. By the time they realize that their taxes have gone up, it is too late.
An ugly picture emerges. As we will see, the income tax has:
- Given the government unprecedented access to the American people’s wealth.
- Provided the rationale for the government to intrude into our personal affairs.
- Reversed the traditional rule-of-law relationship between government and those suspected of lawbreaking.
- Corrupted morality by labeling efforts to keep one’s own money as “cheating.”
- Bewildered the American people with constantly changing technical rules that no one could possibly comply with perfectly.
- Permitted lawmakers to influence our conduct through selective tax deductions and exemptions.
All this has come from the principle that government may tax incomes. As objectionable as other taxes are, none could permit the government to amass power, abuse citizens, or corrupt society the way the income tax has. That is why repealing the tax, along with the Sixteenth Amendment that permits it, is an essential blow in the struggle against power and for liberty.
So happy Tax Day, everyone! And remember, if you have any questions about how to fill out your taxes, you can always call the IRS Help Line [sic], where, as The Washington Post reports, “only 4 in 10 callers get through to a real person,” and “the number of ‘courtesy disconnects’ — a euphemism for an overloaded system hanging up on the customer — has reached 5 million so far this year…When callers do get a real person, they can forget about asking questions that require expertise. These are now considered ‘out of scope.’”