Nelson: The season of unfair income taxes
"The income tax radically changed America," InForum columnist Ross Nelson writes. "Now the government had direct access to vast resources instead of puny tariffs and the like."
That time of year has come again: snowstorms, floods, mud and income tax filing. There was a time in America when there were no income taxes. Taxation was mostly on consumption, such as duties (tariffs) or excises (taxes on domestic production sales) which are both indirect taxes. Citizens had some control over consumption taxes. Alexander Hamilton noted that this kind of tax “to be contributed by each citizen will be in a degree at his own option,” since “if duties are too high, they lessen the consumption. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.” The Laffer curve is at work here, as too high a tax will hurt Treasury revenue, not enhance it. You may notice that there's a latitude here that income taxes don't allow.
Weak attempts in early America to tax income never caught on. The earliest serious income taxes were instituted, shockingly, to finance war. Both the Union and the Confederacy took that route in the Civil War. The Union's revised 1862 income tax was allowed to expire post-war (imagine a time when the federal government voluntarily gave up revenue!) but was nonetheless later deemed constitutional by the Supreme Court for the type of wealth in dispute.
Not so the 1894 federal income tax, which the Supreme Court effectively voided because the Constitution demanded that “direct taxes” be “apportioned among the several states,” i.e. the same amount per person everywhere according to one interpretation. Being a direct tax but not apportionable, the income tax law failed. The federal solution was the 16th Amendment which allowed Congress to tax income from any source without apportionment among the states.
Then-GOP Senate Majority Leader Nelson Aldrich tried to stem the pro-income tax tide by the compromise of a corporate excise tax and an amendment instead of his opposition's desire for a quick and easy statute. Republicans didn't think the proposed amendment stood a chance, but they underestimated the power of envy. Voters hoped to make the wealthy pay their “fair share.” They misunderstood how government power works. They thought that the camel's nose under the tent would be all they'd see of it. The tax rates after the amendment passed were initially 1% over $3,000 and 7% over $500,000. In ten years both rates had increased 800% and by 1965 they were 70% across the board. Only tax loopholes kept the economy from collapsing. Middle-class Americans threw the boomerang at the wealthy and got it back good and hard instead.
The income tax radically changed America. Now the government had direct access to vast resources instead of puny tariffs and the like. Governments could expand enormously. Warmongering was enhanced by the new flood of revenue. Leviathan had become well-nourished. Since 1913 churches could and did take political stands while being tax-exempt but were silenced by the threat of losing those exemptions after 1954's tax law changed. “They preached liberty” no more.
Instead of being taxed on what we consume, thus preserving our privacy, we now have government at state and federal levels inquiring as to who, what, how and where we get our income from. Only the servile approve; early Americans would scorn us.
Nelson lives in Casselton, N.D., and is a regular contributor to The Forum’s opinion page. Email him at email@example.com .
This column does not necessarily reflect the opinion of The Forum's editorial board nor Forum ownership.