In 1911, two years before the passage of the 16th Amendment to the Constitution, Edwin Seligman published an exhaustive history of the income tax ostensibly as a way to sell the idea to the American public. Apparently, it must have helped, because the Amendment was subsequently adopted.
Having come to oppose this form of taxation within the last several years based on the principle that, no matter how you slice it, it is a tax on our fundamental human right to work in order to sustain our lives, I thought it would be a good idea to read a comprehensive work such as Seligman’s that was written at the time our ancestors were debating the very subject. I admit that in the back of my mind, I thought, “But what if this 700-page tome ends up converting me back to a position in support of the tax? What would I say to all my friends to whom I’ve been preaching against it? So many words to eat!” These thoughts (along with the book’s length) really did cause me some hesitation, but I figured it wasn’t about who is right, but about what is right. I’m not afraid to be wrong – it’s happened before. (The book, for those itching to jump in, is entitled: The Income Tax: A Study of the History, Theory, and Practice of Income Taxation at Home and Abroad, by Edwin Robert Anderson Seligman.)
So, I spent many weeks reading the book and annotating as I went along. If I had to sum up over 700 pages of a well-documented, thorough treatment of the subject, it would be as follows: even though neither the nation nor its individual states need the income tax for revenue purposes, we should adopt it as a means of bringing equality and fairness to taxation, so that the wealthy are made to pay their fair share. That’s it! And I had to laugh when I finished the last page and closed the book. My position on the tax is not only unchanged, but stronger than it was before.
As I share a few quotes from the book as well as some of my annotations on it, I would like my readers to come away with this one thought: the income tax is not necessary. I will not here try to convince you that it is wrong in principle and, for that reason alone, should be abolished. All I want is for you to come away from this post fully convinced in your mind that it is not a necessary form of taxation.
I begin with the state income tax. First, it should be noted that today there are nine states in the Union that levy no tax on earned income. If we were to guess which states these were, judging by whether or not these nine states had roads and schools and firefighters and sewers, could we immediately point to the states that we know have none of the benefits of modern civilization and say, “Ha! These must be the states without a state income tax!”? Are there any states in the Union where you must, upon crossing the border in your car, pull over and jump into a horse-drawn carriage to travel old Indian trails? Okay, you get the point: there are no states in our nation that lack any of the bells and whistles of civilization, yet nine of them manage this without taxing the income of their residents – proof that an income tax is not necessary.
Let’s go back in history for further proof. At various points, the colonies imposed what was called a “faculty tax” on their residents. Think of it not as an income tax technically, but as a crude form of it. In any case,
every colony that imposed it in some form or fashion from about the mid-17th century up to the end of the 18th century existed prior to imposing it, and continued to exist after abolishing it.
“…the faculty tax had disappeared in Rhode Island by the middle of the [18th] century,” but not Rhode Island.
“Before the close of the [18th] century, however, the [faculty] tax had disappeared [from New Hampshire],” yet New Hampshire failed to fall off the map.
“In New York, as we know, there never was any faculty tax,” yet there was New York!
Maryland, 1777: a faculty tax is imposed. In 1780, it’s abolished. Virginia introduced a faculty tax in 1786. “In 1790 the whole system was abolished.” You’ve all heard of Maryland and Virginia, right? I once got a really bad sunburn in Virginia.
Pennsylvania’s faculty tax had “lingered along” but was “virtually a dead letter. Now in 1840 it was partly resuscitated.” It became an early form of a true income tax, was tweaked for a few decades, and “was allowed to disappear in 1871, when the law was repealed.” Most of my family was born in the state of Pennsylvania – yes, it still exists!
Maryland had another go and started taxing incomes in 1841. About nine years later, “We are told in the proceedings of the state constitutional convention that the law was repealed ‘because of its inquisitorial character, its impertinent scrutiny into the affairs of private life, and of other difficulties which it had to encounter, and the frauds and impositions it caused, and above all, its utter failure to produce a sufficient sum.’” Yet, once again, Maryland remained.
Florida initiated an income tax in 1845. Ten years later “the whole system was abolished.” I know Florida still exists – I was born there!
South Carolina’s faculty tax became an income tax in 1861. “But when the new [state] constitution was adopted in 1868, the dissatisfaction was such that the taxation of incomes was completely abandoned.” Yet, South Carolina has remained in the path of many hurricanes since.
Alabama was taxing incomes in the 1860’s, and “the tax came to an end in 1884.” Georgia began taxing incomes during the Civil War. “As soon as the war was over, protests poured in upon the legislature, and the tax was soon dropped.”
“Missouri introduced a partial income tax in 1861…With the close of the war, however, Missouri’s experiment came to an end.”
Texas tried it from 1860 to 1871; Louisiana from 1864 to 1899. West Virginia introduced an income tax law in 1863, “but it seems never to have been enforced. Finally, in Kentucky, a law of 1867 imposed a partial income tax, confining it to the income from United States bonds, and for a few years yielded considerable revenue. In 1872, however, the law was declared unconstitutional.” But Seligman doesn’t say upon what grounds.
As of the year Seligman’s book was published (1911), only five states in the Union were levying an income tax with varied success. A special tax commission in Maine considered the possibility in 1889, but concluded: “[An income tax] has been tried in several states, but has proved unsatisfactory in all, and it is a potent argument against this form of taxation that in the efforts that have been made in most states of the Union during the past ten years to find new sources of revenue, there has been so little disposition to resort to income taxes.”
New York considered it a few years later and reached this conclusion: “But in view of the objections made to the income tax…and a feeling on the part of the public that such a tax is inquisitorial and contrary to the spirit of republican institutions, such a tax at this time seems to be quite inadmissible, whatever be its merits.”
And check out what California had to say! “In 1906 the tax commission of California took up the matter. It so happened that the constitution of California specifically permitted income taxes. The commission, however, reported strongly against any attempt to introduce an income tax: ‘The Commission believes that it would not be wise to take advantage of this section [of the constitution]…Our people have so much respect for labor that what is won by honest toil is regarded as sacred and not to be reduced by direct taxation.’” I love you, California! (My youngest sister was born there, you know!)
In 1907, Seligman was a member of a general committee in New York which argued against introducing a state income tax there. He himself was the author of a supplemental report presented to the tax commission stating why the income tax (at the state level) was a bad idea (actually, Seligman believed that an income tax was only viable as a federal tax, but more on that later). One very interesting part of his report states: “While the aim of the [income tax] law would be to press less hardly upon the moderate and fairly well-to-do class, the practical result would be, in our opinion, to impose the burden upon these very sections of the community, and to exempt the wealthier classes who can afford to employ the most astute legal talent to aid them in evading the law. The tax would seek to secure equality; it would result in crass inequality.” One hundred years later, we can look back and tell Seligman that he was absolutely right – at both the state and federal level, because this is precisely the result. It is odd that he wouldn’t think the same shenanigans would occur with a federal income tax.
Well, this post is long enough. I hope you are convinced by now, based on history, that an income tax is not necessary (at least at the state level – we’ll look at the federal level next time). Colonies, which would later become states, imposed and then abolished faculty and income taxes, and not one of those colonies/states sank into the sea when those taxes were repealed. And nine states currently do not levy them. This may be a radical thought for some of you being that income taxation is all you have ever known. How easy it is to assume that what is has always been, and therefore must always be. Not so! You may now say with full confidence and accuracy: a state income tax is not necessary to the existence of any state. If I can convince you of just that, I'll be happy.