Some readers have told me that they get the whole “income
tax isn’t necessary” thing. I don’t know
if those who have said this have always been aware of that fact, or if they had
at first assumed it was necessary and then changed their mind upon a little
reflection. If you understood this point
before I brought it up, I am not meaning to talk down to you or belabor the
point. I am writing from my perspective; my history. Personally, I was completely
apolitical for most of my life and prided myself in not really thinking about
anything that concerned government or politics or economics or anything like
that. I was a musician and only had time
for my art. I figured that all the angry,
shouting people would take care of all that other stuff. So, it never occurred to me until a few years
ago that the income tax was unnecessary, and I was rather shocked when I
recognized it because I had always assumed the opposite.
It’s great to know that there are some out there who
get this point (it’s actually quite encouraging), but my sense is that if one
were to interview the “man on the street” and ask if the income tax is necessary,
the overwhelming majority of those asked would answer, in a knee-jerk fashion, “Of
course!” And the next thing out of their
mouth would be, “How else would we pay for [x, y, and z]?” Their tone would probably suggest that you
asked a dumb question. I am writing to
those people right now and trying to help them to see that their rhetorical “How
else?” is not only a question that can
be asked, but one that should be
asked.
That was the overall point of last night’s post:
there are states currently in the Union that have asked, “How else?” And they’ve come up with answers – not
necessarily the same answers in each of those nine states, but they show that
the possibility exists of financing civilization without an income tax. History shows that this has always been
possible.
But before moving on, allow me to give you a small
glimpse of Day Seven in my dealings with the IRS.
I was driving my youngest to school this morning and
telling him that I’d be visiting the IRS office later to update them with my
progress. My boy asked, “But dad, after
you file those missed returns, do you think you’ll be able to pay off all the
debt before you die?”
“Well,” I said, “I think the income tax will die
before I do.”
Isn’t it sad in this country that anyone should have
to worry about debt incurred while
earning their living? (If you don’t see
a problem with that now, then maybe after tomorrow’s post.)
Now, in terms of the necessity of an income tax at
the federal level, I am going to quote from a book I have referenced before in
these posts, Seligman’s The Income Tax,
written in 1911 by an expert on the subject to encourage the adoption of this
form of taxation here in America. As one
in support of the income tax, Seligman does not hide the fact that, as far as
raising revenue to pay for “x, y, and z,” the income tax is not necessary. This should come as a surprise to the average
American who, for the most part, assumes that the income tax must have entered
the scheme of taxation years and years ago because America just needed the
money. Seligman not only turns that
assumption of ours on its head, but goes as far as to show that the federal
taxing scheme that existed at the time was easily raising all the revenues
needed by the federal government, and could even be tweaked without a lot of
fuss to raise far more. (FYI, most of Seligman’s argument for the income tax
was based on “ability to pay,” or the idea that the wealthy would pay their “fair
share.” The last hundred years has made
this argument laughable. It only looks
good on paper. Based on many of the
things he says in the book, it is my opinion that if he were still around, Seligman
would be encouraging us to move on from the income tax.) Here is the quote regarding the necessity of
a federal (and even state) income tax in terms of raising money to pay for
stuff (a long quote, but very valuable):
“In the first place,
then, what are the revenue considerations attaching to the income tax? So far as national taxation is concerned, it
will scarcely be doubted that the income tax is not needed – at all events not
for purposes of normal revenue. For over
half a century before the Civil War, all the necessities of the federal
government were met by the tariff [a tax on foreign goods]; and since then the
internal revenue, which was imposed to defray the war expenses, and retained to
pay the interest and principal of the debt, has been continually reduced in the
rate of tax and restricted in the choice of commodities subject to tax. [Internal revenue refers to what he will soon
mention as excise taxes – taxes on goods produced here, like liquor and tobacco.] For several decades before the Civil War the
tariff was primarily a tariff for revenue; since then it has become a tariff
for protection, with incidental revenue.
This is not the place to consider the merits of protection versus
so-called free trade; but it is reasonably certain that in the form either of a
protective or a revenue tariff, the customs duties [another term for tariff],
in addition to a moderate and restricted application of internal revenue taxes,
will continue to suffice for ordinary purposes.
If in future it should become desirable somewhat to diminish the revenue
from the tariff, it would be a simple matter to make good the deficiency by a
slight increase in the rates of the existing excises, or by a small addition to
the articles subject to excise [in other words, if we want to lower the tariff,
we can make up the lost revenue by raising the current tax rates on liquor,
tobacco, etc., or add the tax to more types of goods]. We do not often stop to think what an immense
potential resource is afforded by the excise system. In a country of the prodigious wealth of the
United States it is no exaggeration to say that the entire expenses of the
national government could be easily met by a system of internal excises which
would even then be moderate in both rate and extent. Instead of reckoning our internal revenue by
the few hundreds of millions, we could, without great difficulty, reckon it
almost by the thousands of millions [doesn’t sound like much today, but the
dollar was worth a whole lot more than it is now. Also, I know our government has grown
considerably in the last century, but so have our population, economy, and
wealth. And, hopefully, our intelligence
and creativity.].
“Even when the need for
extraordinary revenue arose, it might in large measure be supplied by further
extending the excises, and supplementing them by stamp and transportation
taxes. It is only in the rare exigency,
when the resources of government are strained to the utmost in a foreign war,
necessitating a resort to every conceivable sort of revenue, that a good
argument might be framed for a national income tax simply as a revenue
producer. Such an exigency, however,
arose during the Civil War, and might easily recur. It is this argument which, as we have seen,
is the convincing one as to the desirability of the passage of the sixteenth
amendment; for when worst comes to worst, no government ought to be without the
power of tapping every imaginable resource.
The question, however, that we are here considering is not whether the
government should possess the constitutional power to impose an income tax, but
whether a national income tax is really needed for ordinary revenue purposes
[what our man on the street called x, y, and z – roads, schools, public health
system, etc.]. Put in this way, the
question must clearly be answered in the negative. As a part of the regular tax system of the
national government, the income tax is assuredly not needed for revenue
purposes.
“If, however, it is not
needed for national purposes, is it needed for state purposes? It cannot be too often emphasized that what
we are discussing here is not whether the income tax is a better or fairer tax
than any other, but whether the existing tax system works so unsatisfactorily
from the point of view of revenue that the income tax is needed as a
supplement. It is obvious that if we
frame the question in this way the answer again is not doubtful. Whatever may be the objections to the general
property tax, it cannot be claimed that it has failed to secure revenue. The questions of a possible inadequacy of
state revenue have arisen not so much in those states which still levy the
general property tax as in those which, like New York, have virtually abandoned
the property tax for state purposes and are securing the necessary revenues in
other ways. Even in such states,
however, an ample fund may be found in the corporation, the inheritance, the
mortgage, the liquor license, and the stock exchange taxes. Whatever force, accordingly, there may be in
the demand for an income tax on the part of either the state or the nation, it
is not to be found in the purely revenue argument.”
This was from the cutting edge of the debate over
the income tax just two years before it became law, the same year the Sixteenth
Amendment and the Federal Reserve were born (no connections
whatsoever, I'm sure!). And what we’ve just read
was from the pro side of the debate! Actually, you’ll be amazed when I share with
you in more detail Seligman’s rousing summary of why the income tax was
desirable, but in a future post. (Remind
me if I don’t get to it within a couple posts of this one.)
So, the goal of these last two posts was to help
those of us who have always assumed the necessity of the income tax for revenue
purposes to begin the process of retraining our minds to bend toward the truth
of the matter. Even if you’re fully or
almost fully convinced by what I’ve shared, you have spent so much time
believing in the necessity of this form of taxation that you will find your
mind drifting back to that belief. My
hope is that tomorrow’s post will make “necessary” or “unnecessary” a moot
point either way. There is a much more
important issue at stake, but understanding that the income tax is unnecessary should help us to see that issue more quickly and clearly.
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