How should we let the federal government tax us? Over the years, and especially during presidential campaigns, this subject has probably received more attention than any other. In our current election year, one candidate has centered his campaign around the proposal for a flat income tax. In the race for the Republican nomination, there is little enthusiasm for the present tax system. They all seem to realize it has to go. Amazingly, however, in all the debating, only one candidate has even hinted of the Founders' wisdom as contained in their original constitutional formula.
The Founders had the Answers to America's Tax Problems
Since the founding of NCCS in 1971, we have been making the bold declaration that the Founders had answers to nearly every problem that exists in America today. The problem of federal taxation is no exception.
When the Founders gathered at the constitutional convention in 1787, they had already concluded, mostly from experience, at least five things about taxes:
- An assessment or requisition against each of the states is impossible to enforce without inviting civil war, since the only way to collect the money is by sending in a federal army to coerce the state into paying.
- It is important to distinguish between direct and indirect taxes. For example, duties, imposts, and excise taxes are taxes on "things," not on states and not on individuals. These are what we call "indirect" taxes, since they can be passed on to the person who is the final purchaser of the goods and thereby pay the tax "indirectly." Indirect taxes are much less painful to collect than direct taxes, since direct taxes are levied directly against individuals and their personal property and cannot be passed on to anyone else.
- Because the demands of the federal government were expected to be modest, it was felt that the duties on imports would be sufficient to operate the federal government in ordinary times.
- It was recognized, however, that in case of war or dire emergency it would be necessary to impose direct taxes on individuals and their property. Experience had demonstrated that direct taxes are deeply resented by the people, especially those of considerable wealth, who find large quantities of their personal assets being expropriated whereas others will be giving up far less. Direct taxes are always perceived as being unfair to the individual no matter how carefully they are collected.
- In allocating or apportioning any direct taxes to the various states, the Founders had concluded that these should be based on population rather than wealth, since wealth is too difficult to calculate. (See The Making of America, page 372)
Income Taxes were Unconstitutional
As a result of these strongly held beliefs, the Founders included several provisions in the Constitution which would leave no doubt about how the federal government could tax us.
Article I.8.1: "The Congress shall have power to lay and collect taxes, duties, imposts, and excises..; but all duties, imposts, and excises shall be uniform throughout the United States."
This provision delegated to the Congress for the first time the right to collect general taxes from either the states or the people themselves; also duties (on imports, exports, or manufactured goods); imposts (a tax on imports of various kinds similar to duties); and an excise tax (a federal sales tax).
Article I.2.3: "Representatives and direct taxes shall be apportioned among the several states ... according to their respective numbers."
This provision tied representation and taxation together so that both would be based strictly on population counts and not on any other basis such as wealth or income.
Article I.9.4: "No capitation (tax of so much per person regardless of circumstances) or other direct tax shall be laid except in proportion to the census or other enumeration herein before directed to be taken."
There were a few acts of past governments which proved so disastrous to the people's liberty that the Founders wanted to specifically prohibit our federal government from doing them. This was one: that absolutely no tax on income or wealth could be levied by the federal government. They knew it was impossible to determine and collect without violating the privacy rights of the people.
Two Shining Presidential Examples
The two most successful presidents in handling taxes were Thomas Jefferson and Andrew Jackson.
Jefferson was determined to keep the cost of the federal government within the available revenue coming in from imports. He therefore had the prevailing excise taxes repealed, abolished the internal revenue system, and began selling public lands. He was able to pay off half of the enormous Revolutionary War debt in eight years.
Andrew Jackson took a similar position. He sold public lands until he had completely paid off the national debt and had a substantial surplus. He therefore returned $28 million to the states!
How Did We Ever Buy Into a Graduated Income Tax?
In 1986, NCCS published the scholarly work of Christopher Stuart Young called "Death of the 1040: Replacing the Federal Income Tax." Here are excerpts from his excellent research:
"With the benefit of hindsight, let us explore the principles on which the federal income tax is based and review a little of its historical context. From its beginning in 1913 to its present form, our income tax has been 'progressive' or graduated, based on the belief that income brackets provided the best way to measure a person's ability to pay and the most equitable way to distribute the cost of financing government.
"At first this seemed fair; taxes were light and everyone seemed to benefit equally. The first tax ranged from 1 percent on the first $20,000 of taxable income to 7 percent on income above $500,000.
"However, as government increased its role in financing social programs, income taxes became heavier and heavier, and the inherent nature of our progressive income-tax system became apparent: it was a tool for forced redistribution of wealth by the state.
"Perhaps not many Americans today recognize redistribution of wealth by the state as a major goal of communism. Karl Marx and Friedrich Engels, authors of The Communist Manifesto in 1848, would be pleased to see that we have come to tolerate and even embrace one of their major tenets designed to facilitate the conversion of an 'advanced' free-market nation to communism.
"Tenet No.2 of The Communist Manifesto calls explicitly for 'a heavy progressive or graduated income tax.'
"Is it any wonder that we experience injustice and confusing complexity as we strive to adapt this communistic method of taxation, a progressive income tax, to what we uphold as sacred-a free society and a free economy that enjoys the creative and productive motivations of free enterprise?
"This should be much easier for us to recognize today than for those who viewed the world in 1913. Communism was yet waiting for Russia's Bolshevik Revolution in 1917, and for its champion, Vladimir Lenin. However, today we have no valid excuse not to be gravely concerned, as we can easily view the sad results experienced by those who have chosen to embrace communistic principles throughout the world.
"Simply put, an income tax is not appropriate for a free society; it's like a square peg being forced into a round hole. The time has come for a tenacious grass-roots movement across America to bring about the replacement of our current tax system by one that is more compatible with the principles of freedom and prosperity.
What About a Flat-Rate Income Tax?
"For example, the recently popularized flat-rate income tax and 'modified flat tax' alternatives promise to eradicate much of the confusion and injustice of our current income-tax system by eliminating most of its loopholes, deductions, and credits, as well as by lessening or eradicating our present graduated tax rates. However, adopting a flat-rate income tax would be like putting new wine in old bottles, or a new piece of cloth on an old garment-a losing proposition.
"A flat-rate income tax, although simpler and with fewer loopholes, still would not adequately broaden the tax base. In other words, it would not distribute our tax burden to enough new sources of revenue.
"For instance, a flat-rate income tax would not provide a way to tax the 'underground economy'-$300 billion plus of illegally and legally earned income now unreported every year. It is also just as coercive as our current progressive income tax and therefore would remain adversarial, maintaining most of the distance and mistrust currently existing between citizens and their government.
"The flat-rate income tax would not increase motivation to save, and would decrease motivation to invest as associated deductions would be eliminated. It would not put downward pressure on either interest rates or inflation. And, last but not least, it would still require a massive amount of bookkeeping, as well as maintaining the threat of individual tax audits.
The Founders' Answer -- A National Sales (Excise) Tax: Simple, Fair, and Efficient
"Instead, I propose a flat-rate national sales tax on goods and services in the place of federal income tax. I have found nothing simpler, fairer, or more efficient. Therefore I have chosen to call it the National Equity Sales Tax, or NEST.
"Simplicity: A national sales tax would not require individuals to figure or file any tax forms, and it could be easily figured by business. It would not require accountants, lawyers, or other preparers to wade through over 5,000 pages of the tax code to interpret and fill out complex tax forms so that taxpayers can file.
"Fairness: A flat-rate national sales tax would be fair in that the more one spends, the greater the amount of tax he pays. Everyone would be taxed equally. Currently, in areas where the cost of living is high-such as California, Hawaii, New York, and Alaska- incomes are often higher also, pushing the people into higher tax brackets. People living in these states are taxed more heavily than people in low-cost-of-living states. A flat-rate tax would eliminate this penalty. A sales tax applied to services as well as goods also tends to be more progressive, since the wealthier persons and families are, the more services they tend to use or 'consume.' "A national sales tax would be noncoercive and would not compromise the privacy and liberties of the people as income tax does. A person would be taxed when he chose to consume.
"Efficiency: A national sales tax would encourage savings and productivity without unduly influencing individual decisions on how much to work, how much to save, and where to invest. It would not, as our income tax does, impose marginal rates that penalize people who put in longer hours to earn more income. It would not punish savings or reward borrowing. And there would be no loopholes. Its much broader tax base would assure much lower tax rates. Lower rates, in turn, yield less resistance and less tax avoidance. The facts that tax payments are always current, are known at the time of purchase, and are spread over the many occasions of transaction during the year also contribute to low resistance and low tax avoidance." Tear the Income Tax Out by Its Roots
Congressman Bill Archer, now Chairman of the powerful U. S. House Ways and Means Committee said, after being appointed to this most influential position on tax matters, said:
"The day after my election, I announced that my goal before I leave the Congress is to tear the income tax out by its roots and throw it on the side of the road. To replace it, I thought originally a flat [income] tax would be the best thing to do. But now I believe there's an even better thing to do, and that's to go to a broad-based consumption (sales) tax."
Death of the 1040 - Spread the Word!
One of the most effective things a citizen can do this election year is to get this message on taxation to our representatives and candidates on both the federal and state levels. With debates happening almost daily, why not inject some "Constitutional wisdom" from the Founders? Those running for office are very sensitive to the pulse of the people right now. Make copies of this newsletter or request additional copies and distribute them to these candidates.
Also, NCCS has additional copies of Death of the 1040: Replacing the Federal Income Tax, explaining how and why we should replace the federal income tax, graduated or flat, with a national consumer sales tax. If you would like a copy of this pamphlet please indicate so when you send in your donation. It is also available on NCCS's home page on the Internet at http://www.xmission.com/~nccs
Thank you for continued support of NCCS.
Earl Taylor, Jr.