Posted by
Keith Lehman on Tuesday, January 23, 2007 10:14:58 AM
It is that time of the year again, the time that most
of us dread, even if we use the “short form” method of filing. Yes, I am
talking about income tax. And, it seems that the American voter doesn’t think
about this until it is this time of the year that ends on April 15th -
despite the fact that the solution is in Congress being ignored. And when that
deadline is done, all the paperwork is done, the people who make a living from
your aggravation and misery that our government requires us to do and they
receive their compensation for preparing the paperwork and filling out the
complicated forms – you either get a refund or write a check to the branch
known as the IRS (Internal
Revenue Service). Then there is a state of amnesia when it comes to this
misery because the human brain naturally wishes to put aside negative thoughts
and experiences – until the same period the following year. And year after year
the system gets more complicated as the government figures out new ways to
forcefully deduct funds from your paycheck before you get it and then what is
collected from some taxpayers, those who really are carrying the tax burden, is
redistributed to other citizens. And some of those who are receiving “refunds”
are not only getting back what little they paid, but are getting an additional
amount in their refund checks through government created entitlements called tax
credits. And all those who have paid throughout the year and seem so pleased
and thankful they are receiving a check instead of writing one out do not
realize that the government is holding your money without compensation in the
form of interest – yet, if you are found to have underpaid for one reason or
another, too often you are compelled to not only pay the difference owed, but
interest and penalties. And every year the paperwork gets more complicated in a
tax system that is not only unfair, but inefficient and costly for the
government and the taxpayer alike. The nightmare stories of those involved in
tax-related incidents are numerous. The growing number of citizens within this
tax system that receive more annually than what they put in is increasing,
which forces the government to restructure the tax laws (whose pages grow
yearly) in a manner that will squeeze more out of those that receive a higher
income in order to pay for the entitlements and still receive funds in order to
pay the government’s spending bills. Then after realizing how out of budget
they are, elected officials in the government look to either raise the taxes of
certain income level citizens or create a taxation in an area that wasn’t taxed
before – all the while not looking for ways to cut spending (in a serious
manner) and at the same time increasing the bureaucracy (that brings more cost)
to the government. And while foreign governments have learned from their
mistakes and America’s when it comes to the way in which they collect taxes,
our American bureaucrats continue to hang on to a tax system that was argued
against, but still was ratified February 3rd, 1913. It is called
Amendment XVI (16th Amendment), which states:
The Congress shall have power to lay and collect taxes
on incomes, from whatever source derived, without apportionment among the
several States, and without regard to any census or enumeration.
In the creation of our nation as a sovereign entity,
after a declaration of independence and a bloody revolution – and several years
of discussion, drafting and planning, the U.S.
Constitution was officially declared the law of the land and a concrete set
of rules for our government to follow. And, as time went by, the Constitution
was appended by adding amendments that has come to be known as the Bill
of Rights (actually the first ten amendments). In respect to taxation and
the collection thereof, the U.S. Constitution provides that 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.
And that –
Representatives and direct taxes shall be apportioned
among the several States which may be included within this Union, according to
their respective Numbers …
And that –
No Capitation, or other direct, Tax shall be laid,
unless in proportion to the Census or Enumeration herein before directed to be
taken.
Wikipedia –
The power to impose taxes (whether deemed direct or
indirect taxes) is granted by Article I, section 8, clause 1. Indirect taxes
(or “excises,” in the parlance of the text of the Constitution) are required to
be geographically uniform, according to Article I, section 8, clause 1 and the
court decisions interpreting that provision (see Knowlton v. Moore and Flint v. Stone Tracy Co). Until the
ratification of the Sixteenth Amendment, all direct taxes were required to be
apportioned among the states according to each state’s population, per Article
I, section 2, clause 3 and Article I, section 9, clause 4. This essentially
meant that the dollar amount of direct taxes imposed on the taxpayers in any
given state was required to bear a relationship to the dollar amount of direct
taxes imposed in the entire nation that was equal to the ratio of that state’s
population to the total population of the nation. Prior to the 1895 Supreme
Court decision in the case of Polock v. Farmers’ Loan & Trust Co., all income
taxes had been considered to be excises (indirect taxes) required to be imposed
with geographical uniformity, but not required to be apportioned among the
states according to population. The Wilson-Gorman
Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes
over $3,000, Derided by its opponents as “communistic,” it was challenged in
federal court. Until that time, direct taxes had been deemed to include only
capitations, or poll taxes (taxes directly on persons) and property taxes
imposed on property by reason of its ownership (generally, ordinary ad valorem
property taxes). Until 1895, all income taxes – regardless of the sources of
the incomes – had been considered indirect taxes (“excises”). … The Pollock
ruling made imposition of an income tax politically unfeasible from 1895 until
the ratification of the Sixteenth Amendment. At the same time, Congress was
reflecting the growing concern among many elements that the wealthiest
Americans had consolidated too much economic power. … the Sixteenth Amendment
was passed by the Sixty-first Congress and submitted to legislatures of the
several states on July 12th, 1909. The amendment was the crowning
feature of a larger trend of legislative action meant to curb the power of the
wealthy. … The amendment was ratified by 42 states: Alabama, Kentucky, South
Carolina, Illinois, Mississippi, Oklahoma, Maryland, Georgia, Texas, Ohio,
Idaho, Oregon, Washington, Indiana, Montana, California, Nevada, Nebraska,
North Carolina, Colorado, Kansas, Michigan, Iowa, Missouri, Maine, Tennessee,
Arkansas, Wisconsin, New York, Arizona, Minnesota, Louisiana, West Virginia,
New Mexico, Delaware, Wyoming, Vermont, New Jersey, Massachusetts, and New
Hampshire. Ratification was rejected by Rhode Island, Utah, Connecticut, and
Florida. Virginia and Pennsylvania failed to complete action on the amendment.
In the Supreme Court case of Bowers v. Kerbaugh-Empire Co., Mr. Justice
Butler said:
It was not the purpose or the effect of that amendment
to bring any new subject within the taxing power. Congress already had the
power to tax all incomes. But taxes on incomes from other sources had been held
to be “direct taxes” within the meaning of the constitutional requirement as to
apportionment. The Amendment relieved from that requirement and obliterated the
distinction in that respect between taxes on income that are direct taxes and
those that are not, and so put on the same basis all incomes “from whatever
source derived.” “Income” has been taken to mean the same thing as used in the
Corporation Excise Tax of 1909 (36 Stat. 112), in the Sixteenth Amendment, and
in the various revenue acts subsequently passed. After full consideration, this
court declared that income may be defined as gain derived from capital, from
labor, or from both combined, including profit gained through sale or
conversion of capital. … In Commissioner
v. Glenshaw Glass Co., the Supreme Court laid out what was become the
modern understanding of what constitutes ‘income’ to which the Sixteenth
Amendment applies, declaring that income taxes could be levied on “accessions
to wealth, clearly realized, and over which the taxpayers have complete
dominion.” Under this definition, any increase in wealth – whether through
wages, benefits, bonuses, sale of stock or other property at a profit, bets
won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions –
are all within the definition of income, unless Congress makes a specific
exemption as it has for items such as life insurance proceeds received by
reason of the death of the insured party, gifts, bequests, devises and
inheritances, and certain scholarships.
The definition of income tax, as posted at Wikipedia:
An income tax is a tax levied on the financial income
of persons, corporations or other legal entities. Various income tax systems
exist, ranging from a flat tax to a progressive tax or graduated income tax
system. A tax levied on the income of companies is often called a corporate
tax, corporate income tax or corporation tax. Individual income taxes generally
tax the total income of the individual (with some deductions permitted), while
corporate income taxes often tax net income, the difference between gross
receipts, expenses and additional write-offs. … Tax rates may be progressive or flat. A progressive tax
taxes differentially based on how much has been earned. For example, the first
$10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more
income at 20%. Alternatively, a flat tax taxes all earnings at the same
rate. A tax system may use both progressive and flat taxes for different types
of income. Often income tax systems will have deductions available. Deductions
lessen the total tax liability by reducing total taxable income. … Income tax
is often collected on a pay-as-you-earn basis, with small corrections
made soon after the end of the tax year. These corrections take one of two
forms: payments to the government, for taxpayers who have not paid enough
during the tax year; and tax refunds from the government for those who
have overpaid.
When the United States was a young nation, from 1791
to 1802, the government levied few taxes and was supported by internal taxes on
distilled spirits, carriages, refined sugar, tobacco and snuff, property sold
at auction, corporate bonds, and slaves. The high cost of the War of 1812
brought about the nation’s first sales taxes on gold, silverware, jewelry, and
watches. In 1817, Congress did away with all internal taxes and relied upon
tariffs on imported goods to provide enough funding to operate the government.
In 1862, in order to support the Civil
War, Congress enacted America’s first income tax law, and was based upon
the principles of progressive taxation and withholding income at the source.
During the Civil War, a person earning from $600 to $10,000 per year paid tax
at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a
higher rate. Additional sales and excise taxes were added, and an “inheritance”
tax also came to be imposed. The Act of 1862 created the office of Commissioner
of Internal Revenue, who had the power to assess, levy and collect taxes, as
well as the right to enforce the tax laws by seizing property and income and
through prosecution. This power and authority remains today in the office of
the Internal Revenue Service, known as the IRS.
In 1981, Congress passed the largest tax cut in U.S.
history that totaled approximately $750 billion over a six-year period. On
October 22nd, 1986, President Reagan signed into law the Tax Reform
Act of 1986, one of the biggest reforms in the tax system since it began in
1913. The top tax rate on individual income was lowered from 50% to 28%, the
lowest it had been since 1916. At the same time, the act also increased
business taxation with a decrease in individual taxation over a five-year
period. Political opponents jokingly called it “Reaganomics” – but they quit
laughing when the economic boom of the 1980s kicked in and they say the benefit
of it.
President Clinton signed the Revenue Reconciliation
Act of 1993 on August 10th, 1993 that reduced the federal deficit by
about $496 billion. In 1997, President Clinton signed another tax act, this
time cutting taxes by $152 billion, which included cuts in capital-gains taxes
for individuals (because more middle-class citizens were involved with stocks,
securities, and bonds that was previously considered only for the wealthy); a
child tax credit of $500, and tax incentives for education.
President George W. Bush also signed a series of tax
cut laws, which have been estimated to save taxpayers across the board $1.3
trillion over a ten-year period, which is the third largest tax cut since World
War II. The cut also created a new low tax rate – 10% for the first several thousand
dollars earned. It also established a schedule of incremental tax cuts that
will double the child tax credit from $500 to $1,000 with adjusted tax brackets
for middle-income couples who owe the same tax as compared to middle-income
single citizens and cut the four tax rates across the board (28% to 25%; 31% to
28%; 36% to 33%; and 39.6% to 35%). Congress also passed a series of tax brakes
that included an option to deduct the payment of whichever state taxes were
higher, sales or income taxes – something you will see in this year’s income
tax filing paperwork.
Presently, as of January 16th, 2006,
according to the Heritage
Foundation (Dr. Stuart
M. Butler, PhD, Domestic and Economic Policy Studies), federal taxes take
about 17% of the Gross Domestic Product (called the Gross National
Product before the 1980s), “GDP” as an acronym. And while the figures show
that the recent tax cuts slowed the growth rate of taxes, it hasn’t solved the
problem of the inefficiency and unfairness of the income tax system itself.
State and local taxes also add another 10% to the average a family pays.
Presently, a person born this month will be paying at least 25% before the
child reaches the age of 45. In other words, if income tax is still in place,
it will double. If a national sales tax is enacted it will be over 20% if
Congress (and the White House) continues to expand its bureaucracy and continue
on its present spending course. This means doubling taxes on both the employer
and the employee – and that is not good for business, nor is it good for the
economy as a whole. Meanwhile, the cost of living will continue to rise with
little chance of our wages coming close to catching up. What will happen in the
economic picture of the United States is what is happening in Germany and
France today.
The income tax is inefficient for a couple of reasons:
(1) the cost of collecting it is now 22-cents for every dollar collected; (2)
there is a greater chance of “cheating” the system for the mere reason of its
complexity and loopholes that even employees of the IRS cannot comprehend. In
2005,
The 265.1 billion compliance burden represented over 6
billion hours spent by individuals, businesses and nonprofits complying with
the federal income tax code. [Tax
Foundation, Special
Report No. 138]
As far as cheating the system, there is another source
of this practice and it may or may not surprise you, as described by a member
of the Acton Institute of
Religion and Liberty, Karen Woods:
… With charitable giving running at $245 billion a
year, even the recent string of disasters – the Asian tsunami, Pakistan
earthquakes, and the Gulf Coast hurricanes, it doesn’t seem to have fatigued
donors. The Center on Philanthropy at the University of Indiana estimates that
some $5 billion was donated to Katrina and tsunami relief last year, and that
philanthropic giving overall was actually spurred by these events. So it was
not a little surprising to read the lead article in the Winter 2005 issue of
Stanford Social Innovation Review and learn that U.S. philanthropy, whether
aimed at educational programs or projects designed to help the needy is
shortchanging the poor. Charitable giving is actually a federal subsidy that
benefits wealthier people more than the poor, argues author Rob Reich. … First
of all, a gift of money or goods and the resulting tax deduction is only a
government subsidy if you believe the money or goods belonged to the government
in the first place. …wealthy people get a bigger write-off than poor people
because poor people can’t give to charities – they’re poor. And, finally,
private charity works faster, better and closer to the problem. The evidence
that government does a sorry job of helping the needy is everywhere before us.
… The real problem with government ‘charity’ is that government takes a
‘one-size-fits-all’ approach to the problem of poverty. That, really, is all a
bureaucracy can do. Government agencies are not designed to understand unique
circumstances or to care about personal problems. And government certainly is
not equipped to provide total coverage for major disasters like the Gulf Coast
hurricanes. Government also pretends to distribute its help in an equitable and
even-handed manner, an error of policy that results in waste, fraud and
corruption. Just wait till government auditors dig into the FEMA program that
put hurricane evacuees into thousands of hotel rooms across the country, many
of the rooms paid for but empty. To be sure, nonprofits don’t get a free pass
on waste and fraud. … From the declaration of the War on Poverty to the decade
of the 1990s, some $5.4 trillion government (i.e., taxpayer) dollars were
targeted to poverty programs. The poverty rates in 1990 were almost exactly the
same as 1960. … Historical evidence is quite clear: Governments do a bad job of
alleviating poverty. Making social justice the equivalent of wealth
redistribution isn’t a new idea, but it’s still a very bad one. So let’s drop
all the talk about the government’s generosity in subsidizing American
philanthropy.
Now that the Democrats are back as the majority of
congressional members, we can look forward to taxes being raised and/or new
ones devised, based upon the conception that the wealthy should pay even more
than they do; yet polls have shown that Americans think that the tax rate
should be no higher than 20% regardless how much anyone makes. It is because
most realize that the “wealthier” American provides a means of employment and
income-producing opportunities for the rest of us. Since the Contract
With America of 1994, there has been a movement to either go to a flat
income tax or delete the 16th Amendment and go to a flat consumption
tax, and it is backed by leading economists across the nation who have
demonstrated that it would benefit not just the American people, but our
government as well – promoting a step in the reform of U.S. government in an
effort to reduce its intrusiveness and increase its efficiency (performing its
duties with less instead of more). But this reasonable and viable solution has
met opposition all along the way, providing obstacles to tax reformation. Freedom Works:
One major obstacle to tax reform is the confusion in
the minds of most Americans (and many members of Congress) about average versus
marginal tax rates. … People make decisions on the basis on their marginal
rates, not their average rates. Thus, you may be offered an opportunity to take
on an extra money making project, but if your marginal tax rate is 30 percent,
(even though your average tax rate is only 15 percent) you may decide the extra
effort is not worth it, if you are only going to get 70 cents out of each extra
dollar you earn. … The first obstacle is getting agreement about whether to
make the system more or less progressive. The second obstacle is making sure
that there are more winners than losers (which is tough to do without actually
cutting taxes). The way to overcome the obstacles is to greatly broaden the tax
base by getting rid of all deductions and exemptions (with the exception of the
personal deduction for each taxpayer and dependent), and then reducing the
existing marginal rates to roughly the current average rates. … The imposition
of the above as a replacement income tax system would produce as much revenue
as the current tax system. However, in the short run, it would cause some
people to have higher tax bills. This is because they built their financial
lives around the existing system. … The above proposed tax reform is far from
perfect (the maximum marginal rates would still be too high, and productive
savings and investment would continue to be double taxed), but it would be far
less economically damaging, greatly simplify peoples’ lives and reduce the
ambiguity in the current system. However, its greatest virtue is that it should
be politically doable because it provides a greatly simplified alternative,
while avoiding the fight over whether to make the system more or less
progressive.
HM, Illinois, recently sent an email with a list of
the taxes we pay all our lives, something that has been floating around the
Internet for some time with different variations and added comments at the end.
Here is a list of taxes we pay now that many did not exist 100 years ago:
Accounts Receivable tax, Building Permit tax, CDL License tax, Cigarette tax,
Construction tax (fees other than building permits), Corporate Income tax, Dog
License tax, Federal Income tax, Federal Sales tax (excise, like tires and
certain imported items), Federal Unemployment tax (FUTA), Fishing License tax.
Food License tax, Fuel Permit tax, Gasoline tax (presently 48-cents per gallon
average across the nation), Hunting License tax, Inheritance (“Death”) tax,
Interest Earned (double taxation because the interest earned on a savings
account is a tax that was already taxed on the money that was put into the
savings account in order to earn interest), Inventory tax (not quite sure about
this one), IRS Interest Charges, IRS Penalties (double taxation or triple, if
you count the original amount of tax owed being charged interest &
penalties), Liquor tax, Luxury (certain personal property, like boats &
motor homes) tax, Marriage License tax, Real Estate tax, Service Charge tax,
Social Security (considered a tax because the money paid in is not under the
individual’s control), Road tax, State Sales tax, School tax, State Income tax,
State Unemployment tax (SUTA), Telephone Federal Excise tax (which we will get
a rebate on part of because the government was still charging us for the
Spanish American War tax tacked on to telephone charges even though the war
ended August 1898), Telephone Federal Universal Service Fee tax (thanks to Al
Gore’s idea that ‘poor’ people in America need computers), Telephone Federal,
State and Local Surcharge tax, Telephone Minimum Usage Surcharge tax (what you
are charged when you try to save money by not using your telephone much because
you’re budget is strapped from paying all these taxes plus the higher cost of
living, such as utilities and fuel with no increase in income), Telephone
Recurring and Non-Recurring Charges tax (I can’t figure out this tax’s
justification), Telephone State and Local tax, Telephone Usage Charge tax
(versus the “non-usage”), Utility tax, Vehicle License Registration tax,
Vehicle Sales tax, Watercraft Registration tax, Watercraft (according to size)
Sales tax, Well Permit tax, Workers’ Compensation tax, Zoning tax (applied in
some state and/or local communities). And HM, adds that she still has to “Press
1” for English. Which is another expense passed on to taxpayers – the bilingual
system of the added cost of printing documents, government instructions and
even instructions at the voting booth in both Spanish and English.
In a general sense, all contributions imposed by the
government upon individuals for the service of the state, are called taxes, by
whatever name they may be known, whether by the name of tribute, tythe,
tallage, impost, duty, gabel, custom, subsidy, aid, supply, excise, or other
name. Joseph Story (Commentaries
on the Constitution, 1833)
Representative John Linder (R-GA), who was the co-author
of Linder/Peterson Fair
Tax Act, H.R. 25, the first bill submitted at the opening of the
109th Congress of 2006, says that employees should get 100% of their
pay earned (no more “net earned” entries on your pay stub) unless there are
employee approved deductions or legal garnishments involved. Federal, and
eventually states, will have to rely on excise or consumption tax because the
income tax and the 16th Amendment must go the way of the Dodo bird –
extinct. If you are not familiar with the Fair Tax Act, please take a moment to
visit John Linder’s new Fair Tax website, where you can find answers to
questions about the make-sense tax reform proposal that President Bush and
members of Congress have ignored for too long. Ask any economist worth their
salt and they will tell you that tax reduction is only a temporary fix for a
failing economy – real tax reform is the long-term solution. John Linder will
explain why with information and input gathered from leading economists around
the nation, as well as in discussions for the past five years in congressional
committees – and the bill still sits waiting to be recognized by the majority
of members of Congress to vote upon. Remember, it takes a 2/3 majority in order
to rescind an amendment to the Constitution. It is time to make April 15th
just another day and the 16th Amendment null and void forever. Let’s
have a tax system that doesn’t give the government power over our paychecks or
the power to use the income system as a fulcrum to wedge against our
freedom/liberties.