March 28, 2005
It’s that time of year again, when in a frenetic mess we all try to perform our solemn duty of paperwork imposed upon us by the machinations of our state: income tax. It’s a time-honored tradition dating back as long as we can remember, and our government is fair and equitable when it comes to our finances. Besides, this country was founded on beautiful, timeless self-evident truths, and our government’s principles are all derived from them.
Right? Right? Well..
It’s striking to go back to the original complaints of the Colonies against the tyranny of George III and consider their voices in modern times. Foremost among their concerns, as laid out in the Declaration of Independence, were taxation without representation. These reasons were sufficient to develop among themselves a new form of government.
From the Declaration of Independence:
That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, —That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
After the formation of the United States, the government was, as it has always been, supported on taxes and tariffs. Income tax was instituted only in dire times of war - the War of 1812 and the Civil War chief among them. In fact, the income tax system as we know it was only instituted in 1913, with Amendment XVI. Here it is:
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.
Fairly broad, isn’t it? There is no mention of equity at all - in fact it’s specifically disregarded. The most obvious case is seen on District of Columbia license plates, which state: “Taxation Without Representation”. While I appreciate the requirements needed to pass an Amendment, and the dignity of the office of the Congress, the promulgation of the tax law in the political zeitgeist of the 20th and 21st centuries is alarming. Take for example the growth of the tax code since its inception: see here - (the image is a bit larger than I’d like, courtesy of CCH). In addition to this, there are 526 separate tax forms. There are 1.2 million paid tax preparers. (From the Cato Institute)
Occasionally the concept of a flat tax, sweeping across the board for all citizens, rears up into the media. There’s a very simple reason why (unfortunately) a flat tax will never happen, at least in our current political environment. Politicians use taxes as a rallying point, either for or against themselves or others, condensing those 54,846 pages into a nice 15 second sound-byte so they may retain their seat of power.
However, here’s what a flat tax would do. Currently, the wealthiest 1% of the population pay 24.8% of the taxes (they have 38% of the wealth). On average, these households pay roughly 3.5% of their wealth in taxes. The bottom 40% on average pay 163% of their net wealth. With a flat tax of 10.5% across the board, that same bottom 40% would be cut by 94% and the wealthiest would pay 300% more. (Information from Congressional Budget Office and United for a Fair Economy, courtesy of OSJSPM)