What WAS The Case For The Income Tax?

It’s April again and the tax ads are all over the TV and everything else.  But how did the annual dip into everybody’s pocket get it’s start.

This George Will column is interesting.



Recently I was curious and looked a little bit into how the 16th Amendment  was ratified. For something that completely changed the relationship between the people and the Federal government there seems to have been very little actual discussion about that fact.



Looking at the debate, it seems that there was a lot of talk about what it would do for the government and not as much about what it could do to the people.  Of course back them it was assumed that only a small group of plutocrats would have the tax imposed upon them.  That would quickly change, however.




For something that so dramatically changed the relationship of the citizen and the government so much nobody at the time seems to have paid much attention to what it was going to do.  All the argument seems to be whether the government needed the money or not, which as all the participants were politicians was a fairly easy debate for them.

I’m not sure that the average citizen really understood the consequences.  typical of all Progressive activism the debate was couched in terms of the people against the “moneyed interests.”   They couch things the same way today.  But with 100 years or so of experience it’s all too obvious what an instrument of tyranny the income tax was from the beginning.

 As Madison was forging the Constitution into shape, its democratic character gave him his greatest worry, which he voiced in Number 10 of The Federalist Papers, only to assure Americans that the Constitution’s structure made that fear moot. According to the old, well-known tradition of political philosophy that lay behind the Constitution, the purpose of any government is to protect the citizens’ God-given rights to life, liberty, and property. But in a democratic government—even though the people would directly elect only congressmen, while the supposedly more prudent state legislatures would elect presumably wise and propertied senators and an electoral college the president—couldn’t the unpropertied majority vote to tax away the property of the small minority of rich citizens and give it to themselves? But that would never happen, Madison argued, because in the extensive republic that the Constitution would govern, so many different factions and interests would flourish that no single-minded majority could form that could tyrannize a minority by expropriating its wealth. Redistributive taxation, therefore, was a chimera.

Moreover, as Madison and Hamilton took for granted in The Federalist Papers, which they wrote (with five by John Jay) to urge ratification of the Constitution, taxes would chiefly take the form of import duties or excises on such commodities as whiskey—and these taxes, Hamilton asserted, were naturally self-limiting because if they grew excessive, people would stop buying the overtaxed article, and overall tax revenues would fall. In the unlikely event of an imposition of any direct tax on everybody, or on citizens’ land or wealth, as opposed to these indirect levies, Article I, Section 9 of the Constitution required that it be levied equally or proportionally, though scholars debate the meaning of that clause. But one thing the Framers never dreamed of was a tax on incomes. And for generations, they were right.

But in 1913, after 20 years of Progressive-era agitation, the Sixteenth Amendment, passed by Congress in 1909, won ratification. It imposed a graduated income tax—a direct tax that did not fall proportionally on all. Indirect taxes such as import duties and excise taxes, the argument went, fell disproportionately on the poor and provided too unpredictable a revenue stream to a federal government that Americans increasingly thought needed strengthening. Though the income-tax rates were but 1 percent for incomes up to $483,826, rising to a modest 7 percent on incomes over $11.6 million, the now-constitutional machinery for the tyranny of the majority that Madison had feared was fired up and ready to confiscate wealth as surely as the Stamp Act confiscated property. And since in 1913, the Seventeenth Amendment—instituting direct popular election of senators—also won ratification, the upper house no longer served, even theoretically, as a brake on the passions of the people.

Today, Madison’s nightmare has become America’s everyday reality. By 2010, according to the latest Congressional Budget Office data, the top-earning 40 percent of households paid 106.2 percent of federal income taxes, while the bottom 40 percent of taxpaying households paid minus 9.1 percent, thanks to such refundable tax credits as payments to those with low earned incomes. In addition, those 40 percent of households received such additional transfer payments from the wealth of their more prosperous neighbors as food stamps and Medicaid, plus Social Security and Medicare payments at a much higher proportion to what they paid in than do richer households. In 2011, according to Tax Foundation data, the top 5 percent of taxpayers paid 58.5 percent of total U.S. income taxes, while the bottom 50 percent paid 2.9 percent. And that’s just taxpayers. Transfers to non-income-tax-paying households on welfare can amount to twice what a minimum-wage job pays.

Much of what the Progressive Era had only hoped for, the New Deal brought into being, transforming America’s constitutional structure in ways that such Progressives as Woodrow Wilson, with his belief that the Founders were antique, bewigged figures with views unsuited to modernity’s more informed and effective age of science, statistics, and professionalism, had urged. Wilson, argues author Freedman, saw “the Founders’ checks and balances as an unnecessary drag on the efficiency of government,” which should be a vast mechanism in which expert bureaucrats with advanced degrees—working altruistically in nonpolitical agencies like the Interstate Commerce Commission, formed in 1887, or the Federal Trade Commission, founded during Wilson’s presidency—would smoothly institute what advances in economics and social science would reveal as the common good. In 1908, Wilson swept the Founders and their cobweb-covered Constitution into the dustbin of history. “No doubt a great deal of nonsense has been talked about the inalienable rights of the individual, and a great deal that was mere vague sentiment and pleasing speculation has been put forward as fundamental principle,” he wrote. By contrast with the Founders’ musty parchment, he continued, “Living political constitutions must be Darwinian in structure and practice.” Can’t get much more up-to-date and scientific than evolution.




Almost from the day of imposition, the IRS has been a tool of fear and punishment by the government.  In the name of taxation people have had their due process rights discarded and property confiscated without that due process.  The people have lost any privacy in the way in which they conduct their affairs.

It has reached the point where even free political activity is stifled by the fear of the taxman.  A taxman that has no fear of retribution for his actions. Once the damage is done all citizens can do is hope that a lawsuit will gain them some recompense.


Look at the sheer arrogance of the current IRS commissioner. This is a crook immune from the slings and arrows of the law because he IS the law.  And those peasants that are insisting on their rights had better watch out or the commissioner’s crew will squash them.


Apparently nobody in the early 19th century understood the potential impact of “From Each According to his means.”

The primary goal of this revolution was to reach

the wealth engendered by the rapid and large-scale industrialization

of the late nineteenth century. It aimed to create a system of

taxation based on two guiding principles: (1) “the ability to pay” and

(2) “from whatever source derived.” The former meant that taxes

should fall heaviest on those best able to bear them; the latter, that

income from stocks, bonds, and dividends ought to be taxed at least

as heavily as that from salaries and wages. Generally this was

translated into progressive income and inheritance taxes, which fell

almost exclusively upon those in the upper income brackets. There

can be little doubt that the task of ratifying the amendment was

greatly eased because of the understanding that any tax levied

under its authority would fall only upon the wealthiest 3 percent to

5 percent of the population; the claim that “only the rich will pay”

was heard in state legislatures across the land



Of course the greatest theft hasn’t actually been the wealthy’s money and assets. Strangely enough, for all the talk, they seem to be doing just fine.


Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.

The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.”

Some of the biggest current tax battles are being waged by some of the most generous supporters of 2016 candidates. They include the families of the hedge fund investors Robert Mercer, who gives to Republicans, and James Simons, who gives to Democrats; as well as the options trader Jeffrey Yass, a libertarian-leaning donor to Republicans.

Mr. Yass’s firm is litigating what the agency deemed to be tens of millions of dollars in underpaid taxes. Renaissance Technologies, the hedge fund Mr. Simons founded and which Mr. Mercer helps run, is currently under review by the I.R.S. over a loophole that saved their fund an estimated $6.8 billion in taxes over roughly a decade, according to a Senate investigation. Some of these same families have also contributed hundreds of thousands of dollars to conservative groups that have attacked virtually any effort to raises taxes on the wealthy.



For anybody paying attention this should be no surprise.  The ways in which assets can be protected if they don’t have to actually make money are legion.  As Andrew Mellon found out back in the 1920’s


The largest impact of a hostile and heavily progressive tax system is on the entrepreneur and small business people trying to grow their businesses.  They are the ones faced with the byzantine tax system and the constant concerns about taxes and trying to minimize the hit.  I’ve actually seen the lengths that small business owners have to go through to try and deal with a system that consumes a great deal of time and effort to try and make some sort of sense. That’s in addition to trying to meet payroll and keep the business running.


The big loss to the country has been the lost opportunity cost as the IRS drag has gotten ever larger.  Without the return on investment to grow, entrepreneurs won’t grow businesses.  No growing businesses means no growth.  Which means no new jobs.  Which is the way things look in our dysfunctional economy.  So what WAS the case for the income tax?



One comment

  1. roger · April 5, 2016

    > So what WAS the case for the income tax?
    they same as in any other democratic system: ENVY.
    you just camouflage it with prettier words.


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