A Summary of: Those Dirty Rotten Taxes: The Tax Revolts that Built America by Charles Adams
Summarized by Ashlee Worley
Edited by Dr. Jimmy T. (Gunny) LaBaume
“No One Can Steal from the State”
The above French proverb was very popular with the monarchy. That was probably mainly because the tax law was without any principle whatsoever and lacked uniformity in the most grotesque way. Nowadays, and in the same way, IRS agents speak of your money as belonging to the government—which it does once you have paid the tax, but not before.
When taxes lack uniformity and when the tax rates almost confiscate everything, government can steal from the people. Ours routinely does so. Twenty years ago, the top tax rate for Sweden was 105% and in Britain it was 102%. Is that not sealing? Top bracket British taxpayers actually pleaded with their bankers not to pay them interest. In Sweden, the top rate was “only” 85% but there was a 20% tax for employee benefits so the total added up to 105%. The united States government was not quite as greedy—our rate was only 91%. Today, the 91% bracket is gone but the total lack of uniformity is not. So, the thievery continues—albeit not at the outrageous level it once was.
The Supreme Court has abandoned its role as guardian of the Constitution with regard to taxes and spending. Be that as it may, think about this. If the tax were suddenly found (by the court) to be unconstitutional (which it is), every taxpayer would be entitled to a refund for the past three years. This, of course, would mean complete national collapse—which might not be a bad thing because it is certainly inevitable if we continue along our current path.
Some argue that the tax is “voluntary”—that you don't have to pay it if you don't want to—because the word “mandatory” does not appear in the Internal Revenue Code whereas the Code does clearly state that the collection of the tax is based on “voluntary compliance.” Of course, the IRS' position is that, the few times the word “voluntary” is used in IRS publications, it really means that the system is self-assessing, taxation by confession. Either way, it would be personal suicide to give that total consideration. By definition, a tax is a forced exaction. It is not a tax if it is voluntary.
There are three classes of tax resisters. First are those in the tradition of Gandhi or America's Thoreau, or the whiskey rebels of 1794 and 1865-1900. These deserve admiration because they pointed out the evil taxes that lacked uniformity in substance.
Another class is those who hold that the tax is voluntary. Their contention is that the income tax amendment was never properly ratified and also that, nowhere in the Internal Revenue Code will one read the word “mandatory.” One does, however, see such phrases as “based on voluntary compliance.” Whether this group is right or wrong has made little difference in cleaning up the tax mess that has been created.
The third group includes those in the underground. These are invisible. Their rebellion is more against spending than it is against taxes—e.g. the billions of dollars spent to benefit politically powerful special interests.
Most taxpayers know that a significant part of their tax money is spent on things that do not benefit the general welfare. Instead, the benefits accrue to special welfare groups that have found a place at the public trough. These include the obvious welfare recipients. But they also include farm subsidies, corporate subsidies, local pork barrel projects, entitlements, and expensive military hardware for an enemy that doesn't exist. And for every special interest group that receives money, there are at least a dozen more fighting for a place at the trough. The ultimate result is always the same set of unintended consequences. If you give handouts to the unemployed, you get more unemployed. If you support teenage unwed mothers, you get more teenage unwed mothers.
Most Americans (the hard working productive class who are simply trying to make ends meet) realize that the government has its priorities wrong. The average taxpayer sees himself as a victim—not the beneficiary of government spending. They don't want handouts. They detest a government that can't say “no” to every hard-luck story that comes along. All most want is to be left alone to work, raise their children, and live in a safe world—which they feel is government's first and foremost duty—a duty at which government has been a miserable failure.
Once again, history is repeating itself. In the declining years of Rome and ancient Egypt, lawlessness reigned. The roads were full of robbers in the Roman Empire and, in Egypt, the Nile was unsafe for travel. Their governments had lost their will to protest commerce and citizens.
John Locke's political ideas inspired the founders. He noted “the preservation of property (was) the end of government.” Similarly, Montesquieu said that taxes were that part of a person's property, which he gave up in order to obtain protection, which should come first. People want smaller government because big government has failed in its only legitimate function—protection of its citizens and their property.
Perhaps the greatest threat to maintaining the present income tax system is the shift from a national to a global economy because it has put tax reform (even rebellion) on a purely economic basis. It is the motive for lowering tax rates and reducing taxes on interest and capital gains. (Taxes on interest and capital gains discourage enterprise, increase costs of goods, and, thereby, decrease America's competitive position in world commerce.) Income taxes are a cost of doing business—e.g. no different from rent. A lower tax (or even no tax) would mean lower cost for goods. This, in turn, would increase the competitive position of American businesses in world markets.
In the same way, it was taxes that brought about the decline of the Dutch empire. High taxes on goods made in the Netherlands meant that British goods (subject to lower taxes) were able to price Dutch goods off the world markets. A Dutch historian explained how it happened in very simple terms: “War meant expense. Expense meant taxation. Taxation meant the strangling of trade.” Historical evidence indicates that the same thing continues to occur.
For example: The world's automobile market was once the (almost) exclusive domain of America. Then came oppressive taxation (and other government interventions like federal labor law and affirmative action). As a result, the industrial centers of America began to turn to rust belts in the 1970s and 1980s as Detroit surrendered a large part of its market share to the Japanese.
But once again, Japan instituted new taxes like a 20 percent withholding on interest income that had been tax free in 1989. Capital gains were taxed, and information returns were required. The resulting economic recession spread over much of Asia. Recently a host of Asian countries has replaced the Japanese with China leading the pack. America will have to adjust its tax system in order to stay competitive.
What makes these historical phenomena interesting is that the very principles that make America's rivals great were first introduced to the modern world by America. Seventy-five years ago, the America's motto was, “The business of America is business.” Today, it is hard to say what our primary business is—besides incessant whining about “outsourcing” and “exporting jobs.”
Some tax experts have challenged the assertion that our tax system is really the worst in the world. The challenge is based on the fact that some nations have higher rates of income or estate taxes. However, a tax system cannot be judged by only its rates. For example, many countries with higher rates have more “loopholes” in their law through which income can escape taxation. Specifically, America collects more death taxes than any other nation—no matter how you look at it. The penalty for avoiding the federal income tax is greater than that of armed robbery. Why and how does this happen?
First, to make the tax system work the government has to assume that everyone in the country is a crook and act accordingly. They spy on all economic activity and punish tax resisters just like robbers, burglars, and killers. Second, federal judges (like the psychopathic Justice Samuel Chase) have a mean streak and exercise it through what has commonly became known as “legislation from the bench.” Third, it's a tradition—Americans have always rebelled against unjust taxes.
One can use certain criminal laws to understand a nation. These are not the laws that involve real crime. They are “synthetic” crime, meaning that they are manufactured by the state and involve extreme punishments. We come from a society whose greatest thinkers and philosophers condemned making tax evasion a crime and tax evasion was not a crime under Common Law. So, when the government makes a crime of not paying taxes it becomes obvious that it feels threatened by its citizens. Without severe punishment a great number of people who are otherwise good citizens would evade taxation and the over bloated government would disappear.
Our rebellions, each in its own way, mean that the “sacred right of insurrection” that meant so much to the founders is still alive and well. It also means the rebellion will continue until Congress reforms the system. As Jefferson said, the rebels are pointing out sickness the government needs to heal. The tax resisters, evaders and protesters are all rebels sending a message to government. They are a new breed of tax rebels in that they don't lynch, tar and feather or burn down IRS buildings. However, they still rebel, nevertheless.
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At the time this work was completed, Ashlee Worley was a student in the School of Agricultural and Natural Resource Sciences at Sul Ross State University where Jimmy T. LaBaume, PhD, ChFC is a Professor of Economics and Statistics.
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