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The Dark Side of the Tax State

Mises Daily: Tuesday, January 25, 2000 by

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There are innumerable articles being published about the end of the 20th century, with an uplifting theme about the Greatest Century That Ever Was, or a similar title. Each article lists the miraculous achievements of the past 100 years.

The lists are impressive: Our greatly extended life spans; our freedom from so many diseases and early deaths of children and mothers. Added to that are the marvels of our factories and farms, electrification, communication, travel, literacy, our standards of living, etc. The marvels are everywhere. Indeed, the "millennium" written about by the ancients seems to be upon us, or so it seems.

The millennium in the Bible was a thousand years of peace--a period of great happiness for the human race. Yet the last century has seen more killings of human beings by human governments than in the past millennium, estimated at 150 million, if not more by some studies. Passing on to our children in the next century our talent and propensity to kill our fellow man, dampens the marvels of an otherwise amazing age of progress. Of course, there is the remote possibility our children may reject war and human slaughter and civil destruction as a way of dealing with disputes. If so, what else is on the darker side?

One article extolling the great achievements of our age by the Cato Institute, in a one liner, acknowledged that there were some "trends" that were bothersome: "Taxes are higher and government is a lot bigger and more intrusive than 100 years ago." Those negatives are far beyond the "trend" stage, and unless reversed, have disaster written all over them, and no one seems aware of what has been happening. So taxes are higher, but we get more from government. And as for being "intrusive," that can't be avoided. So, what's the problem?

The problem is with history. All indications are that we are repeating a process that costed the Romans their most prized possession of all, which was not their empire, but their freedom and liberty. Our statue of liberty, while ostensibly a gift from the French, was really a gift from the Romans. The Goddess of Liberty, which she represents, was lost, not by the barbarian hordes, but by the Roman government. Rome had great traditions of liberty. In the Justinian Digests we read, "Liberty is a possession on which no valuation can be placed." And again, "Freedom is beloved above all things." And the Goddess adorned Roman coins and her statues were in temples throughout the empire.

Yet in the 4th century A.D., liberty and freedom for the Roman people was taken away by the Emperor Diocletian in order to protect the emperor's revenue. In one fell swoop, Diocletian ordered all Romans to remain on their jobs, to not change their places of abode. That way, no one could escape from the tax rolls. Prior to his decree, Roman taxation was founded upon a census taken every five years, but overly taxed citizens -- after taxes had been doubled and then doubled again -- would quickly move away to a new tax district where they weren't on the rolls, and until the next census they were outside the tax system. There was a saying at that time, that "a man was free if his name was not on the tax rolls." So like all governments before and since, they took the necessary steps, even if it meant taking away the freedom of the people, to ensure full compliance with the tax law. There is evidence to support and justify what Diocletian did to prevent the empire from collapse. But the great Roman historian, M. Rostovtzeff, saw this as no justification for the evil that was done:

The emperors of the fourth century, and above all Diocletian...took their duties seriously, and they were animated by the sincerest love of their country. Their aim was to save the Roman Empire, and they achieved it.... They never asked whether it was worth while to save the Roman Empire in order to make a vast prison for scores of millions of men.

In the last three decades since 1970, we have done essentially what Diocletian did overnight. We had constitutional guards to prevent that from happening, so it happened bit by bit, Congress by Congress, until today, aided by our modern technology we have a Diocletianized tax world. Our process for achieving this end was vividly expressed by Lord Erskine in 1792 defending Thomas Paine in London:

Let us consider, my lords, that arbitrary power has seldom or never been introduced into a country at once. It must be introduced by slow degrees, and, as it were, step by step, lest the people should see it approach. The barriers and fences of the people's liberty must be plucked up one by one, and some plausible pretense must be found for removing or hoodwinking, one after another, those sentries who are posted by the constitution of a free country, for warning the people of their danger. When these - preparatory steps are once made, the people may then, indeed, with regret, see slavery and arbitrary power making long strides over their land; but it will be too late to think of preventing or avoiding the impending ruin.

Has not this happened in the past three decades? By slow degrees, "step by step" the tax man in America has gained total control over everyone's economic life. In short, an almost perfect system of espionage over every facet of the fiscal system has slowly evolved until there is absolutely nothing about your economic affairs the government doesn't have under powers of surveillance. Here is the scenario of how our liberties have been taken away and been destroyed, as Congress, with the blessing of a majority of the Supreme Court justices, pluck out the sentries posted to protect the peoples liberties and transform a tax system into a spy system, turning the people into tax slaves, neo-Diocletian style. Each fact listed below is pervasive in today's economic life but were non-existent in 1970:

  1. All banking records photographed for Big Brother to see at will.
  2. All stock and securities transactions reported to the tax man.
  3. All real estate transactions reported to the tax man.
  4. All interest, dividends, etc. reported to the tax man.
  5. All part time work, even babysitters and teenage garden helpers reported to the tax man.
  6. All barter transactions reported to the tax man. Like neighborly affairs: "I'll help you with your rec room; you help me put in a new lawn." Big deal!
  7. All gambling winnings of significance reported to the IRS: casinos, race track, lotteries, etc.
  8. All foreign accounts, holdings, trusts, reported to the tax man.
  9. U.S. citizens living abroad, reported to the IRS by the U.S. Customs, on returning home.
  10. Passport applicants abroad must report to the IRS.
  11. Travelers checks and cash over $10,000 reported on leaving or entering the U.S.
  12. Any moderately large cash deposits or withdrawals from your bank account reported to the IRS.
  13. Heavy fines on banks for not reporting the above.
  14. A multitude of fiscal penalties for failing to comply with a myriad of petty tax rules, however innocent or inadvertent.
  15. Surveillance and penalties on tax preparers when preparing an inaccurate return.
  16. Tax shelters must be reported (whatever that means).
  17. Harsh and long prison terms for tax offenders far in excess of what violent criminals receive.

The above list of enslaving intrusions and punishments is by no means exhaustive. There are a myriad of other spying devises and punitive measures for tax enforcement. Special units prey on lawyers to keep them off-balance. A small town lawyer in California was sent to jail when he sent in a proper tax return without a check. Rather than send the matter to the powerful collection division, the IRS simply threw him in jail under a rare, almost unknown provision of the tax code. He complained, "I'm a nobody." Wrong! He was a lawyer and other lawyers will get the message. There are special training sessions to teach agents how to entice people to report on their family and friends, exactly as Stalin's NKVD did in the 1930s.

The 17 points referred to above did not happen at once; it took Congress three decades to tear down the fences and dupe the sentries that stood guard over our fiscal liberties. What do we need? A leader to tell Congress to "Tear Down this Tax Code," as Reagan told Gorbachev to "Tear Down this Wall."

Unlike other civilized nations that fine tax offenders as the primary punishment, our government takes delight in Roman style cruelty. Compare the 30 year prison sentence handed down by a Kansas City federal judge, Dean Whipple, against a woman, no less, named Trula Walker -- with a 30 day house confinement given to Sophia Laren by an Italian judge for a similar size tax offense. Sentences of 25 years are not uncommon as an Oregon high school coach was to learn. Compare also our psychopathic punishments with those routinely given to violent criminals like Mike Tyson's rape of a young beauty contestant. It is obviously more important to our government to enforce tax slavery with an iron fist, than to protect citizens from violence. The prison term numbers do not lie.

Tax Slavery By The Numbers

Besides the espionage against taxpayers and the savage punishments -- the core of all tax slavery -- there is the matter of being part free and part slave. Leo Tolstoy, the great Russian writer and humanitarian of the 19th century, gave us a modern definition of slavery in 1891:

The essence of all slavery consists in taking the produce of another's labor by force. It is immaterial whether this force be founded on ownership of the slave or ownership of the money that he must get to live on.

Thus the question is, how much of your money is owned by the tax man? To what extent are you a tax slave by the numbers? Tax slavery has been growing in each decade throughout this century, meaning tax freedom day has been slipping away:

Tax Freedom Day:
In 1902 was January 31
In 1922 was February 17
In 1948 was March 28
In 1958 was April 10
In 1968 was April 24
In 1978 was April 30
In 1988 was May 2
In 1998 was May 10

All indication are, over the long term, that tax freedom day will continually be delayed until we become half-slave and half-free tax wise. In 1858, Abraham Lincoln, referring to chattel slavery said, "I believe this government cannot endure permanently half slave and half free." As the new millennium begins, we should ask ourselves the same question with regards to tax slavery, by the numbers.

In the ancient world, chattel slavery was tolerated with little complaint. It wasn't too bad, so it seemed if we look at the philosophers and leaders of that time. That seems to be our current attitude with regard to our tax slavery. It is not too bad, and as much as we hate to admit it, our Founders were a bunch of rabble-rousers when it came to taxation. We tolerate what they would have given their lives to prevent. They read Montesquieu and believe him more than any other writer, and in his great work, The Spirit of Laws, he wrote about tax slavery, and they wanted none of it and British taxes qualified, as a "badge of slavery." In protest against British stamp taxes, they formed an underground organization called "The Sons of Liberty," to resist British taxes. They paraded through the streets of New York, Boston, and Philadelphia, singing an anti-tax ballad, with the following chorus:

Parliament's voice has condemned us by law to be slaves, Brave Boys!
Has condemned us by law to be SLAVES.

The historical records of these ballads have the world "SLAVES" capitalized.

The British repealed the stamp tax act and the Bostonians erected a monument to commemorate the repeal. Patrick Henry recorded the monument in his writings, on which there was the Goddess of Liberty, with the wings of an angel. On the monument were the words -- it was better to die than be a SLAVE.

Nine years later Patrick Henry picked up the same theme in his famous speech in the Virginia convention in 1775, a speech every school child knows the words, "Give me liberty or give me death!" Our schoolchildren should also learn the rest of the speech:

There is no retreat, but in submission and slavery. Our chains are forged. Their clanking may be heard on the Plains of Boston! The war is inevitable -- and let it come!! I repeat sir, let it come!...Is life so dear or peace so sweet, as to be purchased at the price of chains and slavery?

The imagery is powerful. Slaves were manacled with chains forged by blacksmiths; as the slave moved about, the "clanking" of the chains could be heard. Tax slavery could not have been depicted by the Founders in more powerful words.

Fear of tax slavery did not die with the Revolution, but lived on among our progenitors for well over a century, until the 20th century. Within 20 years after the Revolution, there were three significant tax revolts even with representation, in which a lot of people died fighting domestic taxes they didn't like. The Jeffersonian revolution in 1800 was against Federalist taxes, which were repealed and did not return until the Civil War era. Southerners raised the tax slave issue in their acts of secession in 1861. After the Civil War fear of tax slavery emerged again when there was a movement to introduce an income tax in peacetime. An income tax was a war measure, so it was believed, and had no place in a free society during peacetime.

The Atlantic magazine also attacked tax slavery, and with this and other major periodicals attacking income taxation as a slave tax, it is no wonder the movement died. And when the income tax finally was enacted in a Populist era (1894), it was thrown out by the Supreme Court as unconstitutional.

Our Tax "No Free Zone"

When the 20th century began, fear of tax slavery all but disappeared, and we haven't heard hardly a word on the subject. Big government and big wars demand big taxes. Big taxes will inevitably lead to tax slavery as we buck an iron law of history that when taxes are excessive people will rebel in one form or another, a theme emphasized by Montesquieu and so vividly demonstrated by our Founders. Often, throughout history when governments crack-down on angry taxpayers it has been more like putting gasoline on a smoldering fire, and has often burned down the very free society it was supposed to protect.

Diocletian saved the Roman Empire by tax enslavement, and isn't our Congress in the same pickle? In both societies there developed a strong inclination to evade and avoid taxation, and tax slavery apparently was the only option for the government, a kind of tax martial law against an unruly society.

Our supposedly freedom loving leaders don't think of freedom the way our Founders did. Freedom today has nothing to do with taxes -- that's a "no free zone," like the "no fly zone" over Iraq. If taxpayers won't comply then their freedoms will have to go. Thus there is no remorse by Congress in transforming our tax system from an honor system to a tax spy system and slave system, Diocletian style.

Going back to the pre-1970 days, what would happen if your bank account wasn't photographed? If income from banks, stocks, and bonds was not reported? If part-time income wasn't reported? If real estate wasn't reported? If cash wasn't reported? If Americans living overseas weren't hounded by the IRS? If babysitter income wasn't reported? Housekeepers? Gambling? If fines were used instead of psychopathic punishments? Would the system work as it did for the first 50 years? Apparently not, so our Congress and Treasury seem to think. Thus we have two options: First, maintain the income tax slave system, adding additional muscle from time to time as needed; or, tear down the income tax system and start over with a tax system the people will respect. For the present, we pass on to our children in the 21st century the first option.

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Charles Adams is the author of For Good and Evil: The Impact of Taxes on the Course of Civilization, Second Edition (1999), from which this essay was adapted.