The Income Tax: Root of all Evil
by Frank Chodorov
Online edition © 2002 The Ludwig von Mises Institute. Copyright 1954 by Frank Chodorov and the Devin-Adair Company. See full text in a PDF edition.
Foreword by J Bracken Lee
- Chapter 1 Solomon's Yoke
- Chapter 2 Politically Speaking, What is "Evil"
- Chapter 3 Yours Is Not Your Own
- Chapter 4 How It Came Upon Us
- Chapter 5 The Revolution of 1913
- Chapter 6 Soak The Poor
- Chapter 7 Corruption and Corruption
- Chapter 8 A Possible Way Out
- Chapter 9 Competition in Government
- Chapter 10 Union Forever
- Chapter 11 For Freedom's Sake
To the Memory of
ALBERT J. NOCK
THIS WAS, to be sure, "the home of the free and the land of the brave." Americans were free simply because the government was too weak to intervene in the private affairs of the people-it did not have the money to do so-and they were brave because a free people is always venturesome. The obligation of freedom is a willingness to stand on your own feet.
The early American wanted it that way. He was wary of government, especially one that was out of his reach. He had just rid himself of far-away and self-sufficient political establishment and he was not going to tolerate anything like it in his newly founded country. He recognized the need of some sort of government, to keep order, to protect him in the exercise of his rights, and to look after his interests in foreign lands. But, he wanted it understood that the powers of that government would be clearly defined and be limited; it could not go beyond specified limits. It was in recognition of this fear of centralized power that the Founding Fathers put into the Constitution-it never would have been ratified without them-very specific restraints on the federal government.
In other matters, the early American was willing to put his faith in home government, in a government of neighbors, in a government that one could keep one’s eyes on and, if necessary, lay one’s hands on. For that reason, the United States was founded as a Union of separate and autonomous commonwealths. The states could go in for any political experiments the folks might want to try out-even socialism, for that matter-but the federal government had no such leeway. After all, there were other states nearby, and if a citizen did not like the way one state government was managing its affairs, he could move across the border; that threat of competition would keep each state from going too far in making changes or in intervening in the lives of the citizens.
The Constitution, then, kept the federal government off balance and weak. And a weak government is the corollary of a strong people.
The Sixteenth Amendment changed all that. In the first place, by enabling the federal government to put its hands into the pockets and pay envelopes of the people, it drew their allegiance away from their local governments. It made them citizens of the United States rather than of their respective states. Theft loyalty followed theft money, which was now taken from them not by their local representatives, over whom they had some control, but by the representatives of the other forty-seven states. They became subject to the will of the central government, and their state of subjection was emphasized by every increase in the income-tax levies.
The state governments likewise lost more and more of their autonomy. Not only was their source of revenue being dried up by federal preemption, so that they had less and less for the social services a government should provide, but they were compelled in their extremity to apply to the central authorities for help. In so doing they necessarily gave up some of their independence. They found it difficult to stand up to the institution from which they had to beg grants-in-aid. Furthermore, the federal government was in position to demand subservience from the state governments as a condition for subventions. It has now become politically wise for governors, legislators, and Congressmen to "play ball" with the central government; they have been reduced to being procurement officers for the citizens who elect them. The economic power which the federal government secured by the Sixteenth Amendment enabled it to bribe the state governments, as well as the citizens, into submission to its will.
In that way, the whole spirit of the Union and of its Constitution has been liquidated. Income taxation has made of the United States as completely centralized a nation as any that went before it; the very kind of establishment the Founding Fathers abhorred was set up by this simple change in the tax laws. This is no longer the "home of the free," and what bravery remains is traceable to a tradition that is fast losing ground.
For those of us who still believe that freedom is best, the way is clear: we must concentrate on the correction of the mistake of 1913. The Sixteenth Amendment must be repealed. Nothing less will do. For it is only because it has this enormous revenue that the federal government is able to institute procedures that violate the individual’s right to himself and his property; enforcement agencies must be paid. With the repeal of the amendment, the socialistic measures visited upon us these past thirty years will vanish.
The purchase of elections with federal money will no longer be possible. And the power and dignity of the home governments will be restored.
This measure should be supported by the governors and legislators of all the states. Every state in the Union now contributes in income taxes to the federal government more than it gets back in grants-in-aid; this is inevitable, because the cost of maintaining the huge federal machinery must come out of the taxes before the citizen can get anything. With the abolition of income taxation the states will be better able to serve its citizens, and because the state governments are closer and more responsive to the will of the people, there is greater chance that the citizens will get their full dollar’s worth in services.
However, the principal argument for the repeal of the Sixteenth Amendment is that only in that way can freedom from an interventionist government be restored to the American people.
J. Bracken Lee,
Governor of Utah
Tradition has a way of hanging on even after it is, for all practical purposes, dead. We in this country still use individualistic terms-as, for instance, the rights of man-when, as a matter of fact, we think and behave in the framework of collectivistic doctrine. We support and advocate such practices as farm-support prices, social security, government housing, socialized medicine, conscription, and all sorts of ideas that stem from the thesis that man has no rights except those given him by government.
Despite this growing tendency to look to political power as the source of material betterment and as the guide to our personal destinies, we still talk of limited government, states rights, checks and balances, and of the personal virtues of thrift, industry, and initiative. Thanks to our literature, the tradition hangs on even though it has lost force.
But there are many Americans to whom the new trend is distasteful, partly because they are traditionalists, partly because they find it personally unpleasant, partly because reason tells that it must lead to the complete subjugation of the individual, as in Nazi Germany or Communist Russia, and they don’t like the prospect. It is for these Americans that this book was written. For their opposition to the trend takes the shape of reform, while nothing will turn it but revolution. And by "revolution" I mean the return to the people of that sovereignty which our tradition assumes them to have. I mean the return to them of the power which government confiscated by way of the Sixteenth Amendment.
When you examine any species of government intervention you find that it is made possible by revenues. A government is as strong as its income. Contrariwise, the independence of the people is in direct proportion to the amount of their wealth they can enjoy. We cannot restore traditional American freedom unless we limit the government’s power to tax. No tinkering with this, that, or the other law will stop the trend toward socialism. We must repeal the Sixteenth Amendment.
Washington, D.C. F. C.
IT IS TOLD-1 Kings, Chapter 12-that the people of Israel petitioned their new king, Rehoboam, son of Solomon, to relieve them of the "yoke" his father had suffered them to bear. The "yoke," we learn from the story, was the cost of maintaining the political establishment; it was an income tax.
The designation of a levy on one’s production as a "yoke" is interesting; it shows how keen is the mind unencumbered with erudition. The yoke symbolizes the beast of burden, who, of course, has no right of property. When the human is similarly deprived of what he has produced-which is the essence of income taxation-he is indeed degraded to the status of an ox. The Israelite, who maintained that he was made in the image of God, sensed the indignity; he wanted none of the "yoke."
The story goes on to say that Rehoboam promised to take his subjects’ plea under advisement. Apparently, he talked the matter over with his ministers. What they said to him is unrecorded, but we can infer from his ultimate decision that they strongly advised him against any reduction of the income tax; after all, ministers have to be supported in the style to which bureaucrats always like to be accustomed. So, after shilly-shallying for three days, Rehoboam came to the point and said: "Whereas my father did lade you with a heavy yoke, I will add to your yoke: my father did chastise you with whips, but I will chastise you with scorpions."
Whatever chastisement with scorpions may be, it is certainly not pleasant to the recipient. And that is something you might remember when an agent of the Internal Revenue Department calls you on the carpet for not including in your income-tax return the winnings you made at poker or the gratuities you received as a waiter or a beautician. Things could be much worse with us than they are; we could be chastised with scorpions.
We learn from this biblical story that income taxation is a very old custom. Antiquarians find mention of the practice in the annals of Egypt, as far back as 1580 B.C. In those days, it appears, the Grand Vizier did not levy on the incomes of his subjects but on the incomes of public officials; since the latter had nothing of their own to tax-public officials are not producers-their taxable funds consisted of what they had mulcted from the producing public. It was tax farming. There is something to be said in favor of that system. Since the tax collector gets his "cut" first, before turning over the balance to the central government, he can never be accused of accepting bribes-a charge that is sometimes levied against agents of our Internal Revenue Bureau.
Even evasion of the income tax, by way of false income-tax returns, is not a modern invention. Gibbon makes mention of the use of racks and scourges in ancient Rome, up to the fourth century of the Christian era, to get the truth out of suspected evaders. We have not, at any rate, come to that, although we do on occasions cast a tax dodger into durance vile.
For something really different and quite startling in the income-tax business, we must again refer to the biblical story. Some of the Israelites were so resentful about the "yoke" that when Rehoboam’s chief tax collector, one called Hadoram, made his round among them, they unceremoniously met him with such a hail of stones "that he died." This was rather hard on Hadoram and his family, and is not to be recommended for agents of the Internal Revenue Bureau. In the latter part of this book-which concerns itself with the immorality of the income tax-a more orderly and effective way of getting rid of the "yoke" that Americans have been suffered to wear since 1913 will be suggested. Provided, of course, they want to get rid of it; provided they have the sense of self-respect and human dignity that characterized those stone-throwing Israelites.
Politically Speaking, What Is "Evil"?
THE SUBTITLE of this book is "Root of All Evil."
If there is an "evil" there must be a "good"-for the one is the opposite of the other. Hence, we must define "good" in order to establish the fact that an "evil" exists or threatens. It is not necessary to prove that the "good" is really good for all peoples at all times and under all circumstances-in short, that it is made in Heaven. Something can be said for that thesis, but this book-which deals with the income tax and its effects on our social, economic, and political life-is not concerned with it. For the purpose of this book, it is only necessary that we agree on a definition of "good" so that we can recognize its opposite.
Thus, the Judeo-Christian tradition holds that in the field of morals all that is "good" is set down in the Ten Commandments, and that practices running counter to these dicta are "evil." There have been civilizations in which such practices as adultery, thievery, and even murder were looked upon as in the regular order of things, neither reprehensible nor praiseworthy, and in these civilizations the Ten Commandments, if known, would carry no weight. We can argue that our moral code makes for better living and is therefore superior to whatever went for a moral code in these primitive civilizations. That may be so. The point is that the Ten Commandments, though written in Heaven, had to be understood and accepted on earth before we could measure "good" and "evil."
In the American political tradition, which claims kinship with Judeo-Christian morality, all is "evil" that violates the doctrine of natural rights, as set down in the Declaration of Independence. We are agreed on that. We are also agreed-if we accept the tradition-that the source of these rights is God; which is simply an admission that we have scratched our heads for some other explanation of these rights and, having found none, have taken recourse to "the nature of things." The American tradition rests its case squarely on the premise that the human being is endowed with rights by his very existence; that is what makes him human. Hence, any political action which attempts to violate these rights violates his human-ness, and thus becomes "evil." Putting it another way, any political action which disregards man’s inalienable rights disregards God.
The Constitution of the United States is a manmade instrument; it has no other sanction. Yet it has won acceptance with Americans as the yardstick of political "good," because it was conceived as a practical instrument for the prevention of transgressions of our rights, either by the government or by citizens. Over the years, the Constitution has come to be looked upon as the guardian angel of these rights. When an American asserts that a law or official act is in his opinion "unconstitutional"-even if the Supreme Court has not so adjudicated-he may or may not have the letter of the Constitution in mind; more likely, his judgment is based on what he knows of the spirit of the instrument. Surely, an amendment of the Constitution cannot be said to be "unconstitutional"; yet, if the amendment seems to be violative of the original purpose of the Constitution, the citizen does not hesitate so to describe it. A case in point was the Eighteenth Amendment which, for the thirteen years it was in effect, was decried because it gave the government power to control the drinking habits of the citizen; his rights were invaded.
The Constitution, then, is held in high esteem only because of the high esteem Americans put upon the doctrine of natural rights. Any law, political practice, or even amendment that infringes those rights is automatically deemed "unconstitutional." The infringement is "evil."
With this definition of "evil" in mind, it is the purpose of this book to show that many laws and governmental practices are impregnated with it, and to trace this wholesale infringement of our rights to the power acquired by the federal government in 1913 to tax our incomes-the Sixteenth Amendment. That is the "root." Furthermore, proof will be offered to support the proposition that the "evil" has reached the point where the doctrine of natural rights has been all but abrogated in fact, if not in theory.
As a consequence, the kind of government we are acquiring is distinctly different from that envisaged by the Founding Fathers; it is fast becoming a government that conceives itself to be the source of rights, which it gives and can recall at its own pleasure. The transformation is not yet complete, but it will be seen as we go along that completion is not far off-if nothing is done to prevent it.
Whether anything will be done to stop the "unconstitutional" trend depends on how far the "evil" has penetrated the consciousness of the American people. An evil is not only something that is done to us; more often, it is something we do to ourselves, consciously or by way of weakness. A drunkard may acquire his bad habit from his associates or he may bring it on without outside influence.
In the case of the practices resulting from income taxation, it will be shown that most of them are demanded or supported by large segments of society; the government merely compounds the evil. A people who are intent on getting something-for-nothing from government cannot cavil over the infringement of their rights by that government; in fact, if the price demanded for the gratuities is the relinquishment of rights, they are not averse to paying it. There is evidence enough that this trade is often made, and that the government is able to enter into it because of its income-tax revenues.
When an "evil" becomes customary, it tends to lose the negative value put on it and in men’s minds tends to become a "good." And so, we hear much these days in praise of the very kind of government which the Founding Fathers tried to prevent by their blueprint; that is, of a paternalistic establishment ruling for and over a subject people. A virtue has been made of what was once considered a vice. This transmutation of political values has been accompanied by a transmutation of moral values, as a matter of necessity; people who have no rights are presumably without free will; at least, there is no call for the exercise of free will (as in the case of a slave) when a paternalistic government assumes the obligations of living.
Why, for instance, should one be charitable when the government provides for the incompetent or the unfortunate? Why should one be honest when all that is necessary to "get by" is to obey the law? Why should one give thought to one’s future when the matter can be left to a munificent government? And, with the government providing "free" schooling, including "free" lunches, even the parents’ obligations to their children can be sloughed off.
Thus, the fabric of Judeo-Christian morality is undergoing deterioration as a result of the "evil" that has infiltrated our political life. That government has become more corrupt is only incidental to this general deterioration; things being as they are, our attitude toward such corruption must undergo a change: the mortal sin becomes a venial sin under the force of custom. Nor can the Ten Commandments hold up under the transformation of our political and social attitudes, for a people who are denied rights, or who relinquish their claim to rights, are likely to put little worth on personality.
This treatise on the Sixteenth Amendment will proceed under these general lines:
That as a consequence of this law our government is being transformed into one alien to the American tradition.
That social and individual values are likewise undergoing transmutation.
That, in short, America is no longer the America of the Declaration of Independence.
Finally, and most important, we shall suggest a means for reversing the trend and restoring the "good" of our tradition.
Yours Is Not Your Own
THERE ARE taxes and taxes. All are alike in two respects: they are compulsory and they are part of production. "Taxation, says the Encyclopedia Britannica, is "that part of the revenue of the State which is obtained by compulsory dues and charges upon its subjects."
Nevertheless, the "compulsory dues and charges" are usually divided into two major categories: direct and indirect. The reason for the classification is the method of collection; but the effect of direct taxes on public affairs makes them different in kind.
Indirect taxes are so called because the government does not get them directly from the payer; they are collected for the government by manufacturers and merchants, who recoup their outlay from their customers in the price of goods and services. All indirect taxes are added to price.
The most important of these indirect taxes are tariffs and excise levies. Tariffs are paid by the importer, who transfers the charge to his customer, who in turn adds the cost to the price he charges the next processor, and so on down until the ultimate consumer absorbs the original importer’s outlay, plus all the profits that have accrued to each handler. Excise taxes, like those paid on tobacco and liquor, are collected through the sale of stamps and licenses. Sales taxes are likewise found in the price of goods.
Indirect taxes are mere money raisers; there is nothing in the character of these taxes that involves any other purpose. In levying them, the government does not call on any principle other than that the citizen must pay for the upkeep of his government, in proportion to the amount of goods he consumes. It is as if the government were saying to the citizen: "Sorry, old man, but we need money with which to carry on this political establishment, and we don’t have any other source of money but you; we will, however, ease the pain of payment by hiding these taxes in the price of the goods you buy." The government does not question the right of the citizen to his property. The citizen need not pay these taxes; he can go without.
This alternative does not apply to direct taxes. The principal direct taxes are those levied on inheritances and incomes. (Another is the tax on land values, which we shall disregard because it has no bearing on the thesis of this book.) Except for payroll deductions, which is a device employed by government for the easy and certain collection of taxes on wages, direct taxes are paid directly to the government. They are not charged against the consumer in price, although, as we shall see later, they affect his standard of living even more materially.
Income and inheritance taxes imply the denial of private property, and in that are different in principle from all other taxes.
The government says to the citizen: "Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide."
This is no exaggeration. Take a look at the income-tax report that you are required by law to make out, and you will see that the government arbitrarily sets down the amount of your income you may have for your living, for your business requirements, for the maintenance of your family, for medical expenses, and so on. After granting these exemptions, with a flourish of generosity, the government decides what percentage of the remainder it will appropriate. The rest you may have.
The percentage of the appropriation may be (and has been) raised from year to year, and the exemptions may be (and have been) lowered from year to year.1 The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it. The right of decision as to the disposition of your property rests in the government by virtue of the Sixteenth Amendment of the Constitution, which reads as follows:
"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."2
The amendment puts no limit on governmental confiscation. The government can, under the law, take everything the citizen earns, even to the extent of depriving him of all above mere subsistence, which it must allow him in order that he may produce something to be confiscated. Whichever way you turn this amendment, you come up with the fact that it gives the government a prior lien on all the property produced by its subjects.
In short, when this amendment became part of the Constitution, in 1913, the absolute right of property in the United States was violated.
That, of course, is the essence of socialism. Whatever else socialism is, or is claimed to be, its first tenet is the denial of private property. All brands of socialism, and there are many, are agreed that property rights must be vested in the political establishment. None of the schemes that are identified with this ideology, such as the nationalization of industry, or socialized medicine, or the abolition of free choice, or the planned economy, can become operative if the individual’s claim to his property is recognized by the government. It is for that reason that all socialists, beginning with Karl Marx, have advocated income taxation, the heavier the better.3
So then, when the Sixteenth Amendment became part of the Constitution, the American political order, which rested on the axiom of inalienable rights, underwent a major operation. The great debate in the Constitutional Convention of 1789 was over the question as to whether this country should have a republican or democratic form of government; the question was finally resolved in 1913, when the door was opened for the introduction of the socialistic forum.
As our inquiry leads us to consider the institutions that have become fixed in the American pattern, we see how far America has gone along the road of socialism. We shall also see that many institutions, such as states’ rights and free enterprise, that were long considered peculiar to our political and social order, have lost value with the American citizen. Even the abhorrence attached to the word "socialism" in this country before 1913 is wearing off, and an increasing number of the citizenry (perhaps the majority) use it as the symbol of a great ideal. All these changes in our culture are directly traceable to the abandonment of the doctrine of private property-that is, to the Sixteenth Amendment.
So long as the confiscation of private property is legalized, this country is not immune to the advent of ultimate socialism, which is communism.
The basic tenet of communism is the vesting of all property rights in the state. Already nearly one third of our national income is being taxed away from us.4 One or two more national "emergencies" can well bring about the confiscation of the other two thirds, and thus effect the final transition to communism. We could slither into it quite without being aware of it.
Any effort to reverse the trend must begin with the reestablishment in the American culture of the inviolability of private property. If Americans were again to put that right at the pinnacle of their values, the repeal of the Sixteenth Amendment would follow as a matter of course. Therefore, it is necessary that we digress in this inquiry for a moment to consider the philosophic support of the axiom-that the individual has an inalienable right to his property.
Even a thief will justify his way of life. The human being must have a moral code of some kind to ease the difficulty of living with himself. And there is no difficulty in making up a code to fit any given condition, language being as rich as it is, if one hits on an axiom as a basis; an axiom needs no proof.
The axiom of socialism is that the individual has no inherent rights. The privileges and prerogatives that the individual enjoys are grants from society, acting through its management committee, the government. That is the condition the individual must accept for the benefit of being a member of society. Hence, the socialists (including many who do not so name themselves) reject the statement of rights in the Declaration of Independence, calling it a fiction of the eighteenth century.
In support of his denial of natural rights, the socialist points out that there is no positive proof in favor of that doctrine. Where is the documentary evidence? Did God hand man a signed statement endowing him with the rights he claims for himself, but denies to the birds and beasts who also inhabit the earth? If in answer to these questions you bring in the soul idea, you are right back to where you were in the beginning: how can you prove that man has a soul?
Those who accept the axiom of natural rights are backed against the wall by that kind of reasoning, until they examine the opposite axiom, that all rights are grants or loans from government. Where did government get the rights which it dispenses? If it is said that its fund of rights is collected from individuals, as the condition for their membership in society, the question arises, where did the individual get the rights that he gave up? He cannot give up what he never had in the first place, which is what the socialist maintains.
What is this thing called government, which can grant and take away rights? There are all sorts of answers to that question, but all the answers will agree on one point, that government is a social instrument enjoying a monopoly of coercion. The socialist says that the monopoly of coercion is vested in the government in order that it may bring about an ideal social and economic order; others say that the government must have a monopoly of coercion in order to prevent individuals from using coercion on one another. In short, the essential characteristic of government is power. If, then, we say that our rights stem from government, on a loan basis, we admit that whoever gets control of the power vested in government is the author of rights. And simply because he has the power to enforce his will. Thus, the basic axiom of socialism, in all its forms, is that might is right.
And that means that power is all there is to morality. If I am bigger and stronger than you, and you have no way of defending yourself, then it is right if I thrash you; the fact that I did thrash you is proof that I had the right to do so. On the other hand, if you can intimidate me with a gun, then right returns to your side. All of which comes to mere nonsense. And a social order based on the socialistic axiom-which makes the government the final judge of all morality-is a nonsensical society. It is a society in which the highest value is the acquisition of power-as exemplified in a Hitler or a Stalin-and the fate of those who cannot acquire it is subservience as a condition of existence.
The senselessness of the socialistic axiom is that there would be no society, and therefore no government, if there were no individuals. The human being is the unit of all social institutions; without a man there cannot be a crowd. Hence, we are compelled to look to the individual to find an axiom on which to build a nonsocialistic moral code. What does he tell us about himself?
In the first place, he tells us that above all things he wants to live. He tells us this even when he first comes into this world and lets out a yell. Because of that primordial desire, he maintains, he has a right to live. Certainly, nobody else can establish a valid claim to his life, and for that reason he traces his own title to an authority that transcends all men, to God. That title makes sense.
When the individual says he has a valid title to life, he means that all that is he, is his own; his body, his mind, his faculties. Maybe there is something else to life, such as a soul, but without going into that realm, he is willing to settle on what he knows about himself-his consciousness. All that is "I" is "mine." That implies, of course, that all that is "you" is "yours"-for, every "you" is an "I." Rights work both ways.
But, while just wanting to live gives the individual a title to life, it is an empty title unless he can acquire the things that make life livable, beginning with food, raiment, and shelter. These things do not come to you because you want them; they come as the result of putting labor to raw materials. You have to give something of yourself-your brawn or your brain-to make the necessary things available. Even wild berries have to be picked before they can be eaten. But the energy you put out to make the necessary things is part of you; it is you. Therefore, when you cause these things to exist, your title to yourself, your labor, is extended to the things. You have a right to them simply because you have a right to life.
That is the moral basis of the right of property. "I own it because I made it" is a title that proves itself. The recognition of that title is implied in the statement that "I make so many dollars a week." That is literally true.
But what do you mean when you say you own the thing you produced? Say it is a bushel of wheat. You produced it to satisfy your desire for bread. You can grind the wheat into flour, bake the loaf of bread, eat it, or share it with your family or a friend. Or you give part of the wheat to the miller in payment for his labor; the part you give him, in the form of wages, is his because he gave you labor in exchange. Or you sell half the bushel of wheat for money, which you exchange for butter, to go with the bread. Or you put the money in the bank so that you can have something else later on, when you want it.
In other words, your ownership entitles you to use your judgment as to what you will do with the product of your labor-consume it, give it away, sell it, save it. Freedom of disposition is the substance of property rights.
Interference with this freedom of disposition is, in the final analysis, interference with your right to life. At least, that is your reaction to such interference, for you describe such interference with a word that expresses a deep emotion: you call it "robbery." What’s more, if you find that this robbery persists, if you are regularly deprived of the fruits of your labor, you lose interest in laboring. The only reason you work is to satisfy your desires, and if experience shows that despite your efforts your desires go unsatisfied, you become stingy about laboring. You become a "poor" producer.
Suppose the freedom of disposition is taken away from you entirely. That is, you become a slave; you have no right of property. Whatever you produce is taken by somebody else, and though a good part of it is returned to you, in the way of sustenance, medical care, housing, you cannot under the law dispose of your output; if you try to, you become the legal "robber." Your concern in production wanes and you develop an attitude toward laboring that is called a "slave" psychology. Your interest in yourself also drops because you sense that without the right of property you are not much different from the other living things in the barn. The clergyman may tell you you are a man, with a soul, but you sense that without the right of property you are somewhat less of a man than the one who can dispose of your production as he wills. If you are a human, how human are you?
It is silly, then, to prate of human rights being superior to property rights, because the right of ownership is traceable to the right to life, which is certainly inherent in the human being. Property rights are in fact human rights.
A society built around the denial of this fact is, or must become, a slave society-although the socialists describe it differently. It is a society in which some produce and others dispose of their output. The laborer is not stimulated by the prospect of satisfying his desires but by fear of punishment. When his ownership is not interfered with, when he works for himself, he is inclined to develop his faculties of production, because he has unlimited desires. He works for food, as a matter of necessity, but when he has a sufficiency of food he begins to think of fancy dishes, a tablecloth, and music with his meals. There is no end of desires the human being can conjure up, and will work for, provided he feels reasonably sure that his labor will not be in vain. Contrariwise, when the law deprives him of the incentive of enjoyment, he will work only as necessity compels him. What use is there in putting out more effort?
Therefore, the general production of a socialistic society must tend to decline to the point of mere subsistence.
The economic decline of a society without property rights is followed by the loss of other values. It is only when we have a sufficiency of necessaries that we give thought to nonmaterial things, to what is called culture. On the other hand, we find we can do without books, or even moving pictures, when existence is at stake. Even more than that, we who have no right to own certainly have no right to give and charity becomes an empty word; in a socialistic order no one need give thought to an unfortunate neighbor because it is the duty of the government, the only property owner, to take care of him; it might even become a crime to give a "bum" a dime. When the denial of the right of the individual is negated through the denial of ownership, the sense of personal pride, which distinguishes man from beast, must decay from disuse.
The income tax is not only a tax; it is an instrument that has the potentiality of destroying a society of humans.
How It Came Upon Us
THE CONSTITUTION of 1789 barred the income tax. The Fathers could not have put it in, even if they had a mind to, and there is no evidence that they had. A century later, when Americans were flirting with this invasion of property rights, legal minds tried to twist the language of the Constitution to their support. Whatever crumbs of comfort they got out of word juggling, the fact is that the Americans of 1789 would have none of this income tax. They were not that kind of people.
Behind these people lay a century and a half of training for freedom. Individualism-which is nothing but a high regard for oneself-had been beaten into their souls; their conquest of nature had taught them the lessons of self-reliance and self-respect. When it was necessary to wage war in defense of the freedom they had wrung from the wilderness, they were well prepared, not materially, but spiritually. John Adams, writing in 1818, said: "the Revolution was in the hearts of men"… it was effected "before the war commenced." They had come by freedom the hard way and they meant to hold on to it.
In point of fact, they went to war with King George III over what we might deem trifles. When you compare the disabilities put on the Americans by the British Crown, as listed in the Declaration of Independence, with what other peoples have complacently suffered from governments, you recognize the high price these Americans put on freedom. How petty the indictment of George reads when one thinks of what the Germans endured under Hitler, the Russians under Stalin! And if we could penetrate our own adjustment to bureaucratic interference, and could see things as they really are, we would write a new Declaration that would make Jefferson’s sound picayune.
One of the principal causes of the Revolution was taxation. The Americans summed up their attitude toward taxation in the slogan "Taxation without representation is tyranny." The fact is, they looked upon taxation as a form of tyranny, or an invasion of their property rights, with or without representation, but were willing to make some sort of compromise with it as a matter of necessity; the compromise was "representation." Judging by their reluctance to suffer taxes imposed by their own governments, local or state, it is a certainty that if the Crown had given them representation in Parliament they would have disliked taxes only a little less. The levies laid upon them by the Crown were so minuscule, compared to those their progeny have learned to endure, that the fuss they made seems ridiculous. It seems ridiculous only because we are a different kind of people.
As for an income tax, there would never have been a Revolution if the Americans of 1776 had had any notion of offering it to King George. They probably could have had representation in both houses of Parliament in exchange for such a boon; he would have given them any other kind of "freedom" their hearts desired. But a people who remonstrated so vigorously over a measly tea tax could hardly have understood the idea of letting their pockets be picked. The suggestion would have sounded preposterous.
The Constitution did not give Americans freedom; they had been free long before it was written, and when it was put up for ratification they eyed it suspiciously, lest it infringe their freedom. The Federalists, the advocates of ratification, went to great pains to assure the people that under the Constitution they would be just as free as they ever were. Madison, in particular, stressed the point that there would be no change in their personal status in the new setup, that the contemplated government would simply be the foreign department of the several states. The Constitution itself is a testimonial to the temper of the times, for it fashioned a government so restricted in its powers as to prevent any infraction of freedom; that was the reason for the famous "checks and balances." Any other kind of constitution could not have got by.
In the important matter of taxation, the Constitution quite definitely granted the new government very limited powers: import tariffs and excise taxes. Even the latter were grudgingly admitted. The only federal taxing powers on which there was general agreement were tariffs; the "infant industry" argument-the need of encouraging manufactures in the new country by protection from foreign competition- carried weight with the people, and it was conceded that a federal monopoly of tariffs would be better than different tariffs by the thirteen states. Hamilton, however, pleaded (in The Federalist Papers) the inadequacy of income from tariffs alone. He had in mind not only the expected expenses of the new government, and the need of establishing its credit position, but also the funding and paying off of the Continental debts. He asked for the privilege of sharing internal taxes with the states. He specifically rejected the idea of income taxation, both because it would yield little and because it would be repulsive to the people.
And so, the government of the United States got along with what it could get out of tariffs and a few excise taxes until the Civil War; it is interesting to note that the excise levies were dropped in 1817, and not restored until the Civil War. As a consequence, it was a weak government, in the sense that it could not become bothersome; and the freedom of the people made them strong, so that wealth multiplied and the country flourished. The government did lead the nation into two stupid wars, but these were cut short mainly by lack of funds; the national credit, thanks to low taxes, was weak and federal borrowing was extremely limited. Under the doctrine of eminent domain, the government did create a privileged class-which it always does when it steps into the economic picture-by handing out land grants.
But, on the whole, previous to the Civil War the government of the United States confined itself to the business for which it was created, that of protecting people in the enjoyment of their God-given rights. It should not be forgotten that the Founding Fathers, agreeing with John Locke, with whose writings they were familiar, thought of government principally as an instrument for safeguarding private property; and that was considered the prime business of the United States government until 1860.
In 1862, Lincoln instituted the first income-tax law in American history. The debate in Congress over this major change in our fiscal policy makes curious reading. It was tacitly agreed that the law was unconstitutional, because it was a direct tax. A few Congressmen tried to stick the "excise" label on the proposed tax, thus forcing it into the formula of the Constitution. But, on the whole, the argument for it rested on the need for money to carry on the war. It was a matter of expediency only. The Constitution was set aside.
That is as it should be. If there is any moral justification for war, it is the need of safeguarding the life of the community. When the existence of the nation is at stake, the natural inclination of a people is to suspend their claim to rights. Their lives are forfeit in the common cause, and so should be their property. The only practical way for putting the property of the people to the common effort is to confiscate it, and income taxation is the perfect confiscatory instrument. But, since defense of the homeland is in the interests of all, both necessity and equity demand that there should be no discrimination and no limit: all that is needed should be taken without regard to rights, even as life is conscripted. It is everybody’s house that is on fire, and every available water bucket, without regard to ownership, must be taken to put out the conflagration. So, if war is justified, unlimited and unrestrained income taxation can also be justified. The question is: when is war justified?
Every war is fought with current wealth. There is no way of shooting off cannons that have not yet been made, no way of feeding soldiers with the produce of the next generation. The argument that a future generation can be made to pay the costs of a present war is both specious and deceptive; it cannot be done. All the labor and all the materials expended in the struggle are current, not future, labor and materials. We pay as we fight.
The deception that some of the costs may be put on the future is created so as to ease the strain that total confiscation would put on patriotism. To prevent dissatisfaction with the war from getting out of hand, the government takes what it needs, and gives I.O.U’s (bonds) to the owner. But, this I.O.U. is not payment for the goods taken; it is a claim on future production. So that, the holder of the I.O.U., the grandson of the one whose goods were taken for the war, can demand from other grandsons a share of their production. The bondholder is simply a partner of the tax collector. But how is this payment for a past war?
It has been argued that if the government could not borrow it could not wage war. This may be true; neither could it wage war without soldiers. But if people will not give up their property or risk their lives, then the war is not wanted. If the war is not wanted, why should it be waged? If, instead of resorting to loans, the government should confiscate whatever it needs for the purpose, perhaps a waning patriotism would cause the war to be called off.
Those who describe bonds as payment for past years are wont to overlook the fact that the bonds, taken as a whole, are never paid up. The bonded debt of a nation has a way of increasing from generation to generation. That is so because each generation, or its government, encounters a new emergency that needs financing, and it is most convenient to say that the next generation ought to pay for the benefits it will derive from meeting the present emergency. But every generation conveniently ignores the obligation it has inherited. And so the national debt grows.
Since all bonds are claims on production, what really happens when bonds are issued is-let’s call it by its right name-counterfeiting; the amount of purchasing power, or money, is increased.
There are several ways by which bonds are monetized, but that is not germane to the present subject; the point is that all bonds add to the fund of money in circulation, and unless the additional money is accompanied by an additional amount of goods in the market, we have inflation. Inflation is simply a greater amount of money bidding for the same amount of goods. The dollar looks like the old dollar, but it buys less. Hence, even the bond buyers are eventually cheated. The dollars they put into the bonds could have bought them more goods than the dollars they earn after the bonds have been issued, or the dollars they get from the government when the bonds mature. It takes a violent wrench of logic to say that we pay for past wars by depreciating the value of the dollar.
Government borrows on its ability to tax, because taxes are its only source of revenue, the only security it has to offer the lender.
Thanks to its low taxing power, the Lincoln administration had difficulty in disposing an issue of bonds bearing twelve percent interest. That means that its credit was very poor, and it had to resort to confiscation. Its first income-tax law called for a flat three percent of net income over $600 a year; this was quite an exemption in itself, since at that time a man could buy an all-wool suit of clothes for $6. The method of collection was simplicity itself: the citizen declared his income on his own estimate, unchecked, and his estimate was published in the newspapers, the idea being that public opinion would compel a degree of honesty.
However, the amount brought in by this tax was not enough to carry on the war, and within two years Lincoln got around to the graduated income tax. Thus was brought into our fiscal policy the ability-to-pay doctrine. This doctrine, new at the time, has since attained the dignity of an axiom of taxation. Yet, when we examine it under the light of ethics it does not shine so well; and it is a complete denial of the equality principle that guided the Fathers in establishing the Republic. The taxing power of the federal government was thus limited in the Constitution:
"No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."
There is no tax that can be more properly described as "direct" than an income tax. In order to get around this prohibition in the Constitution, the Lincoln administration arbitrarily declared its income levy an "excise" tax, and the Supreme Court upheld this perversion of language in a decision rendered in 1868; showing that the art of proving a point by changing a definition was practiced long before the discovery of the modern "science" of semantics.
Reinforcing the prohibition of a direct tax is the requirement that taxes shall be levied in proportion to the population. The meaning is clear: that in respect to the law all citizens are to be considered equal, as persons, and should be taxed accordingly; their possessions have nothing to do with their legal status. A man who has acquired (presumably by honest methods) a large amount of wealth is legally on a par with the one less fortunate or less proficient. The dictum that "all men are created free and equal" held in the matter of taxes as it did in the matter of social stratification; the Constitution recognized no caste system. No one, and no group, could be singled out by the government for special spoliation.
The ability-to-pay doctrine proceeds from a direct violation of this principle of equality.1 It establishes a legal classification of society. It sets up a principle of government that was not contemplated when this nation was formed; it is a reversion to the caste system that had existed in Europe.
The easy argument that is used to slide this caste idea into our law is that those who are rich became so because they enjoy more of the benefits of government and therefore ought to pay more of its expenses. Is that so? Did the government make them rich? If so, then the government is at fault; the only way the government can enrich a citizen is by giving him a special advantage over other citizens, and in that case the government violates its trust.
The government has nothing of its own to give, for it is not a producer of wealth. In granting one citizen a special advantage it automatically creates a disadvantage for other citizens. Thus, if it grants me tariff protection, it compels those who buy my merchandise to pay a higher price than they would have had to pay for similar merchandise from abroad; that extra price is my advantage, my customers’ disadvantage. Or, if the government subsidizes my rent, it simply takes from other citizens what it hands me; it enriches me at the expense of other citizens.
It is obvious that in handing out special privileges the government is doing what it ought not to do; it is using its power not for the purpose of dispensing justice, but for the purpose of creating injustice. This is in violation of the principle of equality, and the violation is not corrected by taxing some of the proceeds of privilege; the privileges should be abolished. If I have acquired wealth by way of a special privilege granted me by the government, then when it lays a tax on my ill-gotten wealth it is sharing my unfair advantage; it is, so to say, a partner in my loot.
The advocates of ability-to-pay, however, do not distinguish between wealth obtained by production and wealth obtained by privilege. They simply assert that one could not get rich unless one operated under a government. This is true only in the sense that if there were no government to maintain order and protect property no one would try to acquire property; in a society where thievery is prevalent, production must fall to the point of mere subsistence. But the protection afforded to any one citizen is afforded to all; that is why men institute governments.
It is not police protection that makes one rich, the other poor. The differences in personal wealth that arise in any society-barring special privileges granted by government-are due either to accident or to qualities inherent in the individual: industry, thrift, abstinence. But it so happens that those who have and exercise these qualities do not injure others; their very substance indicates that in acquiring it they have benefited their fellowmen. If I become rich by making and selling shoes, it follows that many people have found my shoes desirable, and they have thus profited by my efforts. The wealth of society is in proportion to the productive efforts of the individuals who compose that society, and government has nothing to do with it-beyond the negative function of maintaining order and protecting property. People make wealth; government can only take it.
The effect of the ability-to-pay doctrine in practice is to discourage production. If an increasing portion of what I earn is taken from me-and that is the intent of the graduated income tax-then my inclination will be to cut down on my earnings. Men work to satisfy their desires, not to pay taxes. There is no sense in keeping my barn full if the highwayman empties it regularly and I have no means of preventing him from so doing. It is true that despite heavy income taxes men will try to keep up their standard of living by greater productive effort; but there comes a point where "what’s the use?" impels them to adjust themselves to a lower standard of living. Why expand my business, why work overtime when my increased income will leave me little for myself? It isn’t worth it. That is the effect of the ability-to-pay doctrine.
If we examine the income tax carefully we find that it is not a tax on income so much as it is a tax on capital. What the government takes from me is not what I consume but what I might have saved. To be sure, I might have spent some of it for a new suit or to paint my house, but some of it I might have put in the bank, where it would have become available, at interest, to someone who would have used it to build a new factory, enlarge his plant, open a store, or buy a farm. That’s what generally happens to savings. Certainly, a good part of the earnings of a corporation are put to plant improvement or expansion, which it cannot effect if the earnings are confiscated. Hence, the effect of income taxation is to impair the capital structure of the country.
Since all wages come out of production, and since the amount of production is in proportion to the amount of capital in use, it follows that the income tax, by depleting capital investment, tends to reduce both job opportunities and wages. Furthermore, the goods that are not produced because of the lack of capital surely do not help the consumer; the less goods on the market the higher the prices he must pay. The income tax therefore hurts the wage earner to a far greater extent than by what is filched from his pay envelope. It hurts him by increasing his cost of living and reducing his earning power.
Even the government must suffer, in the long run, from ability-to-pay taxation. Carried to its ultimate conclusion, this kind of levy must become so discouraging to the goose that lays the golden egg that it will stop laying, and the government that caused this condition will have no egg to live on. Of course, it can then try to use the capital it confiscated to produce goods, something to tax; it can go into business to replace the vacuum it created. That is socialism, which might be all right if it worked. It is not our province here to prove that state capitalism (socialism) is inefficient, that it produces very little besides deficits; witness, our Post Office Department. When all the capital in the country is in the hands of the government, then all of us must work for the government under the conditions it prescribes-and that is slavery. Which is the end product of ability-to-pay.
Despite all the long words and moral platitudes that have been used to shore up ability-to-pay, the fact is that this doctrine is closely related to the rule of highwaymanry: take where the taking is good. Those who practice that trade have the good grace not to moralize about it; they pick on the traveler who looks opulent and pass up the obvious bum. The government does likewise, and like the highwayman it does not quibble over how the victim came by his wealth.
The Sixteenth Amendment specifically says that the government may tax incomes "from whatever source derived." That means it may tax the earner, the gambler, the second-story man, the highjacker, the housemaid, the prostitute. The highwayman is also undiscriminating, save as to ability to come across.2