The federal income tax, which we recently paid, is the crown jewel of a massive welfare-warfare state. Without it, it would be well-nigh impossible for the government to run up some 37 trillion dollars of debt. (It’s actually much more but the government does the counting).
That’s why the adoption of the Sixteenth Amendment in 1913 dramatically extended the power of the federal government. The government’s taxing power under the income tax, which initially affected only a small percentage of the wealthiest Americans, was established. Libertarians then and now warned its effect would hurt capital formation and lead to big government.
Along with the Federal Reserve—a central bank that can fix vital money prices—these taxing institutions have been opposed by libertarians through the centuries as ways to destroy property and promote backdoor socialism. Marx favored central banks and a deeply progressive income tax.
The income tax was later extended during wars to affect almost everyone and contributed to a little known 18-month depression just after World War I. The income tax was so oppressive that President Harding’s Treasury Secretary Andrew Mellon complained—in a little masterpiece of a book called Taxation—that many rich people wouldn’t invest in stocks because tax rates were oppressive so they put their money into municipal bonds and other tax shelters. When Harding cut taxes, money came out of tax shelters, and went into stocks. The economy boomed until President Hoover—the true father of the New Deal according to economist Murray Rothbard—and his destructive policies ruined the booming economy of the 1920s. FDR continued the damage and the Great Depression continued.
President Trump is no libertarian. He is an economic populist who recently said it would be good to end the income tax and replace it with tariffs.
“As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern income tax taking a great financial burden off the people that I love,” the president said.
Nevertheless, with the passage of this gruesome, anti-capitalist, income tax amendment, the financial basis of the leviathan was in place. By the 1950s, the income tax rate in some cases was at 91 percent. Why would anyone work only to collect nine cents on the dollar?
The tax rate was not only destructive but counterproductive. High earners sought shelter. Comedian Jack Benny won his case claiming that his income was corporate, not individual. That saved him a bundle once he won in tax court.
Libertarians—from Victorian Era British Chancellor of the Exchequer William Gladstone to 1940s American libertarian Frank Chodorov—believed the income tax hurt economic liberty. Gladstone—who consistently cut taxes—believed it was a moral issue that the government should not overspend. He went around 10 Downing State extinguishing unneeded fireplaces. Gladstone thought the government should return surpluses to taxpayers. Sir Robert Peel—who gave him his first cabinet appointment—abolished taxes on bread, ending the Corn Laws. That helped people of modest incomes. It also helped end a depression because Peel believed keeping costs as low as possible would promote recovery.
Gladstone—who in last ministry resigned in part because he thought military spending was excessive—earlier wanted to abolish the income tax. He opposed the income tax for many reasons. He believed the income tax would destroy the taxpayer’s privacy. “The Inquisition it entails,” Gladstone said, “is a most serious disadvantage and the frauds to which it leads are an evil such as it is not possible to characterize in terms too strong.”
Unfortunately, his efforts to end Britain’s income tax were ruined by the unexpected entry of Britain into the Crimean War on the side of the Ottoman Empire against Russia. The war was not only a budget buster; it was idiotic. It had insane cavalry charges and bad poetry. It began in part over a stupid debate over which set of monks would administer the Holy Lands.
For Chodorov—an opponent of both the expansion of government through the New Deal and American military alliances in the 1940s—the income tax not only hurt the economy, it represented an upending of the limited government traditions of the republic. Indeed, an income tax was unthinkable in the first years of the American republic, he noted.
“Certainly, no tax on incomes got into the constitution. That was unthinkable,” Chodorov wrote in The Income Tax: The Root of All Evil.
Chodorov called for a liberty amendment to revoke the Sixteenth Amendment. He said the income tax was once unthinkable among Americans because “they knew their freedom.”
