The Liberty Amendments: Restoring the American Republic (11 page)

Thomas Jefferson, who had not attended the Constitutional Convention but had followed closely its deliberations, resisted the objections as well. He argued that the power to lay taxes to provide for the general welfare was not viewed by the Framers as all-encompassing: “For the laying of taxes is the power, and the general welfare the purpose, for which the power is to be exercised. Congress are [
sic
] not to lay taxes
ad libitum
, for any purpose they please; but only to pay the debts, or provide for the general welfare of the Union.” Jefferson understood that allowing Congress to levy taxes for any purpose would essentially be a grant of a “distinct and independent power to do any act [Congress] pleased.” Such a grant of power “would reduce the [Constitution] to a single phrase, that of instituting a congress with power to do whatever would be for the good of the United States; and, as they
would be the sole judges of the good or evil, it would also be a power to do whatever evil they pleased.”
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Jefferson was certainly not alone in this view.

Nonetheless, led by the Massachusetts Ratification Convention in early 1788, several states warned that should the Constitution be ratified, the new Congress needed to place further limits on the grant of federal taxing authority.

Amos Singletary, a grist mill operator, father of nine, and local justice of the peace with no formal education, spoke for many during the Massachusetts Ratification Convention:

We contended with Great Britain—some said for a three-penny duty on tea, but it was not that—it was because they claimed a right to tax us and bind us in all cases whatever. And does not this Constitution do the same? Does it not take away all we have—all our property? Does it not lay
all
taxes, duties, imposts and excises? And what more have we to give? They tell us Congress won’t lay dry taxes upon us, but collect all the money they want by impost. I say there has always been a difficulty about impost [raising enough funds] . . . they will not be able to raise money enough by impost and then they will lay it on the land, and take all we have got. These lawyers and men of learning, and monied men, that talk so finely and gloss over matters so smoothly, to make us poor illiterate people swallow down the pill, except to get into Congress themselves; they expect to be the managers of the constitution and get all the power and all the money into their own hands, and then they will swallow up all us little folks like the great
Leviathan
, Mr. President, yes, just as the whale swallowed up Jonah.
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The Massachusetts delegation voted for ratification, but urged that an amendment to the Constitution provide that when monies raised from impost and excise taxes were insufficient for the national government’s purposes, Congress would requisition additional funds from the states to raise as they deemed fit. Only if a state failed or refused to pay a requisitioned amount could Congress levy a tax on the state directly.
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The Virginia and Rhode Island ratification conventions followed Massachusetts’s lead.
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In the end, however, no change was made to the Constitution, for the enumerations setting forth the limited grant of power to Congress were believed by the state ratification conventions as both obvious and sufficient.

In the 1830s, Supreme Court associate justice Joseph Story, considered one of the greatest legal minds of his time, emphasized the limits on the Constitution’s taxation authority:

[Jefferson’s] opinion [on Congress’s limited power to tax and appropriate] has been maintained at different and distant times by many eminent statesmen. It was avowed, and apparently acquiesced in, in the state conventions, called to ratify the constitution and it has been on various occasions, adopted by congress, and may fairly be deemed, that which the deliberate sense of a majority of the nation has at all times supported.
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Story’s own view was that the specific language of the taxation clause, in which Congress may “lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense, and general welfare of the United States,” was indeed limiting. For Story, it was obvious that the drafters intended
the power to tax to apply to only three purposes: “to pay the debts,” “to provide for the common defense,” and to provide for the “general welfare of the United States.” The power to tax is strictly tied to these three purposes. It is not a general, unlimited power, granting Congress plenary authority, contrary to the specific enumeration of powers in Article I, the explicit recognition of individual and state sovereignty in the Bill of Rights, and the matrix of checks and balances built into the Constitution. No one believes the Framers intended to create, as Story explained, “an unlimited national government.”
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Story underscored the importance of placing limits on federal power to levy and collect taxes:

A power to lay taxes for any purposes whatsoever is a general power; a power to lay taxes for certain specified purposes is a limited power. A power to lay taxes for the common defence and general welfare of the United States is not in common sense a general power. It is limited to those objects. It cannot constitutionally transcend them. If the defence proposed by a tax be not the common defence of the United States, if the welfare be not general, but special, or local, as contradistinguished from national, it is not within the scope of the constitution.
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This should, once and for all, put to the rest the notion that by “general welfare” the Framers intended to grant Congress “general power” to tax. The Federalists insisted the Constitution effectively limited the taxing authority whereas the Anti-Federalists were concerned that the language would be distorted by future Congresses. There was overwhelming concurrence that
Congress should not be, and was not, granted plenary taxing power.

For the first few decades of the nation’s history, it appeared that Madison and the other delegates were correct in concluding that the taxing power would be applied as intended. But over time, Congress pushed its limits. In 1861, in order to pay for the growing Civil War debt, Congress passed the Revenue Act, which included an income tax. However, it was repealed in 1872 because it was considered an emergency tax. Indeed, in writing to the chairman of the House Ways and Means Committee, the then-commissioner of internal revenue urged the tax’s repeal. He argued that the income tax was “the one of all others most obnoxious to the genius of our people, being inquisitorial in its nature, and dragging into public view an exposition of the most private pecuniary affairs of the citizen.”
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In 1894, Congress enacted a flat-rate income tax. But in 1895, in
Pollock v. Farmers’ Loan & Trust Co.
, the Supreme Court ruled that the income tax was an unconstitutional direct tax. (A direct tax is a type of tax levied upon the individual directly rather than a tax levied on the purchase of a good or the importation of a good from outside the country.)
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Under the Constitution, direct taxes must be apportioned among the states, meaning each state must pay its portion of the total tax based on that state’s percentage of the general population.

However, the federal income tax—a “progressive” income tax—was a central goal of the Progressive movement. And in 1909, President William Howard Taft urged its adoption through the passage of a Sixteenth Amendment to the Constitution. It was passed quickly by Congress the same year. By 1913, three-fourths of the states ratified it. Then, as now, much of the political
debate for the federal income tax was based on shifting the burden of taxation from the broader population to a much smaller segment of society.

Nonetheless, the early tax rates were relatively modest. The original federal income tax rates in 1913 were, in inflation-adjusted brackets, as follows: 1 percent for incomes up to $463,826; 2 percent for incomes between $463,826 to $1,159,566; 3 percent for incomes between $1,159,566 to $1,739,348; 4 percent for incomes between $1,739,348 to $2,319,131; 5 percent for incomes between $2,319,131 to $5,797,828; 6 percent for incomes between $5,797,828 to $11,595,657; and 7 percent for incomes over $11,595,657.
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Whereas the top rate in 1913 was 7 percent, which applied to very few individuals, federal income tax rates today are far more onerous. In the first place, in 2009, for which the latest numbers are available, the CBO reports that the bottom 20 percent of income earners’ average rate for the individual income tax was negative 9.3 percent. For those in the 20–40 percent range of income earners, the average income tax was a little over negative 2 percent. Refundable tax credits exceeded the income tax owed by these individuals. Thus the income tax system today not only is intended to tax higher earners at higher rates, but directly subsidizes a substantial portion of the population with cash payments.
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In 2009, for individuals in the 40–60 percent range, the average income tax was 1.3 percent, while those in the 60–80 percent range had an average income tax rate of 4.6 percent. The top 20 percent of earners paid, on average, a 13.4 percent income tax rate, while the top 1 percent paid on average 21 percent.
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The Tax Foundation reports that “the federal deficit [each year] has grown so large that “[e]ven if the government took all
of the income earned by those who have an after-tax income of $1 million or more, the amount of revenue generated would fall far short of eliminating” the over $1 trillion deficit each year. In 2010, for example, the after-tax income of all millionaires was about $709 billion. The 2012 fiscal operating deficit was $1.32 trillion.
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It follows that higher-income earners account for most of the individual income tax revenue the federal government receives. The top 1 percent (adjusted gross income [AGI] of $343,927 and above) paid 36.73 percent of federal income taxes; the top 5 percent (AGI of $154,642 and above) paid 58.66 percent; the top 10 percent (AGI of $112,124 and above) paid 70.47 percent; the top 25 percent (AGI of $66,193 and above) paid 87.3 percent; the top 50 percent (AGI of $32,396 and above) paid 97.75 percent.
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Put another way, the Tax Foundation explains that “the share of taxes paid by the richest 10 percent of households, the share of all market income earned by that group, and the ratio of what that 10 percent of households pays in taxes versus what they earn as a share of the nation’s income, is the highest or most ‘progressive’ in the industrialized world.”
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In 2013, the effective tax rate for the wealthiest households will increase further as itemized deductions have been eliminated or phased out.
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Hence, class warfare or soaking the so-called rich may make for good populist demagoguery and serve the political ends of the governing masterminds, but it does nothing to solve the grave realities of the federal government’s insatiable appetite for spending and its inability to reform itself.

The current spending trend makes certain an immense tax increase on the vast majority of income-earning Americans, despite the overall inconsequence of taxation on bringing down the
aggregate debt. There is already talk of a VAT, which is an enormous, hidden sales tax levied at every level of production and service and drives up prices to the consumer;
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overhauling the over $3 trillion 401(k) retirement system, including the elimination of nearly $80 billion in deferred taxation;
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reducing or eliminating the home mortgage interest deduction;
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and reducing or eliminating charitable deductions.
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While terribly destructive of individual and private sector wealth, these taxes and others will be meaningless and increasingly desperate gestures.

New York Times
columnist and leftist economist Paul Krugman, in a moment of candor, stated:

Eventually we do have a problem. That the population is getting older, health care costs are rising . . . there is this question of how we’re going to pay for the programs. The year 2025, the year 2030, something is going to have to give . . . we’re going to need more revenue. . . . Surely it will require some sort of middle class taxes as well. We won’t be able to pay for the kind of government the society will want without some increase in taxes . . . on the middle class, maybe a value-added tax. And we’re also going to have to make decisions about health care, not pay for health care that has no demonstrated medical benefits. So the snarky version, which I shouldn’t even say because it will get me in trouble, is death panels and sales taxes is how we do this.
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In addition to the financial burden and economic dislocation, the tax system and Internal Revenue Code have become so complex and oppressive that the federal government’s National
Taxpayer Advocate reported in 2012, “U.S. taxpayers (both individuals and businesses) [spend] more than 6.1 billion hours to complete filings required by a tax code that contains almost four million words and that, on average, has more than one new provision added to it daily. Indeed, few taxpayers complete their returns without assistance. Nearly 60 percent of taxpayers hire paid preparers and another 30 percent rely on commercial software to prepare their returns.”
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Therefore, not only is the individual’s wealth diminished by confiscatory taxation applied to unconstitutional purposes, but he is tormented by the manner in which he calculates and confers his wealth to the federal government, for which fines and penalties are imposed for miscalculations.

Moreover, the recent scandal involving the widespread targeting of tea party, conservative, and religious groups for abusive if not unlawful scrutiny, the purpose of which was to deter them from pursuing tax-exempt designations and fully participating in public advocacy, is the latest in a long history of egregious manipulation and politicization of the Internal Revenue Service (IRS) by, among others, presidents, members of Congress, and partisan bureaucrats.
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