The Tax Man Cometh

April 15th, a date which lives in infamy. No other date in the calendar causes so much anxiety. To most, no other date raises as much animosity. This year, as we watched $350 billion disappear with no accountability and lots of head-scratching by politicians that authorized the bail-out funds, it's especially difficult not to be angry about writing that check to the United States Treasury. This is especially true for the top 5% of wage earners, who pay the majority of the taxes. They will be burdened with even more of a proportional share of the tax burden that will be increased under Obama, to reimburse the very people who put us all in this position in the first place. Yet, most Americans wait in a wide-eyed sense of hope that when the next President takes office, the ship will be righted.

In reality, most Americans will recognize little or no cash from any proposal being bandied about in Washington. Small businesses, which create 85% of the jobs in America, might see a few thousand in tax credits. The money will undoubtedly be squandered on projects that will have a small benefit for States through public works projects. Other than that, if you're not in the alternative energy industry, all of this noise about revitalizing the economy is just that - noise.

How, you may ask, did this whole mess of taxes get started. It started with the Lincoln administration trying to pay off debt from the Civil War. In that scheme, Americans with annual income over $800. would pay 3% of the amount over $800. That little project was rescinded in 1872. The next attempt to tax income occurred during 1894 in the Wilson-Gorman tariff, the first peacetime income tax, and it held that Americans pay 2% of income over $4,000. per year. That lasted until the Supreme Court, in 1895, ruled in Pollack v. Farmer's Loan & Trust that the law was unconstitutional, largely because of the interpretation of Article I of the Constitution that provided limits on the way Congress could apportion taxes.

This confusion was largely eliminated by the 16th Amendment, which was ratified in 1913. That event opened the floodgates of unfettered access by the Congress to our wallets, in regards to income taxes. Finally, in 1955 the case of Commissioner v. Glenshaw Glass Co. formed the basis of most modern interpretations of the 16th amendment and tax law in general.

Some of the basis of tax avoidance proponents rests in an argument that the 16th Amendment was not properly ratified. Most of them are broke and / or in jail. The Libertarian view of the unconstitutionality of income taxes in general comes from their interpretation of the Ninth Amendment insofar as it provides for "the natural right to enjoy all the fruits of one's labor." Taxation is an infringement on that right and also reduces the power of the states, in that the taxation provides undue leverage of the federal government to coerce states to accept federal conditions attached to that return of tax revenues. It has also always been the contention of anti-income tax adherents that the whole concept of graduated income tax was a main component of the Socialist views popular among academics during the time of the fall of Czarist Russia.

The debate among Americans about the constitutionality of income tax law has been raging since the time of Alexander Hamilton, who in 1788 published the Federalist 33 paper under an assumed name (Publius). In the simplest form, income tax laws were created to help move the primary source of revenue for the federal government from tariffs to taxation of the citizenry.

In all cases of the various incarnations of tax law, the largest beneficiaries have been those who make the least amount of money. The biggest losers have always been that make the most money. The top 5% of earners in America pay a little over half of the taxes raised. 40% of Americans pay no taxes at all. The philosophical discussion on both sides of the argument over whether or not the founders of our country intended for this practice of the federal government are cogent and persuasive.

The most prevalent discussion among those I know is a quiet resignation that income taxes will probably always be with us in some form. Some hope for a miracle in the form of a consumption tax. Don't hold your breath. I believe that everyone agrees that fairness in tax law must be instituted in some fashion. Fairness, though, is in the eye of the beholder. Most of us simply want our elected officials to recreate the way we approach the spending of our tax dollars. Why not let the people who create the revenue reap the most benefit?

Block grants to states in a proportional way for education, infrastructure, alternative energy, health insurance and so forth would provide for a revolution in this country. We would undoubtedly watch the 50 states create the methodology for providing the best answers for their citizens. Is there a precedent? Take the example of real estate law. Georgia legislated coherent and progressive laws concerning the regulation of the real estate industry in Georgia, which then became a model for many other States. If the States received the revenue back in block grants, this type of innovation would come far closer to engendering innovation than anything conceived in the cocoon of Washington, D. C. politics. Too Libertarian? Perhaps. But in the current condition of our worldwide economy, now is the time to begin the process of re-inventing the way we govern. Being a bit of a cynic, however, I will hope for the best and prepare for the worst.