October 11th, 2012

The Income Tax: Never as Advertised! Time to Replace It!


During the 1912 Presidential campaign, each of the three candidates (President Taft, former President Teddy Roosevelt, and eventual winner Woodrow Wilson) appeared to favor the substitution of a federal income tax for the complex system of tariffs on imported goods.

Tariffs presented practical political problems that pitted portions of the American economy against one another.  Northern manufacturers were happy to have Congress enact tariffs on competing products manufactured overseas and imported into the United States.  Southern planters were happy to have Congress enact tariffs on commodities (such as sugar) imported into the United States from abroad.  Tariffs had the effect of raising consumer prices for commodities and manufactured goods.

In 1912, while the proposed Sixteenth Amendment [authorizing a progressive income tax] was being debated, proponents asserted that substituting the new income tax for tariffs would avoid the perennial factional battles in Congress over the number, amount, and application of tariffs.  Additionally, since the new tax would only applied to the very wealthy, it would only affect a very small number of people.  Moreover, rates would be low, filing would be simple.

After passage of the Sixteenth Amendment, the original income tax exempted individuals earning less than $3,000 and couples earning less than $4,000.  Earnings between $20,000 and $50,000 were taxed at only 2 percent.  Earnings over $500,000 were taxed at 7%.  A very tiny portion of the population was covered by the new tax.  A century of effort since 1912 [we leave it to you to decide whether it was productive] has failed to produce the “right” language in statutes, the “right” language in regulations, and the “right” [fair?] result.

Here is an excerpt from Valerius in essay Number 36 to The Second Bill of Rights and The New Federalist Papers.

“The monstrosity that has become the Tax Code provides one of the best examples why the barnacles that have attached themselves to the hull of the U.S.(S.) Constitution need to be scraped clean.  The 8,000-page Code is Exhibit A in demonstrating how factions have taken control from Congress, the Treasury Department, and the  IRS  of a system that is now so complex, so divisive, and so absurd that reforming it makes no sense.
. . .
The U.S. Tax Code is merely a symptom of the great problem on which the Founders focused—how to oblige any government administered by some over others to control itself.”

In Amendment No. 6 of The Second Bill of Rights, we propose that a consumption tax be authorized in substitution of the federal taxes on income, estates, and gifts.  The consumption tax is accompanied by a quarterly uniform cost of living exemption paid to every American citizen.  Here is the proposed text of that amendment.

“Substitution of Consumption Tax for Income, Estate, Gift Taxes.

1.         Congress shall have the power to lay and the States to collect on its behalf, a uniform consumption tax on all retail sales of new goods and services to all purchasers, including local, state, and federal government purchasers; Provided, that Congress shall at the same time establish uniform rebates for adults and for children, indexed for inflation and deflation, to shield basic household necessities from such consumption tax, paid monthly to each citizen, legal resident, or the guardian thereof, by the State in which they then reside.

2.         Congress shall have no power to levy federal taxes on income, estates, and gifts; no power to lay or collect a Value Added Tax; and no power to levy any excise tax measured by wages.  The sixteenth article of amendment to this constitution is repealed.”

Essays Number 35 through 39 present the proposed amendment and set forth the logic behind the use of a consumption tax, and the payment of a quarterly uniform cost of living exemption paid to every American citizen.

To read more about how we propose to make slight repairs to the US Constitution that once again limit the government within the logic of the Founders, click (i) on the Book link (top right), (ii) on the Quick Link (bottom), or (iii) go directly to Amazon:  http://www.amazon.com/gp/product/0984876405/

With malice toward none and charity for all.


Related Post:

See our April 15, 2012 post.  It is hard for Congress to be humble, despite 100 years of failure to get this all “right”.  http://www.thenewfederalism.com/tax-day-in-america-oh-lord-its-hard-to-be-humble/


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