100 years of the income tax
Sunday, February 3, is the 100th anniversary of the ratification of the Sixteenth Amendment, which makes it the one hundredth birthday of the income tax. It has grown rather ill-tempered in its dotage.
Americans for Tax Reform commemorated the occasion by publishing a few fun facts about the income tax. Among other interesting statistics, the initial top tax bracket was only 7 percent, and it didn’t kick in until income reached a whopping $11.6 million in 2013 dollars. Only 358,000 people had to fill out 1040 forms at first, because the standard family deduction was an adjusted $93,000.
Over the past hundred years, the tax code has swelled from 400 pages to almost 74,000. The top rate is 39.6 percent; add in state and local taxes, and you’ve got the government soaking up over half of every marginal dollar earned by the Evil Rich. And the top bracket crashes down on those who earn over $450k, which is the new functional definition of a “millionaire.” Every new tax – from the income tax itself, to the Alternative Minimum Tax and its prospective stepchild, the “Buffett Rule” – is sold as a small levy on the vast wealth of millionaires. The AMT was only supposed to affect a couple of hundred people when it was implemented in 1969, but now it’s on the verge of grabbing 50 million taxpayers, if it’s not “fixed.” In the early years of the income tax, Americans were likewise assured that it would only slip a few dollars from the bulging wallets of the wealthy.
Allowing the government to sink its feeding tubes into the veins of American income has fueled astonishing government growth. That first itty bitty tax levy brought in a paltry $16.6 billion in revenue, adjusted for the past century of inflation. Today the income tax brings in $2.7 trillion. Government inevitably grows to fill, and exceed, the space made available for it.
Perhaps the biggest problem with this tax is the way it is collected. As we were all reminded during the row over presidential candidate Mitt Romney’s remarks about the “47 percent,” the “progressive” tax system has moved an increasingly large cohort of Americans out of the system entirely, while placing an ever-greater share of the burden upon a dwindling group of high wage earners. Remarkably, this group is perpetually accused of “greed” and refusing to pay its “fair share,” even though the relationship between its tax burden and the amount of income it earns has long since exceeded any reasonable definition of “fairness.” Even before the new Obama tax increases kicked in, the Heritage Foundation noted that the top 10 percent of income earners were carrying 71 percent of the federal income tax burden, even though they earned only 43 percent of all income. The bottom 50 percent, meanwhile, earned 13 percent of all income but paid only 2 percent of the income tax.
And that still isn’t fair, according to the Left. It never will be.
The Left would not be able to play these “fairness” games if income was not directly taxed, at a variety of arbitrary rates – an offense against the individual’s right to own property, which should not attenuate with income level. Meanwhile, assets, benefits, and other forms of wealth are taxed differently. It is a formula for endless strife, and it’s been working like a charm for the past hundred years.
The income tax is collected largely through payroll deductions, which makes the true cost of government almost completely invisible to the middle class. Uncle Sam quietly takes his cut before the first dollar lands in an employee’s bank account. If every worker was required to compute and pay his own taxes quarterly, in the manner of a small business, America would experience a taxpayer revolt that might sweep away a good deal of government bloat. Imagine the fortunes of tax-cutting small-government candidates if most of the electorate had to figure up quarterly local, state, and federal tax bills, and write checks to all three authorities, a few days before each election.
Instead, the government takes big, silent bites out of everyone’s take-home pay. The process has been made obscure and painless, in much the way that a mosquito numbs the skin of its victim before drawing blood. We might also add the bite taken by Social Security and Medicare, programs that no young person entering the workforce today will ever get to enjoy, not in any manner resembling the benefits paid to the current retirees they are supporting. Although taken for different purposes, that money has become fungible; it’s all part of the same river of cash, pouring into an irresponsible Leviathan that still borrows another 40 cents on top of every dollar it takes from us. When we gave the State first claim on our income, we conceded far too much.
Then you’ve got the nauseating spectacle of Tax Day, when some people do become momentarily conscious of the immense cost of government, and grow a bit irritable… while others dance in the streets waving their tax “refunds,” which they actually regard as a “gift” from the government. Free money! Yay! Thus are the citizens of this proud Republic made to dance like trained animals, as they celebrate the repayment of money the government unfairly took from them, without a penny of interest. And then you’ve got those who receive “tax refunds” exceeding anything they paid into the system, thanks to tax credits.
Throughout the year, the government exerts vast amounts of control over the populace through that 74,000-page tax code, rewarding some behaviors and punishing others. The mechanism for funding the government should not also be a mechanism for controlling the people, or purchasing their votes.
One of the key federal income tax deductions is an allowance for state income taxes paid. This comes as a great relief to people who live in high-tax states, of course… but it also means the rest of us are subsidizing some of the worst tax-and-spend state governments, providing them with a cushion that eases the pressure for reform.
“The deduction is Washington’s way of supporting states that support their most vulnerable citizens and neediest cities,” explained the New York Times last December, when the “fiscal cliff” battle seemed to threaten these state tax deductions. “The seven states that account for 90 percent of state and local tax deductions (including sales and property taxes) — New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts — generally do a better job of providing for the health and welfare of their citizens, and are more willing to pay for institutions that are good for society as a whole.”
California? Illinois? They’re disasters perched on the verge of total financial implosion. How insultingly stupid to portray them as nirvanas of liberal compassion, which the rest of us across America are morally obligated to support by paying higher federal income taxes, so that their citizens can pay less! Maybe these blue-state basket cases wouldn’t have gotten so bad if their political machines hadn’t enjoyed so much tax redistribution for so many years.
Redistribution. Control. Deception. These are the hallmarks of the income tax, the power source for a vast engine of central government that exerts its power to control markets, build loyal voting blocs of dependents, and pit Americans against each other like dogs fighting for table scraps. And we’re paying several other layers of taxation we can perceive even less clearly than the complex, automatically deducted income tax! We should be paying for government, not sustaining it. Every American should carry a truly fair share of the burden, which they can easily comprehend.
Instead, the IRS figures we spend 6.1 billion hours a year complying with a tax code that changed more than 5,000 times over the past ten years. Would the 16th amendment have passed, if the people of 1913 truly understood what they were unleashing? And why are we willing to meekly accept that we can never correct their mistake?