The Federal Government and Taxes

Ask your neighbor or coworker when the first Federal Income Tax was enacted. Was it in the Constitution when those really smart people crafted a document that would stymie all of the tyranny and oppression they experienced under the rule of the old country? Also ask them how much they paid in taxes last year. They will most likely not even consider Federal withholding, but instead say something like, “heck, I got a refund.” Most people have no clue how much they pay in Federal Income Taxes. For the first 90 or so years our Republic levied zero income taxes upon our citizens. The Federal Government operated solely from taxes levied on a small number of consumer items. They added luxury goods to the mix to help pay for the War of 1812. It seems as though Americans have always been willing to pay more money to defeat an even bigger threat than taxes. After the War of 1812, the Federal Government actually ended the taxation of these domestically sold consumer goods and only placed taxes on imports through tariffs. I will point out that the Republic still did not have a Federal Income Tax after the war of 1812. I will also point out that the role of the Federal Government in those days was nothing even closely resembling what it has become today. The taxes collected were to defend the borders. There was no system of wealth redistribution like we have today so expenditures were few. In short, the Federal Government did not require an enormous amount of money to operate - largely in part because they stuck to their original and constitutional purpose.

Then in 1861, the Union states needed financing to keep the Southern states from secession. Congress levied a 3 percent tax on everyone earning between $600 and $10,000 a year. Any earnings over $10,000 would be taxed at a higher rate of 5 percent. It is noteworthy to mention this was also progressive. I bet Karl Marx was doing back flips by the mere thought that someone way over here was subscribing to his Communist Manifesto that he wrote just 13 years prior. Since a progressive income tax is number 2 on his “10 Planks” toward Communism, Karl Marx must have been worried that we skipped number one. Don’t worry Karl, we have made significant headway on that through eminent domain, zoning, and radical environmentalism, just to name a few.

With the end of the war in 1865, the Union states continued to levy taxes on income for another 7 years. This ended in 1872 with mounting pressure from the people. Can you believe it? The Federal Government actually killed the income tax! Well, to be accurate, they really let it expire. You see, all of these income taxes passed by Congress contained expiration dates. They wised up later and fixed it to where we could never have one expire again. In fact, nowadays Congress only seems to have expiration dates on tax DECREASES. Anyway, the Feds went back to taxing a handful of consumer goods for the next 20 years until an economic downturn in 1893 gave Congress an excuse to implement another income tax to straighten everything out (we would probably call it a “recession” today). It seems as though war is not the only excuse that citizens will buy to accept an income tax. In 1894, the act was passed and levied a 2 percent tax on anyone earning more than $4,000 a year. Oh yeah, I almost forgot to mention that they added a nice little clause whereby all government officials were exempt from paying the tax. That’s right. And you thought that the politicians of today have brass.

Not too long after, the U.S. Supreme Court ruled that the federal income tax was unconstitutional. How many people in this country today do you think realize the very first peacetime federal income tax was ruled unconstitutional by the U.S Supreme Court? Not many I’ll bet. Well, Congress fixed this problem once and for all by calling for a constitutional amendment, which easily passed through the House and Senate. On February 12, 1913, the Amendment was ratified. Thomas Jefferson, John Adams, Benjamin Franklin and the others had to be turning over in their graves. Karl Marx, who had been dead for 30 years, had to be jumping for joy. I should point out that the Federal Government did not get around to passing a constitutional amendment protecting the rights of all of our citizens equally until a full 51 years later with the Civil Rights Act of 1964.

The fact is that the working poor today spend a greater percentage of their income on complying with the tax code than the wealthy. Since a major reform in 1986, the tax code has been amended approximately 16,000 times. Currently, our complex tax code requires 67,500 pages of printed material and 526 different forms, depending upon your individual situation.

I should mention that I obtained many of my facts from Neal Boortz and John Linder’s book The Fair Tax Book as well as some of their sources in the footnotes and also various credible internet websites. I say “credible” because any idiot can post material on the internet as evidenced by my blog. I will not get into the FairTax on this posting, but it is just a matter of time before I get to it.