- Excerpt
YOUR MONEY OR YOUR LIFE:
Why We Must Abolish the Income Tax
by Sheldon Richman
INTRODUCTION
The excerpt, below, is taken from the first chapter
of "Your Money Or Your Life," a book that the American
Library Association's "Booklist" magazine praised as "the
essential argument of the anti-income tax movement." The excerpt
outlines the case against the income tax in concise terms. It includes
a darkly humorous anecdote about a Treasury Department emergency plan
for collecting taxes in the aftermath of a nuclear holocaust. Truly,
there is nothing certain except death and taxes!
"The Permanent War"
by Sheldon Richman
About ten years ago Stanley McGill, 93, mailed a check for $7,000 to
the Internal Revenue Service. When he died, his daughter discovered that
Mr. McGill had made a mistake. The money should not have been sent. Marian
Brockamp explained to the IRS that her father was senile and asked for
a refund.
The IRS said no. Requests for refunds must be made within three years.
Mrs. Brockamp took the case to court. It went all the way to the U.S.
Supreme Court.
She lost.
In the grand scheme of things, that
is a small event. The Internal Revenue Service has done far worse in
its time. It has harassed and tormented people. It has seized property
and frozen bank accounts. It has ruined credit records. It has driven
people to suicide. Nevertheless, the Stanley McGill story sums up a
great deal about the IRS and the American tax system. The IRS concedes
that the $7,000 should not have been sent. It is money that the agency
should never have received. Mr. McGill made a mistake. His daughter
informed the IRS as soon as she discovered the error. No one questions
the facts. But the IRS won't surrender the money. And now the U.S.
Supreme Court says the IRS doesn't have to. (The Ninth Circuit Court
had ruled that it was "unconscionable" for the
government to keep the money.)
Speaking for a unanimous court,
Justice Stephen G. Breyer wrote: "The
nature and potential magnitude of the administrative problem suggest
that Congress decided to pay the price of occasional unfairness in individual
cases ... to maintain a more workable tax enforcement system."
Congress decided to pay the price? How noble. Except that in this case
it appears Congress has forced Mr. McGill's heirs to pay the price. Why?
Because the rights of the individual must not be permitted to create
administrative problems for the IRS or to interfere with the maintenance
of a workable tax enforcement system.
Yes, that incident occurred in the United States of America.
Imagine if the tables were turned
and after Mr. McGill's death the IRS discovered that he "owed" the
government $7,000. Imagine further that Mrs. Brockamp politely replied
that the IRS was too late in its request. What would have happened?
The IRS would have seized the money and perhaps have made hell out
of Mrs. Brockamp's life. And the Supreme Court would have sided with
the IRS.
The IRS reign of terror is something
we have unfortunately grown accustomed to. But someday it might be
different. Someday we will look back on the era of the income tax and
the IRS with embarrassment that such an immoral system could exist
in this noble land. We will be bewildered that this system could have
been adopted in 1913, considering the revolutionary libertarian roots
of the great American experiment in freedom. How could the American
people have permitted and put up with the Internal Revenue Service,
which tax historian Charles Adams equates with "a miniature
Soviet state with the power to intimidate just about everyone"?
This book tries to put the income tax, and the Sixteenth Amendment that
permitted it, into historical context and show its implications for morality,
the relationship between citizen and state, and the quest for prosperity.
The verdict on the tax is not favorable: ratification of the amendment
and passage of the tax was a major turning point in the transmogrification
of America from republic to democratic despotism. More than anything
else, it converted Americans from citizens to subjects. Indeed, there
is not a single good thing that can be said about the income tax.
In fiscal year 1997, the federal government spent about $1.6 trillion.
Income taxation in one form or another raised about $1.3 trillion. One
trillion, three hundred billion dollars. Think about that. Americans
are paying between 15 percent and more than 30 percent of their adjusted
gross income, thousands of dollars a year for the working and middle
classes, in personal income taxes alone. They pay more than 15 percent
for Social Security and Medicare. In hidden ways they pay the corporate
income tax. According to the Tax Foundation, the personal income tax
takes almost 10 percent of net national product. Do Americans get their
money's worth? The question answers itself. As Will Rogers said, thank
goodness we don't get all the government we pay for.
But even to ask about getting one's
money's worth is to miss the point. The tax system and the distributive
engine it fuels are not about giving citizens value for value. Only
voluntary exchange can accomplish that. The IRS may call the taxpayers "customers," but the point of
the system is to milk them to the maximum without setting off a revolt
and to use the money to keep politicians and bureaucrats in power. As
that great tax collector Jean-Baptiste Colbert, Louis XIV's controller
general, said, "The art of taxation consists in so plucking the
goose as to get the most feathers with the least hissing."
In carrying out its mission, the IRS is only serving a higher power:
the lawmakers who need a never-ending flow of cash to the federal treasury.
They wrote the laws that loosed the IRS on the American people. They
can repeal them. Why don't they? They want the money, pure and simple.
~ Nuclear-Proof Taxation ~
To see the government's true priorities,
consider that when the threat of nuclear war with the Soviet Union
loomed, a top government concern was how to collect taxes after 100
million Americans were killed and U.S. society was devastated. A Department
of Treasury document on the subject was titled "Fiscal Planning for Chaos." A later memorandum
noted that the tax system would vary from place to place, depending on
the amount of destruction. Where damage was cataclysmic, martial law
would be declared and government officials would simply seize whatever
resources they needed. "Simply stated," according to the memo, "everybody
would be in the Army."
But officials anticipated that a market economy, with money, would spontaneously
return (a perceptive observation, for that is what would happen). Because
of that, the government would have to be ready with a tax system. At
first a flat-rate gross-receipts tax would be adequate. Since the range
of post-attack incomes would be small, the memo said, the income tax
as we know it would not be necessary. But the income tax would be waiting
in the wings. As the memo put it:
"Nevertheless, it would be desirable to have on the books a personal
income tax at the outset of the emergency. The reasons for the very early
establishment of a personal income tax, even though the private economic
sector may have ceased to function, are that (1) the Revenue Service
should have time to plan the administration of the tax ... and (2) liability
should be established at the earliest phases of the emergency to tax
*illegal gains made by speculators and black market operators*" [emphasis
added].
Hold on a minute. Illegal gains?
Speculators? Black-market operators? What was the treasury secretary
talking about? When people begin to trade after a nuclear war, what
would count as an illegal gain? Presumably the government would control
prices, and anyone charging a higher price would be guilty of making
an illegal gain. Who would be a speculator - anyone who buys low and
sells high? What does "black market" mean
in this context? Typically, a black market is the underground trade in
illegal products. The Treasury memo implies that any trade that is not
authorized or monitored by the government would be illegal. Dazed Americans
would be trying to rebuild their lives, but the national government would
be busy controlling economic activity and making sure taxes were collected.
A later Treasury study recommended a 24 percent general retail sales
tax in lieu of an income tax if IRS records are destroyed. Interestingly,
the study stated that the sales tax would encourage savings and allow
the rebuilding of the capital stock. (The growing movement to replace
the income tax with a national retail sales tax makes exactly that argument.)
The government's chief worry about nuclear war was that in the chaos,
the American people would go untaxed. If the government were cut off
from the money, how would it maintain its operations? What if people
discovered they can get along without the bloated national state we labor
under today?
For David Burnham, author of A Law
Unto Itself: Power, Politics and the IRS, this concern with collecting
taxes after nuclear devastation validates Benjamin Franklin's famous
maxim that nothing is certain but death and taxes. As Burnham puts
it, "In a most concrete way, the
unswerving determination of these officials to complete their mission
no matter how desperate the nation's condition confirms the wisdom of
the death-and-taxes observation of the sage of Philadelphia."
Who is surprised to learn that government officials regard protection
of the revenue flow as a key consideration when planning for nuclear
war? They are the same people who raise estate taxes retroactively, upsetting
the plans made by people before they died.
What better indicates the true relationship between the citizen and
the state?
~ The Income Tax under Attack ~
Today we hear more criticism of
the income tax and the IRS than ever before. The chairman of the House
Ways and Means Committee, Rep. Bill Archer of Texas, has called for
abolition of the tax and the IRS (and its replacement with a national
retail sales tax). Sen. Richard Lugar made repeal of the income tax
a pillar of his short-lived presidential bid. Presidential candidate
Robert Dole promised to end the IRS "as
we know it." Whether they would actually rid America of the IRS
is beside the point. They thought it was worth telling the American people
that there is something gravely wrong with the income-tax system. They
targeted the IRS and its reviled practices. That is progress.
Of course, we've heard this before. President Jimmy Carter called the
tax code a disgrace. President Ronald Reagan said something similar and
oversaw so-called tax-reform legislation. Changes were made, rates were
cut (then raised by his successors), the code was simplified in places
(before being made more complicated again), and brackets were indexed
for inflation. But overall, it's the same old tax code. Meanwhile, the
other income tax, the payroll tax that supports Social Security and part
of Medicare, was raised for several years running. Tax reform has become
one of the biggest scams in America. No wonder no one got excited when
Robert Dole tried to make it the centerpiece of his presidential campaign.
This book has essentially one theme: taxation of income is bad. All
taxation involves coercion and thus violates individual rights. If you
don't believe that, ask yourself why there are penalties, including imprisonment,
for nonpayment and failure to file a return, that is, report to the government
on your financial activities. Libertarians believe taxation is theft.
That matter will be taken up in detail in the next chapter. For now,
let's leave it at this: when you take someone's money without his consent,
it is stealing. It doesn't matter that the majority of the victim's fellow
citizens voted for it. It is theft and nothing but theft. The nineteenth-century
political philosopher and constitutional lawyer Lysander Spooner said
he could see no difference between the government and a highwayman. Actually,
he could find one difference: the highwayman does not hector his victim,
insisting that the thievery was good for him.
But this is not a general book about taxation. As bad as any taxation
is, the income tax is worse. It is aggravated theft, robbery with malice
aforethought. Theoretically, all forms of taxation could be draconian.
If a sales tax caused mass evasion through the cash economy, the government
could conceivably conduct house-to-house searches demanding receipts
for all the products you own. If a revenue tariff were sufficiently evaded,
one can imagine the government torturing consumers to get them to identify
the smugglers. The late economist Murray Rothbard was right when he insisted
that ultimately what counts is how much the government transfers from
the productive sector to the parasitic sector, not how it does so.
That said, it is nevertheless the case that in practice the income tax
has been more abusive of the people's rights than other taxes. It lends
itself more readily to draconian enforcement. That justifies singling
it out for special condemnation. But we should not forget that merely
replacing the income tax with another tax designed to raise the same
revenue would be a shallow victory.
The moment the principle of income
taxation is granted, the ground is prepared for myriad abuses of the
people. As will be elaborated in the pages to follow, if the government
is permitted to tax incomes, it will demand reams of personal information
about each citizen's financial endeavors. It will compel people to
report on the peaceful financial activities of other people. But more
than that, it must have the muscle to check that information, to spy
on people, to conduct inquisitions, and to punish - hard. Why? Because
there is nothing more natural than people's trying to keep what they
worked to acquire. Regardless of their explicit political philosophy,
most people are implicit advocates of property rights. They don't like
being dispossessed of their belongings. Even thieves don't like to
be robbed. Despite years of indoctrination about taxes' being voluntary
and the price of civilization, most people deep down realize that the
tax system is seizing something dear to them the fruits of their labor.
And they don't like it. So they do what they can to minimize the damage.
They use every legal means to keep their money (television and radio
commercials and books constantly offer ways to reduce one's tax liability),
and they sometimes use illegal ways. The distinction is not always
clear. The IRS says collections fall short of what is "due" by
about $150 billion a year. That is the total of contested claims; it
does not include taxes on incalculable income made in the underground
economy, estimated at 20 to 50 percent of GDP.
~ Man vs. State ~
Income taxation inaugurates a permanent
war between the people, who want to keep what they earn, and the government,
which wants as much of it as it can get. The government tries to make
the war less obvious by deadening the pain when possible. The withholding
tax makes it unnecessary for most Americans to write checks to the
IRS; indeed, they eagerly await their refunds. But the war is part
of the American psyche nonetheless. All Americans sense that an awesome
power lurks, ready to grab an increasing portion of anything they earn.
That adversary relationship has far-reaching consequences for a society
founded on the principles of the Declaration of Independence, namely,
the rights to life, liberty, and the pursuit of happiness. In the Declaration,
Thomas Jefferson said that when government fails to protect rights
or itself threatens them, the people have the right and duty to "alter or abolish" it.
That surely indicates that according to the prevailing philosophy among
Americans at the time, government was the dangerous servant. The people
were the master. But the income tax turns that relationship on its
head. The tax and all the powers that must accompany it turn the people
into cowering servants, ever fearful of being accused of concealing
income or information and being compelled to prove otherwise. People
have lost money, homes, businesses, and liberty to the IRS. A few have
committed suicide under the pressure of a tax investigation. The income
tax may not be the root of all evil, as the libertarian writer Frank
Chodorov believed. But it is the root of many evils. The income tax
radically undermined the American revolution.
Every American should ask himself what it was like to live in the United
States before there was an income tax. Imagine not having to give up
more than 30 percent of your income to the federal government. Imagine
living without fear of being audited by the IRS. Imagine starting the
new year and not having to think about where you stored the previous
year's receipts. Imagine not worrying whether your records are good enough
for the IRS. Imagine not having to pay a tax preparer hundreds of dollars
to fill out complicated forms in order to minimize your tax liability
and avoid audit. Imagine such a world in which none of those burdens
existed.
Americans lived without those fears
and burdens for more than one hundred years (except in the Civil War
era). They built a decent society nonetheless. Late-nineteenth-century
America was the freest society in history. People could run their own
lives with little interference from government. Prosperity increased
as never before. Products that once only the nobility could afford
became mass consumer goods. Specialization and the division of labor
increased productivity, which in turn raised living standards. Taxes,
mostly excise taxes and revenue tariffs, took only a small portion
of people's wealth. The federal government played only a bit part in
the lives of the people. (That role was enlarged by the Civil War but
was still small by later standards.")
The government does not publish figures for how much of GDP the national
government absorbed in the late nineteenth century. But it does have
them going back to 1930. In that year, before the income tax affected
ordinary people, federal receipts were just 4.2 percent of GDP. (Spending
accounted for an even smaller part, 3.4 percent.) In 1942, the share
of GDP extracted by the federal government hit double digits for the
first time, exceeding 10 percent. It essentially has gone up ever since.
Today it stands at more than 21 percent, the highest since World War
II.
The income tax has been a key factor in the growth of government. When
enacted, only the few richest people in America paid the tax. In 1934
individual income taxes provided about 14 percent of federal receipts.
It became a tax for ordinary people during World War II, ironically under
that reputed champion of ordinary people, Franklin Delano Roosevelt.
Today, it accounts for more than 43 percent. Payroll taxes for Social
Security and Medicare account for about 35 percent. As you can see, Americans'
incomes have provided a rich vein for the government to mine. The income
tax makes it easy for the government to raise money. Its sheer complexity
often makes it difficult for people to know what any given change in
the tax code will mean for their own situations. By the time they realize
that their taxes have gone up, it is too late.
An ugly picture emerges. As we will see, the income tax has:
* Given the government unprecedented access to the American people's
wealth.
* Provided the rationale for the government to intrude into our personal
affairs.
* Reversed the traditional rule-of-law relationship between government
and those suspected of lawbreaking.
* Corrupted morality by labeling
efforts to keep one's own money as "cheating."
* Bewildered the American people with constantly changing technical
rules that no one could possibly comply with perfectly.
* Permitted lawmakers to influence our conduct through selective tax
deductions and exemptions.
All this has come from the principle that government may tax incomes.
As objectionable as other taxes are, none could permit the government
to amass power, abuse citizens, or corrupt society the way the income
tax has. That is why repealing the tax, along with the Sixteenth Amendment
that permits it, is an essential blow in the struggle against power and
for liberty.
This book will not be comforting to those who love freedom. It will
show that the tax system is offensive to morality and destructive of
civil liberties and prosperity. We will retrace the fateful steps America
took on its way to adopting the income tax. If a sense of incredulity
- even horror - overtakes readers it will be unsurprising. Looking back,
it is hard to believe that a country conceived in liberty could have
taken the path it did and permitted the federal government to exercise
such awesome power.
If at the end readers come to the conclusion that the income tax was
a tragic decision in the history of America, if they come to believe
that life would be better for everyone without that tax, if they understand
that liberty is worth more than anything the income tax finances, and
if they resolve to help rid America of that tyranny - then this book
will have succeeded in its mission.
Let's begin the journey to freedom.
Copyright ©1999 by Sheldon Richman and The Future of Freedom Foundation.
Please do not duplicate or distribute this file without permission from the publisher.
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