The subject of income taxes is a sensitive one in the United States. It seems like every day, Democrats and Republicans cannot agree on who should be paying what. The IRS tax code may be one of the most often revised documents on the face of the planet as those in power lobby to make changes in favor of whatever special interest groups or factions of Wall Street elite are demanding.
We the people are usually as divided on these tax laws as those fighting over them. It seems there is always a clear benefit to the upper class or lower class, yet the middle class is forgotten somewhere in between. Is this done by design or as a natural byproduct of government spending policies?
Before one can even delve into who is right or wrong on tax reform, it is important to first ask why we pay taxes at all. That may sound like a ridiculous question since no one living today remembers an America where they did not have to pay (legally, that is) something.
But when this country was founded, there was no income tax. That’s right, the IRS did not exist in 1776. It was not created until 1862. For nearly 100 years after our founding, the government found a way to operate within a budget that did not require the average citizen to subsidize it. Imagine if our current leaders could accomplish anything close to this feat!
This is not to say that taxes are unconstitutional. The United States Constitution expressly addresses taxation. Article I, Section 8, Clause 1 (the "Taxing and Spending Clause"), specifies Congress's power to impose "Taxes, Duties, Imposts, and Excises."
You might be asking yourself what the point of this argument is then. But that becomes clear when you read further along in Section 8, where it requires that, "Duties, Imposts, and Excises shall be uniform throughout the United States."
It is well-known that the wording in the Constitution is often ambiguous, and rightfully so in light of how times change. But the word uniform begs the question of how we can have a system where tax brackets vary wildly based on income levels with more loopholes than a hangman’s gallows after the US-Dakota War of 1862. More disturbing than even the latitude provided, there is the line that reads, “to pay the Debts and provide for the common Defence and general Welfare of the United States.”
Let’s break those two items down, starting with the common defense of the United States, another gray area. What constitutes a defense of the country? Most would likely agree that certain wars were worthy of this title, namely the War of 1812 and World War 2. In both of these conflicts, there was a direct threat to the American way of life. The first proposed income tax was during the War of 1812, but it never passed. It was not until the American Civil War did we see the Revenue Act of 1861 take root. But even this would only be a short-lived necessity ultimately repealed when no longer necessary.
The first permanent income tax laws were implemented in 1913, a full four years before the United States passed a 250 million dollar Arms Appropriation Bill in 1917 to prepare for entry into World War 1 and one year before there was even a war to speak of. During the thick of our involvement, the top federal income tax bracket hit 77%. In World War 2, the top tax bracket ranged from 75% - 94%, and The Korean War saw that rate hover at 92%.
Were all of these wars, as well as numerous others we will not cite here, truly in defense of the United States? Less than twenty years of America's 245-year existence have been free from some form of war or armed conflict. Might we be slightly less belligerent if the Constitution did not contain a funding clause that made it profitable?
But why would the government want to take our money to fight wars?
War provides a variety of ways for big money to be made. The saying, “To the victor goes the spoils,” exists for this reason. Natural resources can provide enough motivation in certain cases. Then there is the angle of controlling trade policy and tariffs on the losing side. The profitability of the companies operating in the defense sector, many of which are owned directly or indirectly by politicians, their families, and donors, is arguably one of the most significant benefits.
So, where else do our tax dollars go? A significant amount is sent overseas in the form of foreign aid. In 2019, our government sent 47 billion dollars to other countries while people are starving and homeless at home. Of that figure, 35% went to these ten countries:
1. Afghanistan ($4.89 billion)
2. Israel ($3.3 billion)
3. Jordan ($1.72 billion)
4. Egypt ($1.46 billion)
5. Iraq ($960 million)
6. Ethiopia ($922 million)
7. Yemen ($809 million)
8. Colombia ($800 million)
9. Nigeria ($793 million)
10. Lebanon ($790 million)
This expenditure would appear to be in stark contrast to the Constitutional wording that allows for taxation. There can be no argument made for how giving any of these countries money contributes to the defense of our country. Whatever argument for these funds helping to fight terrorism is shallow at best. Once the funds are transferred, there is no way of guaranteeing how it is spent and it is foolish to think otherwise.
Then we have the “pay the debts” portion of the wording. This is a rather broad use authorization without much oversight. Imagine giving someone with a gambling addiction access to an infinite amount of cash to pay their debts. There would be no incentive for them to stop gambling. The same is true for the government. If taxpayer money is going to be used to pay debts, should we not have a voice in whether or not to incur those debts in the first place?
It is also important to note that all these arguments only pertain to income tax at the federal level. Prior to 1911, there was no such thing as state income tax. The Revenue Act of 1916 implemented the first estate tax to allow the government to profit from the death of wealthy citizens.
In 1921 West Virginia became the first state to institute sales tax, opening the door for many others to follow suit. Then in 1932, the first federal tax on gasoline was imposed nationwide. Fast forward to 1991 where the “yacht tax” on certain luxury goods was enacted to help pay down the federal deficit.
All of the taxes mentioned above do not even account for the additional taxes paid by those who want to fulfill the American dream of homeownership. Thanks to city and county property taxes in most states, you can never truly “own” your own home. Even after the mortgage is paid off, you are ultimately forced to “lease” the land from the municipality in perpetuity. That means you could spend thirty-plus years paying the mortgage, taxes, and insurance only to have it all taken away if you are no longer able to keep up with the property taxes.
No one ever said freedom was free, but they also never explained just how expensive it really is for most.