Rep. Ron Paul (Rep.,
Texas) and others in the Congress
introduced a bill to require a two thirds majority on any legislation
that
would require any kind of tax increase. The bill was defeated. Now, he
is sponsoring a resolution to repeal the income tax. H.J. Res. 45 --
The
Liberty Amendment would repeal the 16th Amendment, which enabled the
government
to impose an income tax. A brief summary of the reasons for the Liberty
Amendment is available online at http://libertyamendment.org/
But if you are in favor of repealing he 16th Amendment,
don't be surprised if a lot of your friends, neighbors and even
family think you are nuts.
Supporters of the Income Tax
There are a lot of people who are strongly opposed to any
restrictions
on the power of Congress to tax as they deem necessary. These are the
folks
who believe that the government should micro-manage the affairs of its
citizens in every conceivable way. Nearly every federal politician
benefits
from the income tax because it provides the money with which to fund an
assortment of programs that appeal to the voters. It also provides an
incentive
for substantial political contributions from supporters who want
legislation
to reduce their taxes or to subsidize some activity that the supporters
favor. You can expect them to be vocal and strident in their opposition
to the repeal of the 16th Amendment to the constitution. You can also
expect
them to spend huge amounts of money to sustain the status quo.
For reasons that I don't fully comprehend, the mass media
also seems
to be highly supportive of the kind of government that taxes some
citizens
more than others and the kind of government that provides funding for a
wide range of "benefits" for the "poor" and other special interest
groups.
You can expect them to rail harshly against any effort to repeal the
income
tax.
A majority of people probably feel that any effort to radically alter
the tax system in the U.S. is seriously unrealistic and is a waste of
time
and/or money. I also suspect there are even a lot of people who would
not
put their name on a petition to repeal the income tax because of a fear
that the government or IRS might retaliate.
Harry Browne, an author and former Libertarian Party
Candidate for President, has identified
the major source of resistance to elimination of the income tax. Most
people
are reluctant to give up some benefits they are getting (directly or
indirectly)
from the government that are supported by the income tax and the Social
Security or Medicare tax. For some, that benefit is Social Security for
themselves or their parents or Medicare or even Medicaid, which pays
for
the nursing home care of those who are not able to afford the high cost
of such care. In case it's not obvious, the Social Security tax and the
Medicare tax are both based on income and would be prohibited if the
16th
Amendment were repealed.
Others have jobs with the government or with companies that
get a major
part of their income from the government. Millions are dependent to
varying
degrees on the money spent for military purposes. Almost everyone in
the
health care system in the U.S. is dependent on Medicare. Employees of
non-profit
organizations are likely to resist the repeal of the income tax for
fear
that people would no longer have an incentive to make contributions to
their organizations. Companies that offer products that enjoy tax
benefits
would worry about the impact on their industry. Real estate, farming,
education
and the tax preparation industry are just a few that come to mind. The
entire "military-industrial complex" and most of their employees can be
expected to resist repeal of the federal income tax. A large part
of the construction industry produces buildings and roads under
government
contract.
If you understand that taxes of every kind (at all levels of
government)
represent close to 40% of our national income, it should be obvious
that
a large part of those tax dollars represent income or benefits to
someone.
Nearly every family has someone who is substantially dependent on some
government project or program.
Then there are the many millions of people who are committed
to some
special cause which is being supported by government - whether it's the
environment, the space program, medical research or any of hundreds
(perhaps
thousands) of others.
Growing Opposition to the Income Tax
But a growing number of people are ready to "storm the
barricades" to
get rid of the evils caused by the income tax.
Many of them believe they will save more in taxes than they
will lose
in some kind of government benefits. This is the essence of the "Great
Libertarian Challenge" posed by Harry Browne. He argues that you can't
get rid of government programs on a piece mail basis because the
support
for individual programs will be more vocal and concentrated than the
opposition
to any specific program. It can only be done by getting a majority of
people
to agree to give up whatever government programs or benefits they like
in exchange for a total elimination of the income tax. For more on this
argument see http://www.harrybrowne.org
or get a copy of his book, "The Great Libertarian Offer" from http://www.harrybrownestore.com/books.html
But many of the people who resent the income tax object to
it on non-financial
grounds. High on the list is a near hatred for the IRS by many
citizens.
Closely related is the desire to restore some privacy by getting rid of
the ability of the government to intrude into every nook and cranny of
our private lives because of the income tax. Some object to the income
tax because it does what it was intended to do. It imposes a tax on
select
groups and imposes different levels of tax on different taxpayers or
groups
of taxpayers. It is truly the most discriminatory tax in recent
history.
Some opponents of the income tax argue that it punishes those who are
productive
and rewards those who are not. A few people who have to cope with the
complexity
and the cost of the income tax system want to get rid of it because of
the hidden costs (loss of productivity) it imposes in the form of the
time
or the expense of compliance.
A hidden but growing cause of resistance to the income tax
is that it
is being used to control an assortment of activities in various ways.
One
example is the punitive taxation on investments in foreign mutual
funds.
Another is the insane maze of rules for employers who provide employee
benefits and the potential penalties for failure to comply with the
rules.
Absurd penalties for failure to file an information return even when no
tax is due is an abomination. Another is the assortment of tax
incentives
to invest in government approved projects. The income tax is an
enormous
source of political graft. Jobs are created for those who help
successful
candidates. Generous cost plus contracts are awarded to companies who
support
the politicians in power.
Some of those who advocate the elimination of the income tax
argue that
its elimination will result in an immediate increase in productivity
and
investment. Those in the lower brackets who are mostly paying social
security
taxes may be likely to spend much of their tax savings at first. Those
in the higher brackets will be more likely to invest their tax
windfall.
Those in the middle will do a little of both. Some of the tax savings
will
result in greater contributions to charitable activities,
notwithstanding
the loss of the income tax deduction. New spending will lead to some
business
expansion. New investment will lead to more productivity. The
elimination
of many government functions will cause those employees to seek work in
some activity that is more likely to be productive in terms of
producing
goods and services that other people really want. There would be a huge
increase in productivity by the elimination of the costs of compliance
with the many thousands of pages of tax laws and regulations.
Accountants
would have to focus on accounting instead of on taxes. The cost of most
basic goods and services would drop as the supply increases due to
increased
productivity.
How Would Government Adjust?
A repeal of the 16th Amendment won't happen overnight. It
will be a
constant news story for years as various state legislators grapple with
the implications and various lobbying groups argue about its merits. If
it did pass, those who would be most harshly affected would have time
to
make plans to adjust to less government funding.
It's almost a certainty that the Congress would resort to a
national
sales tax if it became clear that the income tax would be repealed. A
national
sales tax could be implemented fairly quickly and would provide for
transitional
funding of existing programs. However, the added cost of the goods that
are subject to a national sales tax would result in some decrease in
the
use of those goods. Certain basic goods (like food and lodging) would
most
likely be exempted. Higher rates would be applied to goods and services
that are perceived as being non-essentials or as luxuries.
If the federal income tax were repealed, the U.S. would
become a "tax
haven" for the rest of the world. There would be an instant and
dramatic
increase in the number of people from other countries who would migrate
to the U.S. Huge amounts of investment funds would pour into the U.S.
from
around the world. Other countries would have to respond to prevent a
huge
loss of funds. In varying degrees, most of the other major countries of
the world would be forced to reduce the tax burdens on their residents.
The repeal of the Federal Income tax would not prohibit the
various
states from continuing to use income taxes to fund their programs.
Substantial
amounts of the programs now funded by the Federal government could and
would be shifted to the states. The states would begin to rely more on
income taxes and less on sales taxes. Some states would resist the
continuation
of various welfare programs and would adopt a low rate of income tax or
would not have an income tax at all. Citizens would be free to move to
low tax states if they wish to do so. Competition among the states for
industry and for residents would result in tax competition between
them.
What are the Realistic Prospects for
Repeal of the Income Tax?
Nearly half the income in the U.S. is funneled through some
level of
government. The U.S. Congress is virtually split 50/50 between
Democrats
and Republicans. (That also implies a similar split among the voters.)
An amendment to the Constitution requires a two-thirds vote in each
house
of Congress and must be approved by three fourths of the states. People
don't tend to support radical changes unless they are hurting and as
long
as the economy is in fairly good shape, drastic change is not likely to
be supported.
On the other hand, when the 16th Amendment was submitted for
approval
by the states, few of the politicians expected it to pass. But it did -
and in nearly record time. (There are some who dispute that it was
passed
in full compliance with the law, but the courts have held otherwise and
have refused to consider any further cases that claim the income tax is
not legal -- for various reasons.)
The big question is the extent to which the frustration and
dis-satisfaction
with the consequences of the income tax have affected the voters. I
suspect
that most of the folks who are self employed and who believe they can
adjust
their business to doing without any revenues that are derived (directly
or indirectly) from the income tax will vote to repeal the income tax.
If everyone in the U.S. had to pay taxes the way the self employed pay
taxes, repeal would be a near certainty. Most of those who are self
employed
have to write quarterly checks to the government for their taxes. For
those
who are over the 15% tax bracket, their marginal federal tax rate is
about
40% of their self employment earnings after expenses. With state income
taxes, the total tax bite is close to 50% in many states.
If we could somehow get rid of the withholding tax for a few
years,
it would be a lot easier to garner support to repeal the income
tax.
Have I Voted For Liberty?
After having explored some of the implications and
consequences of a
repeal of the income tax amendment, am I prepared to take a stand on
the
issue? Because I'm a tax accountant, most observers might expect me to
argue against a repeal of the income tax.
Obviously, if the income tax is repealed, I would have to
focus
on non
tax related issues as an accountant, author or entrepreneur. If the
Social
Security tax were repealed, my wife and I would have to continue
working -- which we are doing anyway. If the Medicare tax were
repealed, we would have to find
a way to provide for our own medical expenses.
On the other hand, we would have a substantial increase in
our disposable
income if the income tax were repealed. I also believe that the
cost of a lot of
goods and services would decrease substantially when the hidden costs
of
income taxes are removed. It would take a few years, but I believe the
cost of medical care and drugs would fall sharply as government money
is
no longer available to support the high prices that have been caused by
an infusion of government funds.
Harry Browne doesn't believe it would be necessary to cut
off Social
Security benefits to those who have contributed to the program for many
years. He argues that the Government has enough assets
that can be sold to private buyers to pay for lifetime annuities
(through
insurance companies) for current Social Security recipients. But that
would
not be an integral part of the Liberty Amendment. Repeal of the 16th
Amendment
would simply prohibit the Federal Government from imposing a tax on
income.
It would then be up to the politicians to decide how to cut the various
projects or programs that are being funded with the income tax. It
would
be up to them to decide how to deal with existing Social Security and
Medicare
recipients and with those are within a few years of retirement age.
My primary personal objection to the federal income tax is
that it's
very much like a cancer. It started small and wasn't very painful and
didn't
cause much economic damage at first. But it's grown to the point where
it's almost beyond any cure. If we don't face up to this problem now,
it
will soon be too late -- if it isn't too late already.
The income tax provides the money with which the U.S. can
engage in
imperialist policies toward the rest of the world. As the most powerful
military force in the world, we are continuing to use our military and
economic power to bully and intimidate many other countries. The
citizens
and leaders of those other countries may one day decide to retaliate.
With
the disintegration of the USSR, there are a growing number of smaller
countries
that have the ability to deploy nuclear weapons. Even if they don't
resort
to that form of retaliation, there is a growing potential for
biological
warfare.
A long time ago, I discovered the basic principle that most
people don't
like to change unless they are hurting. When people are making enough
money
to get by and to enjoy a few luxuries, they will put up with an
enormous
amount of restraint and taxes. Right now, I doubt that enough people
are
in enough pain to be willing to accept the radical change that would
result
from the elimination of the income tax. But if no one begins to stand
up
and support a cure for the cancer that is continuing to eat away at our
liberties and economic vitality, it may be too late for a cure.
Each of us, one at a time, must decide if this is an issue
that is important
enough to ourselves and to our children or grandchildren to devote some
time and money to try to cure the disease.
I have already "voted" for the Liberty Amendment by sending
an email
to my Congressman in support of the bill. I'm also taking a public
stand
through this issue of The Jacobs Report. If I'm given an
opportunity to vote on it in my state, I will do so.
Of course, most of my colleagues in the accounting and tax
professions think I'm crazy.
For More Information
I don't expect any of you to support this idea just on my
say so. Rather
than present you with a one-side perspective, I've tried to present
both
the arguments for and against the repeal of the federal income tax. I
don't
happen to agree with those who are advocates of the income tax.
But if you are on the fence, I do hope you will be willing
to study
the issues further until you can arrive at a conclusion. Here are some
further Internet information resources you can study to learn more
about
the subject.
Obviously, these are all groups that are in favor of elimination
of the income tax. As far as I know, there aren't any organized groups
in favor of keeping the income tax -- but there will be if the Liberty
Amendment becomes a significant issue.
Note: If you wish, you may
forward copies of this article to friends
or family. I only ask that you forward the entire document and that my
copyright and information about The Jacobs Report be retained in the
copy.
(C) Vernon K. Jacobs, 2001, All
rights reserved.