The Founding Fathers where very deliberate in crafting specific guidelines and boundaries with respect to the role of the Federal Government; as to the issue of Taxation, they were explicit:
Article I, Section 2, Clause 3:
“Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers.
Article I, Section 8, Clause 1:
“The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”
Article I, Section 9, Clause 4:
“No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.”
Keywords to note in these constitutional references are as follows: “apportioned”, “uniform” and “No Capitation, or other direct, Tax….” These keywords are important to consider and for the following reasons:
- If one were to study the Federalist Papers it would be clear that the Individual was thought of as Sovereign, their corporal form was sacred and in possession of unalienable (not inalienable) rights and as such the product of the Sovereign Individuals effort could never be subject to taxation.
- Because the Federal Government is a confederation of “free and independent states” (and not a confederation of Sovereign Individuals) the Constitution never even approaches the subject of IndividualTaxation (as we’ve come to know it) leaving the Federal Government to source revenues either by duties, imposts and excise taxes. It was this very format which gave rise to the distinction of a Direct Tax (example: tax on real property) and an Indirect Tax (example: duties, sales/excise taxes).
- The concepts of uniform and apportioned simply means that there must be no geographical distinction (uniform) as to the nature, type and applicability of a Federal Tax and that the revenues due from each State shall be apportioned (based on the number of people/census resident in each State) accordingly. This apportionment, based on a State’s population, is the only Constitutional application or mechanism based on “capitation”; it is a “head count” only. The more populated a state the greater its apportionment and vice versa; this is what is meant by “representative” government and also relevant to a discussion of why the Electoral College System is so important. Again, it is important to remember that the Federal Government power comes from the agreement of the States through their Direct Representatives (Senators and House Representatives) which the People of each State elect.
Now then the Federal Government tried, several times, to institute and income tax however these efforts were regularly shut down by the Supreme Court on constitutional issues; here again this is due to the fact that the Constitution grants no such right to the Federal Government to levy a direct tax on a Sovereign Individual. In 1913 the 16th Amendment was passed and here is what the Amendment states:
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
What many should find interesting about this Amendment is that it doesn’t define the “income tax” as either a “direct” or as an “indirect” tax and further, as to upon whom or from who the tax is assessed. Why, one might ask, is this an important observation? It is because the Constitution specifically prohibits a direct tax upon Individuals and it specifically states that indirect taxes must by uniform and the 16th Amendments makes no references to these Constitutional restrictions. What you may find even more interesting is that the 16th Amendments stands, to this very day, solely upon Judicial Interpretation and regulatory enforcement and has never been directly challenged on the issue of Constitutionality.
Last point before moving on: the Federal Government was intended to function within the confines of specific mandate expressed in the opening statement of the U.S. Constitution:
“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
“Establish Justice” (a system of Laws and Courts to enforce them), “insure domestic Tranquility” (provide a system of uniform Order and affirmative Property Rights , “provide for the common defence” (against foreign Invasion or Piracy), “promote the general Welfare” (insure the durability of “Life, Liberty and the Pursuit of Happiness”) and “secure the Blessings of Liberty” (by perfecting, protecting and preserving the “Declaration of Independence”). Now ask yourself this very simple question while using the current state of the Country for context: How well have we executed this very simple mandate? I’d truly welcome your comments.
The core problem with the U.S. Tax Code is that it completely subverts the U.S. Constitution and it inverts the functional and appropriate means by which revenue, for the Federal Government, should/could be generated and, I might add, the means through which the Federal Government could be held to a standard of fiscal discipline. Here are a few examples of the current systems most conspicuous flaws:
- The System taxes the most productive source of economic activity: Personal/Household Active Income. Active Income is that revenue derived from trade or business which is distinctly different from Passive Income which is everything else.
- The current System gives tax preference to entities which have no Constitutional Standing (examples: Corporations and Non-Profits).
- The current System uses its taxing authority as a mechanism for both Individual Wealth Redistribution and as a Business Development Fund. We see each of these features in the various entitlement program, subsidies and tax credits all of which occur well beyond the domain of Constitutional License.
- The current System is now subject to the imposition of various International Trade Agreements the result of which is to force an even greater tax burden on American Households and, to be quite blunt, has made overhauling the U.S. Tax Code a virtual impossibility. You have the U.S. Senate and William Jefferson Clinton (and every President since) to thank for this and precisely why no Candidate or Elected Official dare to approach a faithful discourse on the subject of reformulating the tax code. Even the Public has bought into the false argument evidenced by the venerable attachment to the “tax the rich” scheme.
When Congress or the President wants to pitch a new program they no longer bother looking for ways to expand revenues by promoting productive capacity or requiring a fee-for-service mechanism; no they pay for it by attaching program funding mandates to a new tax routine, expanding one that exists or by simply adding to the current budget deficits.
“A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”
– Alexis de Tocqueville –
In its present form the current tax system is, to be sure, a testament to 100 plus years of cumulative abuse by both Democrat and Republican Administration and the only legitimate excuse that can be offered is that were it not for the U.S. Congress no President would have had the opportunity to apply their endorsement.
- Repeal the 16th Amendment
- Revoke U.S. participation in all Global Trade Agreements and Organizations.
- Eliminating the current tax code and move directly toward a base-rate tax system assessed solely on Gross Income (for Households) and Net Product Income (for Corporations).
- Household income subject to tax will be exempt as to the first $350,000 of income provided that all Households contribute 15% of their income toward a personal retirement account and maintain, at the minimum, a major medical plan.
- For Households over the $350,000 income level the tax rate would be limited to 15%.
- Corporate Tax rates will be tiered and tethered to Domestic vs. Foreign generated income. The tax rate would be based on a minimum rate of 25% (for 100% Domestic Income), 35% for (65-99% Domestic Income) and 45% for the remaining. This is how you create Investment in Domestic Productive Capacity.
- Eliminate distinctions between “active” or “passive” income and the idiotic notion of Non-Profit entities.
- Eliminated Estate Taxes however consider requiring Estates over $25 Million, using a graduated rate program, to fund education, development (infrastructure) and healthcare (for the elderly and disabled) programs. Also require that Estates must be fully-distributed and all earnings subject to tax; this requirement will meter massive, cross-generational, wealth accumulation.
These are just a few teasers however consider what would happen if we eliminate the distinction between “active”, “passive”, “For-Profit” and “Non-Profit” incomes; there would be an immediate and critically required economic revitalization and significant change in cross-generational wealth. Simplicity and universality is an absolute necessity; the fact that these two attributes are missing in the current Code is precisely why it is dysfunction and emblematic of most if not all Government processes.
For a more detailed discussion on specific reformulation strategies for the U.S. Tax System I heartily recommend reading the following:
- Taxation: Never Flat or Fair is an excellent article that I wrote in October, 2011 and it appears on The Imperfect Messenger Foundation website and as always, it is worth your time and effort. And,
- Valor In Prosperity which is Volume III of the Blind-Vision Series and is available in bound form, audio-book and all electronic formats. The entire volume is dedicated to the economic revitalization of the U.S.
What you should take away from this effort and the recommended reading (above) is that desired outcome is always a matter of choice; solutions are clearly available however the question remains: Is there a sufficient will on the part of the American People to force Congress into action? The answer to this question will determine what becomes of the American Republic.
“The advent of what becomes the future rests solely in the actions of the present; decay is the only event inaction will insure.”
– Value Given, Value Received by C. Greco –
Curtis C. Greco, Founder
“TIMF E-op” is a bi-weekly series the purpose of which is to hi-light what we believe to be strategic components integral to a national economic reformation. We hope that you will find them of interest and give you great cause for expressing your influence by passing them along.