Monday, April 9, 2007

Take Us Back to '13

that 50% + of the voting public decided not to fill out tax forms. Clearly we need a tax revolt

April 9, 2007 Edition > Section: Opinion >

Take Us Back to '13
BY LARRY SCHWEIKART - Mr. Schweikart, professor of history at the
University of Dayton, is author of "A Patriot's History of the United
States" and "The Entrepreneurial Adventure: A History of Business in the
United States."
April 9, 2007

Disclaimer: I hate taxes. I think I pay way too much in taxes. I
think my fellow Americans pay way too much in taxes, especially the
"rich." Perhaps some people aren't bothered that the top 5% of income
earners pay 53% of all income taxes, or that the top 10% pay 65%, but I

Moreover, merely filing tax forms is a frustrating, difficult,
mistake-prone process. According to one recent study, only 13% of
Americans now prepare their own taxes, down significantly from 1993. The
cost of hiring someone to prepare a simple 1040 form can be as high as
$110, and studies have shown that preparation can consume up to 37.8
hours for the most basic return.

Why, then, do we have the system we have? How did it get to the
point that within a mere five years after being enacted, the lowest rate
had gone up by a factor of 25, and the lowest rates reached 75% of every
extra dollar earned? How did it get to the point that, prior to George
W. Bush's tax cuts, Americans worked until mid-May just to pay their
Income taxes were sensibly prohibited in the Constitution. During the
Civil War, the Union secretary of the Treasury, Salmon Chase, briefly
implemented income taxes to help pay war bills, but they were
unsuccessful at raising funds. After the war, attempts to create an
income tax foundered when the U.S. Supreme Court ruled them

Without income taxes, throughout the 1800s, the primary source of paying
the government's bills came from import duties, and, secondarily, land
sales. By 1900, while federal lands were by no means vanishing, they
were providing steadily diminishing returns. The conservationist
movement, led by Teddy Roosevelt, argued for setting aside many of these
lands as national park and wilderness areas, further reducing income
that could be generated from sales.
Tariffs still paid exceptionally well at the turn of the century,
though, with virtually every imported product or raw material having a

The problem with tariffs was that Congress had to adjust the tariff
rates every few years. Even assuming that Congress was more efficient
and sensible at the turn of the century than today, can you imagine 400
or so legislators arguing over a tenth-of-a-cent increase in imported
hemp? Moreover, since before the Civil War, some
Americans—particularly those in the South—argued that tariffs merely
took money out of one group's pocket, the Southerners, and put it in the
pockets of another group, Northern businessmen.
So the first argument made to the public for adopting the income tax was
that it was fairer than tariffs and easier for Congress to administer.

Second, it originally was simple in design. The first income tax form,
which may be viewed at html, was one
page with six income brackets, beginning at $20,000. Anyone could fill
out the form.

Third, the original rates were stunningly low. From $20,000 to $50,000
the taxpayer paid 1%. Rates went up 1% in each of the brackets
thereafter, and the top bracket was 6% for those making over $500,000.
And there was a $3,000 personal deduction. To put these numbers in
perspective, a steak cost a quarter in 1920; a men's suit, $20; and a
Ford Model T under $600. In short, the vast majority of Americans would
never have paid any income taxes under that structure, and those who did
pay would barely feel it. There was no withholding, so potential
taxpayers had to save for tax day.

Those three factors — the complexity and political tension of the
tariff, the simplicity of the income tax, and the low rates — all made
the Income Tax Amendment an easy sell to the public. It might have
remained only a minor irritant if, over the years, rates had not
skyrocketed and legislators had not started using the tax code for
punishments and rewards, social engineering, and pet projects. Nor did
tariffs go away. Instead, Americans often got double-taxed.

Meanwhile, even after the tax cuts of the 1920s by the Treasury
secretary, Andrew Mellon, tax rates never fell back to their original
levels of 1913. "Tax creep" was common in both Democratic and Republican
administrations until, finally, rates would get so high that revenue
fell as people avoided taxes and reduced work. When a new, clear-eyed
politician would see that high rates were hurting government income, a
tax cut would follow, and the cycle would begin anew.

The income tax may have been "sold" to the public on the grounds of its
low rates and simplicity, but progressive advocates of the income tax
envisioned it exactly as it evolved — a tool of income transfer and
social engineering. It promised to, as one proponent claimed, "equalize
tax burdens borne by the various classes … [and] paid by the wealthier
classes." One Missouri congressman beamed that passage of the income tax
marked "the dawn of a brighter day, with more of sunshine, more of the
songs of the birds, more of that sweetest music, the laughter of
children well fed … wholesome Democracy shall be triumphant!"

As it now stands, the income tax is oppressive in its rates and
ridiculously complex. While a good argument could be made for
alternatives, the best solution to fixing the tax code is to return to
the lowrate simple form of 1913.
April 9, 2007 Edition

No comments: