First off, let’s lay the groundwork and get a brief history of taxation in the US and the reasons therefore, because these little pat statements just serve to show the one side of the picture you want to paint in order to support your Libertarian rants.
When the colonies were first established, there WAS no federal government, each state was an entity in and of itself, and each colony was a) very small and thus needed very little money, and b) was able to obtain what it needed by collecting excise taxes on exports. Remember, the original colonists came and basically discovered this bountiful land, brimming with untapped natural resources to exploit, so it was very easy to meet the needs of these various colonies, which were self sufficient (and whose only “enemies” were the original inhabitants of the land, making it very feasible to pay for their militias by selling the fruits of their victory over the natives). Up until 1765, this worked out just fine for everyone, the mother country was making money off the new land and it’s financial needs were met, but then they went to war with France, and suddenly, they needed more money. So, they started a stamp tax and a tea tax on the colonies. This did not sit well with the colonists because they were being taxed, but they were not receiving any services for their taxes, aka taxation without representation, leading to the tea party. This led to the Revolutionary war, which when it was over in 1781, left the colonies as a collective to form a new collective government, which at first had very, very few responsibilities, and needed very little tax revenue. It relied on voluntary donations from the colonies to meet its needs. Of course in 1789 when the first Continental Congress was formed, and the Constitution was adopted, the founding fathers acknowledged that NO government could survive by relying solely on other governments for its revenue. At that time, Congress was granted the power to, ”…lay and collect taxes, duties, imposts, and excises, pay the Debts and provide for the common Defense and general Welfare of the United States.”
In the earliest days of Federal taxation, taxes were generally levied on things like liquor, tobacco, property sales, vehicles (horse drawn carriages), and legal documents…essentially consumption taxes, most of which were based on social concepts (i.e., they wanted to discourage excessive drinking among those who could not afford it, things of that nature). But property owners of course wanted to shift the burden almost entirely to consumption, and the government and the people it represented, wary of taxation in general due to the taxes which led to the Revolutionary War, wanted to ensure that taxes were not used as a tool solely to re-distribute wealth. Essentially, it boiled down to fairness…people were willing to pay taxes if they got something for their tax dollars…i.e., as long as the government actually did provide for common defense and general welfare, it was all good. So, in those days,if people thought a tax was unfair, they would violently protest against it (see the Whiskey Rebellion of 1794).
Now, in the late 1790s, Congress levied the first “direct” taxes, meaning taxes on the value of owned property to pay for the war with France, and like I said, these taxes were not all that popular among property/slave owners, so in 1802, those taxes were repealed and the government was still small enough (and conflict free enough) to live without any revenues except excise taxes…until the war of 1812. That’s when Treasury Notes were first sold, and we started to see duties on customs as well as an increase in excise taxes. By 1817 however, we were war free again, and we went back to the way things were from 1802 to 1812. But of course, the Civil War arose 44 years later, and THAT is when income was first taxed directly. So the notion that we didn’t have an income tax until the 1930s is no more than a lie told to forward a Libertarian agenda. The war also led to a whole slew of new consumption taxes on pretty much everything people bought, and new licensing requirements for almost every profession so that licensing fees could be had. 1862 saw the income tax moved to a tiered system with a progressive tax structure, and collection by the employer, just like we have today, as well as the institution of the standard deduction. Now, by 1868, most of the war debts were paid, and many of these taxes were repealed, and the income tax WAS repealed in 1872. By this time, almost all of the government’s needs were being met by taxes on alcohol and tobacco. So until 1913, the US economy relied heavily on tariffs that were way too high, and excise taxes which relied way too heavily on the poorest members of society. So, in 1913, given that trying to run a government without taxes based on income was simply not feasible (consumption taxes just weren’t meeting the revenue requirements, for even a government MUCH smaller than ANYONE would advocate for today), so Congress enacted an income tax which has been with us ever since. WWI saw huge expansions in individual income tax liability to pay for the war, instating a 77% top tax tier in 1918, which was brought down to 25% in the 20s when the economy boomed, but the Depression hit, and once again in 1932 taxes on income started to go up again. By 1936 the top tier was paying 79%.
There was no big boom though before the next big war, WWII, where the top tax rate, on incomes over $1M was 94%! The tax rate stayed pretty high, it was 87% in the 50s even with the economic boom due in part to the Korean War, and until the 80s it went down bits and pieces until it hit 75%. Then Reagan came on board, bringing it down to 50%, and then to 28%! He did this by shifting the burden from those who made the most money to those who made the least money. Clinton brought that top tier up to 39.6%, Bush II down to 36%, Obama wanted to get it up to 38%...now people are so convinced he’s a socialist that we have people screaming to throw out Federal taxation.
So, the problem with doing that, as I see it is this. The government needs money to function. Any money it borrows it has to pay back so it must earn or take that money. Since the same Libertarian ideal of low taxes also doesn’t believe in nationalization of industry, the government can’t really “make” money, and must take it. And they must take it where they can get it, in other words, through taxes. But the government’s responsibility, as laid out by the founding fathers is to ensure the defense and WELFARE of the United States’ citizens. If we’re not ensuring our people have adequate education, health care, safety, security (both from crime and unexpected economic hardship), infrastructure, etc., our government is really not living up to its promise. And even given the tax structure we have now, it’s NOT living up to these promises. So, to cut services when so many needs are still going unmet is antithetical to the purpose of HAVING a government, and it disproportionately affects our must vulnerable citizens. But we can wash away our guilt about this by convincing ourselves that everyone who needs any sort of public assistance from the government is a lazy slob who won’t take “personal responsibility” all the while we visit our libraries, send our kids to schools, drive on roads, and thank God for our unemployment checks when our employers lay us off, without giving that aspect of government “welfare” a second thought.
The problem is, we are now in a world where the needs of our nation, as a world superpower and a member of the global economy, are quite pricey…far more than they’ve ever been before. And for 30 years now we have pushed forth to become a bigger and bigger part of the “world” while continually cutting funding for our own needs at home, expecting people to meet the rising costs themselves of things they have looked to the government for historically, and to meet new needs that didn’t exist for the people who came before us. So, we have it flipped on its head, the US government has to give funding to the states, not the other way around, but when they don’t, the states collect it themselves, or they cut funding to local and county governments, who CAN’T tax income. And so as the tax revenues from income get smaller, they get replaced by taxes on CONSUMPTION. Something we realized nearly 100 years ago was detrimental to the welfare of our nation. Our tax structure is simply put too complicated. It has been used for too many years to incentivise some things and disincentivise others, and so we have thousands of new codes added every year. And this is all done to keep the tax code less and less transparent, because if the people think they are getting value for the taxes they pay, they will gladly pay them, so if people are unclear what they are paying for, they have no way of knowing if they’re being overcharged.
But now we’ve reached a time in history when both citizens and lawmakers are forgetting what we’ve learned from history. We are not providing enough value for the taxes we collect. And we are forgetting that if we go back to a consumption based tax system, it’s not going to cut it, and the only people who would survive it are people who are already financially set, and THEY are the ones pulling the strings, selling this line to people, because the welfare of the United States doesn’t mean anything to them, only the ability to make unlimited sums of money unfettered. What we REALLY need to do is to make taxes fair, and unless we make it illegal for anyone OTHER than the US government to collect taxes, and collect all taxes at the Federal level based on income at the same rate for every person, there is only one way to do this…that is a progressive tax structure, like we have. The reason the more prosperous SHOULD have to pay a higher rate than the less prosperous is twofold. One, at lower levels where people are not yet meeting their subsistence needs, those dollars should not be taxed…survival dollars should be free an clear, because welfare of our citizens means we should be able to survive on what we make if we’re willing to work. But those who make the least are impacted the most by consumption taxes, because it’s not as if you person A makes 1000 times as much as person B, then person A buys 1000 times as much food and clothing. But when you get right down to it, a low wage earner is paying a higher percentage of his income in taxes, ALL taxes than is the person making the most money. In fact even with our current progressive rate, with all the incentives and taxes on consumption, the more you make, the lower your tax burden is as a percentage of your income. That’s why we need higher tiers, to make the tax system more fair. What is needed is a new look at the system. Figure out what the government needs to take in, and figure out a way to collect it that balances out the effects of consumption taxes and results in a fairly even rate on “excess” income fore everyone, regardless of what they make, while looking out for the defense and welfare of our nation and all it’s citizens. You can’t do that if you repeal income taxes, so THAT’s why it’s a bad idea.
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