sixteenth amendment constitution

Editorial
federal income tax

Learning to Love the Income Tax

Fred Foldvary
by Fred E. Foldvary, Senior Editor

In the novel 1984 by George Orwell, people learned to love Big Brother, the all-powerful state that watched over and controlled them. People will believe anything and will become emotionally attached to anything, no matter how ridiculous.

It seems that Americans have come to love the income tax. We see the spectacle of millions of Americans picking up and copying tax forms in libraries and buying taxpayer software. They download the forms on the Internet, or pay professional tax preparers to do the calculations and fill out the forms. They receive tax forms and information from the Internal Revenue Service Center and spend hours reading the instructions and filling out the forms.

Every April 15th, we see the fascinating spectacle of last-minute taxpayers rushing to post offices that are open until midnight, in order to get that April 15 due-date postmark. Later, many Americans are jubilant when they get a tax refund. It is a cause of great celebration, and they go out to a fancy restaurant and go splurge on shoes and jewelry. It is really their own money they are getting back, but receiving a check generates the illusion of new, free money.

One might think that U.S. federal government makes people believe that they are legally obligated to pay taxes on their earned income, and so folks pay the tax to avoid prison and large fines. But if Americans do not really favor an income tax, one would also think, logically, that they would avoid voting for politicians who favor keeping that tax. What we see, however, is Americans voting for candidates who approve of income taxation and massively avoiding those few candidates opposed to income taxes. So it seems that most Americans have come to love the income tax.

Citizens of the Land of the Free and Home of the Brave might think that the income tax is a necessary evil in order to pay for vital government expenses such as the War on Drugs, subsidies to farmers, and military aid to foreign dictators. "Taxes are the price we pay for civilization," chant the dutiful citizens. The alternative, they claim, nodding, would be anarchy and chaos.

But the U.S. income tax did not always exist. The 16th Amendment to the U.S. Constitution, which classified a federal income tax as an excise and indirect tax on income-producing activity, thus getting around previous Constitutional limitations, was enacted in 1913. Prior to that, the U.S. government relied on consumption taxes, including tariffs. The Progressive Era movement for an income tax sought to tax the rich, who paid a lower percentage of their wealth in taxes.

If there were no alternative to taxing income or sales, then one might be justified in saying the income tax is a necessary evil. But there is an alternative. The Progressive Era movement of the late 1800s also included the Single Tax movement to only tax land rent. Henry George in his books such as Progress and Poverty explained why using land rent for public revenue and not taxing productive activities would raise wages, extirpate poverty, and enhance social justice.

George presented four "canons of taxation," criteria by which to judge a tax. The canons are:

    1. That it bear as lightly as possible on production.
    2. That it be easily and cheaply collected
    3. That it give the least opportunity for corruption and tyranny, and the least temptation to evasion.
    4. That it be just and equitable.

Both income and sales taxes have what economists call an "excess burden" on the economy. This is the waste and misallocation of resources cause by the tax, since these taxes raise the cost of production, reducing investment and output or shifting output to less desired uses. The book The Losses of Nations has estimated the excess burden to be over $1 trillion per year.

Income taxes are collected expensively and with great difficulty. The IRS spends billions of dollars collecting and checking and auditing the returns, and many taxpayers spend large amounts of time and money figuring out the tax because of its complexity. Tax evasion is countered with audits and seizures of assets. There are many inequities such as the marriage penalty and loopholes through which some corporations avoid paying taxes.

In contrast, a tax on land rent has no excess burden, because it does not reduce the amount of land. Reducing the number of taxes reduces the cost of gathering the revenues. Land cannot be hidden or moved, eliminating tax evasion and therefore also the tyranny of enforcement. The justice of rent-based public revenue comes from the fact that public works increase rent, so the landowner is just paying back the value generated by government services. Rent also rises from population, commerce, and natural advantages that have no relation to the efforts of the owners.

So we have a clear alternative to both income and sales taxes: land rent. If rent is economically and morally superior, why don't the taxpayers insist on ending the income tax? Why don't voters refuse to elect candidates who favor income taxes? The problem is an ignorance so deep and profound that folks don't even know they are ignorant or think to question established practices. Even social reformers don't stop to think about why the problems they are campaigning about exist and how they can be extirpated, rooted out.

This is why Henry George urged, above all: think for yourself! Question conventions. Ask, why are we doing this? Ask, how do we know? Then read or take a course in the economics of land to understand the economic reality. If we are really free, then we own our lives and bodies and labor and wages. Once folks understand this, paying income taxes will become doubly painful, once because it takes away their earnings, and secondly, because now people will know this is neither just nor necessary. From this double pain, outrage shall follow, and reform will come.

-- Fred Foldvary      


Copyright 2002 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

 
 
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