Tag Archive | "income tax"

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Know Your America – The 16th Amendment

Posted on 10 April 2011 by Editor

Originally posted 2009-08-09 22:28:43. Republished by Blog Post Promoter

norbertatwork2by Norbert Sluzewski
Editor
NakedLiberty.com
August 9, 2009

In the late 18th century a truly unprecedented series of events were occurring on the American continent. A juxtaposition of historical events never aligned as then, presented a unique opportunity for the young American colonies to embark on a new social experiment never heretofore tried on the scale of a nation. The circumstances were unique and the time was right to seed the experiment. And never was the chance of its success greater than at that time.

The young American colonies were determined to create a nation out of the principles which brought their citizens to this continent in the first place. These principles included fundamental rights in which the colonists believed so strongly that they left their ancestral homes, families and countries to support and ultimately defend. Foremost among these rights was the right that citizens should determine the makeup of their government and that no government should place its needs ahead of those of the citizens’.

Most of the colonists were adamantly opposed to a central form of government. Their experiences, after all, vividly recollected the injustice and excesses of the governments which they fled. So afraid were they of recreating another monarchy or oligarchy, that most would choose anarchy over any form of central government. As a result the colonist’s first attempt to create a form of governance was a weak alliance of states codified in the Articles of Confederation, the final draft of which became the de-facto constitution in 1777 (finally ratified in 1781). The Articles placed all governing power in the hands of the individual states, with only specific and very limited provisions delegated to the Confederation. These included, among others, the right to wage wars, negotiate treaties and resolve territorial disputes.

 

The shortcomings of the Articles (lack of central taxing authority, inequalities between the influence of large and small states, etc.) were soon exposed and an effort to create a federated type of central government was undertaken.

A remarkable group of statesmen (the Federalists) emerged to lay the foundation of this new government structure, one which would preserve the authority of the states, while giving enough power to the central core so that it could effectively act as a national government. These principles were assembled into a document which on June 21, 1788 was signed to become the US Constitution.

But what was most remarkable about the Constitution’s structure was that it created no single source of power. With the distribution of authority among the executive, legislative and judicial branches, this distributed structure of checks and balances recognized an inherent human flaw that:

If given the opportunity to avail himself of excesses,
man inevitably will.

Even the most benevolent monarchy or dictatorship eventually succumbs to this flaw. The Founders uniquely understood this and sought to establish a Republic in which no single man, group, state or other entity could dominate or unduly influence the direction of the nation.

The Constitution survived and remained largely unchanged into the first decade of the 20th century. During this time the American experiment had grown to become hugely successful and the United States of America became the most prosperous nation in the world, envied for the liberty and freedom that its citizens enjoyed. The Federation survived every test of its Founding Principles. Amendments to the Constitution throughout this period were carefully crafted to not upset these Principles. That is, until the 16th Amendment in 1913, which established the central government’s right to tax the income of citizens (previously this right was reserved to the 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.”

While until then various taxes were levied in support of specific government initiatives (e.g. the Revenue Act of 1861 levied a 3% tax on high-wealth citizens to fund the Civil War), these would be repealed upon completion of the initiative. The 16th Amendment for the first time institutionalized the government’s right to collect income taxes. The rate was innocently set at 1% of incomes above $3,000 and 6% surcharge for incomes above $500K.

The federal income tax quickly became eye candy for politicians looking for funding to support their favorite programs. And the government as a whole saw it as a cash machine from which funding for social programs, wars, and other initiates could be secured. To no surprise, by 1918, five years after the 16th Amendment was ratified, the top income tax rate skyrocketed to 77%. During his presidency Franklin D. Roosevelt even tried (but failed) to impose a 100% rate on incomes above $25,000 to fund the war effort. Through the 1960’s the marginal tax bracket stayed at 90% and it wasn’t until the administration of Ronald Reagan which reduced the top rates to 28%.

To no surprise to any free market capitalist, history shows that the performance of the stock markets, the rate of employment, size of the GDP and other measures of national prosperity all positively and directly correlate to the rate of taxation. The wealth of America, its prestige around the world, our ability to extend the experiment in liberty which our Founders blessed us with, all has been affected, and in fact jeopardized by the enactment of the 16th Amendment. I will write about other reforms (e.g. immigration), which have also had significant detrimental impact, in an upcoming new article.

The enactment of the 16th Amendment significantly changed the character of the American experiment. It took a big bite out of the forbidden fruit that is influence over wealth distribution. One of our founding freedoms — that the fruits of our labor should be ours to enjoy and dispense with according to our own conscience and convictions — has been trampled on without recourse and consideration. This is perhaps one of the most fundamental liberties we as Americans have enjoyed and expect it to have been protected by the very Constitution which the 16th Amendment has trampled.

Some argue that the Constitution is an “ancient” document written by men of times long passed; that progress necessitates changes, and that we should no more look to our Constitution for answers as we would to ancient Egyptian hieroglyphs for ways to build our skyscrapers. To those I say, give me something better to replace it with. Give me a different anchor to which we can moor our society. And let not that anchor float with the current, but let it stand firm and withstand the storms of progress and uncertainty that is by definition the future. While you ponder this, ponder also where do you get the audacity to think that you have the wisdom and motivation to frame this new society you think you want. While your motivation is political survival, each of our Founding Fathers risked his life and limb to give to us their wisdom and experience.

Until you show me this new anchor, I’ll stick to my Constitution – thank you very much.

And remember also that only a fool accepts change for its novelty.

. . . . . . . . . . . . . . . . . . . . . . . .

Norbert Sluzewski is a columnist and editor of NakedLiberty.com
He lives in Connecticut

Article may be reprinted with attribution.


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To Sur, With Love

Posted on 10 April 2011 by Editor

Originally posted 2009-07-28 17:17:53. Republished by Blog Post Promoter

by Rick SincereRickSincere
RickSincereThoughts
July 16, 2009

As part of the gargantuan (1,000-page-plus) health care “reform” package introduced by members of the Democratic majority in Congress, the Obama administration proposes to raise taxes through a “surtax” on Americans who earn the most money.

The Washington Post explained this “soak the rich” policy in a front-page article on July 15:

The surtax would start at 1 percent and rise to 5.4 percent on income exceeding $1 million. Combined with the expiration next year of tax cuts enacted during the Bush administration, the surtax would drive the top federal tax rate to 45 percent, the highest level since lawmakers rewrote the tax code in 1986.

The Washington Times, for its part, points out that this raises U.S. marginal tax rates to their highest levels since the 1980s:

A new surtax of 5.4 percent in the health care bill, which would apply to married couples’ income above $1 million, would bring the top federal income tax rate to 45 percent.

After consideration of state and local income taxes and the Medicare payroll tax, which applies to all wage and salary income, taxpayers in 39 states would face a top marginal income tax rate of more than 50 percent, according to a study by the Tax Foundation, a nonprofit tax research group based in the District.

“That means government would be taking more than half of every additional dollar from high-income taxpayers,” said Tax Foundation President Scott Hodge. “The lowest tax rate would be 47 percent – and that’s in the nine states that don’t tax wages.”

Businesses say the surtax would hurt the economy.

“The intention of this plan is to tax high-income households, but the real victims would be America’s small-business owners,” said Thomas Donohue, president of the U.S. Chamber of Commerce. “Placing a big tax burden on the small-business community would rob them of the resources they need to create the jobs that will lead us out of the recession.”

President Obama would be wise to look to history to see what happened the last time a president made a surtax the centerpiece of his economic program. (Some might object that this is a “health care” program. That’s true, up to a point. The fact that the bill has been referred to the Finance Committee in the House suggests that this is really a revenue bill.)

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In Yanek Mieczkowski’s 2005 book, Gerald Ford and the Challenges of the 1970s, the Dowling College historian relates what happened when Ford proposed a 5 percent surtax on all incomes above $15,000 (more than it sounds like; remember, these were 1974 dollars) in his first major economic legislative package:

As what he termed “the acid test of our joint determination to whip inflation in America,” Ford pronounced the cornerstone of his new economic program, a one-year, 5 percent surcharge on corporate and personal incomes. The surtax was directed at individuals with yearly earnings of $15,000 or more for married taxpayers and $7,500 for the unmarried. (Taxpayers would have to figure out what they normally owed the government, then add the 5 percent surtax to it.) The advantages of the surtax were that it would be mildly progressive, since the rich would pay more, and temporary, lasting only the calendar year 1975. Nor was it onerous. For example, a single person earning $15,000 would pay a federal income tax of $2,549; the surcharge would add $78. (p. 121)

Despite its modest appearance, Ford’s proposal was met with strong opposition, especially from the Democrats who held a majority in Congress (a majority that would grow substantially after the midterm elections a few weeks after his proposal was announced). Republicans were not too fond of it, either.

Ford took a political risk by proposing a surtax less than a month before congressional elections. Unveiling a tax increase at such a time was like unleashing a skunk at a picnic; representatives and senators ran in the opposite direction, refusing to embrace or even come close to it. Officeholders facing difficult reelection battles, such as GOP senators Bob Dole of Kansas and Marlow Cook of Kentucky, deserted their president rather than support the proposal….

The program itself was a political bomb. The jumble of proposals gave the whole thing an eclectic feel, and the centerpiece — a tax increase — fell flat. One poll showed that Americans opposed the surtax, 58 to 34 percent. Members of Congress resisted it. Just two days after the speech, William Baroody warned Ford that it was “in serious trouble on the Hill and very unpopular politically” and that Congress was in no mood to reduce spending. Two weeks before the election [William] Seidman publicly acknowledged that the surtax faced an uphill struggle on Capitol Hill and called its prospects “uncertain.” The overwhelming Republican repudiation in the ensuing elections turned “uncertain” to “doomed.” Ford’s policy making was off to a rocky start. (p. 124; footnotes omitted)

In one of the more significant parenthetical partial paragraphs of any work of recent history, however, Mieczkowski writes:

(One economist’s skepticism about the surtax generated what later became a mainstay of Ronald Reagan’s “supply-side” economics. Arthur Laffer doubted that the 5 percent surtax would generate much revenue, and while dining at a restaurant with Ford administration members Don Rumsfeld and Dick Cheney, he drew a graph on a napkin to illustrate his belief that tax cuts — rather than increases — would raise more revenue because of increased business activity. His illustration became known as the “Laffer Curve.”) (p. 122)

Apparently other economists caught on, even if they hadn’t seen the napkin. Yanek Mieczkowski writes on page 130:

By November, many economists, realizing that Ford had miscalculated, urged him to drop the surtax proposal and switch his focus to fighting the recession. The president stuck by the surtax and still urged budget cuts.

In the end, the surtax proposal crashed and burned. Mieczkowski notes on page 131:

A political science axiom says that “the president proposes, Congress disposes.” Congress certainly disposed of Ford’s surtax, and quickly. Although he developed a fiscally balanced program incorporating many recommendations from the economic summit conferences, it was also like a multipronged barb that Congress could not swallow. And it soon became incongruous. The deteriorating economy, coupled with the inherent unpopularity of a tax increase, doomed Ford’s first major economic initiative. But that failure was fortunate; as events played out, a surtax would have aggravated the downturn. (emphasis added)

History teaches us, and not just in this example from the mid-1970s, that raising taxes during a recession is a bad idea.

Barack Obama and congressional Democrats have not absorbed this lesson of history and economics. Should they succeed in raising taxes to finance their ambitious program to socialize medicine, they — or, rather, we — will live to regret it.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rick Sincere is the editor of RickSincereThoughts

Article has been published with permission

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