In a fair distribution among a vast multitude, none can have much. That class of dependent pensioners called the rich is so extremely small that if all their throats were cut, and a distribution made of all they consume in a year, it would not give a bit of bread and cheese for one night’s supper to those who labour, and who in reality feed both the pensioners and themselves . . . When the poor rise to destroy the rich, they act as wisely for their own purposes as when they burn mills, and throw corn into the river, to make bread cheap . . . . A perfect equality will indeed be produced; that is to say, equal want, equal wretchedness, equal beggary, and on the part of the partitioners, a woeful, helpless, and desperate disappointment. Such is the event of all compulsory equalizations. They pull down what is above. They never raise what is below: and they depress high and low together beneath the level of what was originally the lowest.
Edmund Burke, “Thoughts and Details on Scarcity,” 1895.
It won’t be long before Congress begins a long debate over “tax reform.” No good can come of this. None. Zilch. Squat. The key to understanding this contention is the word “reform.” You see, reforming the United States tax code would be like reforming small pox, or gonorrhea. A “reformed” version would be no better than the old one. If they’re not going to scrap the code and write a new one, they may as well stay with what they have. You see, the code was deeply flawed from its very beginning. It can’t be “fixed.” Understanding this is crucial to understanding how the United States got into the fiscal mess it is in.
The trouble began with the 16th Amendment, the most egregious and damaging assault on the Constitution in the nation’s history up to that point. Not only did this little gem introduce the income tax but it did away with the Constitution’s “uniformity” requirement, which had been placed there by the Founders to assure that no citizen or group of citizens would pay greater taxes than any other citizen or group of citizens. From the standpoint of the history of the Left in America, this was the equivalent of the storming of the Bastille, the publication of the Communist Manifesto, and the arrival of Lenin at Finland Station, all in one. It was the means by which the Left would finance its assault on the American republic and begin the class war that it would pursue with the frenzy of a barbarian.
America’s Founders were well aware of the possibility that a uniformity requirement was necessary in a democracy to prevent one group of citizens from uniting to impose higher taxes on another smaller group. In Federalist #5, Madison noted that this was likely to happen unless majorities were rendered “unable to concert and carry into effect schemes of oppression” because “we well know that neither moral nor religious motives can be relied on as an adequate control.”
He singled out the “apportionment of taxes” as a special example, arguing that there is “no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets.”
Needless to say, during the nation’s first 100 years, numerous efforts were made by various groups to eliminate this pesky fairness requirement. The most important of these was the passage of a graduated income tax in 1862 to help pay for the huge costs being incurred by the Civil War. President Grant, God bless him, suspended this tax seven years after the war ended. But it was just a matter of time before Congress would have another go at it.
The first such attempt came in 1894. It was part of a bill to lower the extremely high tariffs that President Cleveland had promised to reduce both in his campaign for president and in his first State of the Union address. After a heated debate, the Democratic Congress succeeded in moderately lowering tariffs, but tacked on a 2% tax on incomes above $4,000, ostensibly to make up for the lost revenue from the tariff reductions. Cleveland, a Democrat himself, was disappointed with the bill, saying that the tariff reforms fell far short of what was needed. He famously proclaimed that any “true Democrat” who supports the bill is guilty of “party perfidy and party dishonor,” and blamed the whole mess on “the trust and combinations – the communism of pelf – whose machinations have prevented us from reaching the success we deserve.” Yet, after considerable bluster, he concluded that the reforms were a small improvement over the existing tariffs, so he let the bill become law without his signature.
The Supreme Court ruled the law unconstitutional the very next year in the famous case Pollack vs. Farmers Loan & Trust Co. The formal decision was made on technical grounds, but the true objection was that a graduated tax violated the “uniformity” requirement of the Constitution by exempting some citizens from the tax altogether and by taxing some at higher levels than others. Reflecting the views and concerns of the Founding Fathers, Justice Stephen Johnson Field, writing for the majority, put it this way:
The present assault upon capital is but the beginning. It will be but the stepping stone to others larger and more sweeping, until our political contest will become war of the poor against the rich; a war of growing intensity and bitterness. “If the court sanctions the power of discriminating taxation, and nullifies the uniformity mandate of the constitution,” as said by one who has been all his life a student of our institutions, “it will mark the hour when the sure decadence of our present government will commence.”
The legislation, in the discrimination it makes, is class legislation. Whenever a distinction is made in the burdens a law imposes or in the benefits it confers on any citizens by reason of their birth, or wealth, or religion, it is class legislation, and leads inevitably to oppression and abuses, and to general unrest and disturbance in society.
Needless to say, this did not put the matter to rest, but simply stirred the liberals – they were called Progressives in those days — to greater frenzy. And it came to pass that on June 16, 1909 President Taft delivered a Special Message to Congress in which he recommended “the adoption of a joint resolution by two-thirds of both Houses proposing to the States an amendment to the Constitution granting to the Federal Government the right to levy and collect an income tax without apportionment among the States according to population.”
There was considerable skepticism even among supporters over whether enough states would ratify the proposal. But proponents relied on such novel slogans as “soak the rich,” whose ranks included in those days the Rockefellers, the Morgans and the Carnegies. And in 1913, four days before Taft left office, his Attorney General Philander Knox quietly (and some insist, to this day, fraudulently) signed the 16th Amendment into law.
Of course, the “rich” didn’t get “soaked.” They set up “charitable foundations” that had been recently designed and approved for the specific purpose of protecting their money from the tax collector, and the poor middle class saps who wanted to soak the rich have been wet ever since.
A second noteworthy observation about this “progressive” act is that it followed by just four years a similar move by America’s British cousins in the form of Prime Minister Lloyd George’s famous 1909 “Peoples Budget.” Why is this noteworthy? Well, because it prompted the justly famous British historian W.E. H. Lecky to make the following statement on progressive taxation which survives today as the gold standard of observations on this insidious practice.
It is obvious that a graduated tax is a direct penalty imposed on saving and industry, a direct premium offered to idleness and extravagance. It discourages the very habits and qualities which it is most in the interest of the State to foster, and it is certain to operate forcibly where fortunes approach the limits at which a higher scale of taxation begins. It is a strong inducement at that period, either to cease to work or to cease to save.
It is at the same time perfectly arbitrary. When the principle of taxing all fortunes on the same rate of computation is abandoned, no definite rule or principle remains. At what point the higher scale is to begin, or to what degree it is to be raised, depends wholly on the policy of Governments and the balance of parties. The ascending scale may at first be very moderate, but it may at any time, when fresh taxes are required, be made more severe, till it reaches or approaches the point of confiscation. No fixed line or amount of graduation can be maintained upon principle, or with any chance of finality. The whole matter will depend upon the interests and wishes of the electors; upon party politicians seeking for a cry and competing for the votes of very poor and very ignorant men.
Highly graduated taxation realizes most completely the supreme danger of democracy, creating a state of things in which one class imposes on another burdens which it is not asked to share, and impels the State into vast schemes of extravagance, under the belief that the whole cost will be thrown upon others. Dishonest politicians . . . will have no difficulty in drawing impressive contrasts between the luxury of the rich and the necessities of the poor, and in persuading ignorant men that there can be no harm in throwing great burdens of exceptional taxation on a few men, who will still remain immeasurably richer than themselves. Yet, no truth of political economy is more certain than that a heavy taxation of capital, which starves industry and employment, will fall most severely on the poor. Graduated taxation, if it is excessive or frequently raised, is inevitably largely drawn from capital. It discourages its accumulation. It produces an insecurity which is fatal to its stability, and it is certain to drive great masses of it to other lands.
Taxation is, ultimately, the payment which is made by the subject for the security and other advantages which he derives from the State. If the taxation of one class is out of all proportion to the cost of the protection they enjoy; if its members are convinced that it is not an equitable payment, but an exceptional and confiscatory burden imposed upon them by an act of power because they are politically weak, very many of them will have no more scruple in defrauding the Government than they would have in deceiving a highwayman or a burglar.
Needless to say, and just as Lecky predicted, the establishment of a federal income tax and the elimination of the uniformity requirement set the stage for the great American political game of using the tax code to punish and reward various groups of citizens. And this, in turn, assured that class conflict, one of the favored weapons of the Left, would emerge as a major factor in American politics.
And there, brothers and sisters, is the origin of the fiscal mess we’re in. It’s in the book, as the saying goes. They can reform all they want, but it will still be a source of political extortion and corruption.