April 15 is not \u201ctax day.\u201d It\u2019s \u201ctax filing\u201d day.<\/p>\n
It\u2019s not a new observation that, If this were a day when Americans were required to hand over in one lump sum a personal income tax applied to their wages and other gains of the previous calendar year, some form of revolution would not be far behind.<\/p>\n
The stroke of genius that keeps the whole operation afloat, despite a combined tax rate much higher than that which got the people of France \u201cup in arms\u201d in 1789, or our own ancestors in 1776, is called the \u201cwithholding tax.\u201d<\/p>\n
The \u201cwithholding\u201d levy — initially at a rate of 20 percent — was instituted in July of 1943.<\/p>\n
Before World War Two, individuals who owed a federal tax paid during the following year in quarterly installments, reports economist Robert Higgs, editor of the quarterly journal of The Independent Institute.<\/p>\n
\u201cIn those days relatively few people paid income taxes,\u201d Mr. Higgs writes. \u201cAs late as 1939 fewer than four million individual returns were filed, and the filers\u2019 total tax bill came to less than $1 billion, or less than 4 percent of their net taxable income.\u201d When so few people paid income taxes and the amounts were so small, the system of deferred payment worked fine.<\/p>\n
Beginning in 1940, though, as the government began to mobilize for participation in a gigantic global war, its revenue demands grew enormously. \u201cFederal spending burgeoned from $9 billion in fiscal year 1940 to more than $98 billion in fiscal year 1945. Although the greater part of this spending upsurge was financed by borrowing, huge increases in tax collections also took place,\u201d Mr. Higgs notes. \u201cIn 1945, 50 million individual income-tax returns were filed, and the filers owed more than $19 billion, or almost 20 times the amount that Americans had coughed up for this tax just five years earlier.\u201d<\/p>\n
Milton Friedman was an economist at the Treasury during the early part of the war. In his 1998 memoirs, \u201cTwo Lucky People,\u201d he observed: \u201cIt was clear to all of us at the Treasury, as we set out to multiply the amount of revenue to be collected from the personal income tax, that it would be impossible to do so unless we could develop a system to collect the taxes as the income was earned, not a year later.\u201d<\/p>\n
The resulting system — employer withholding — has remained in effect continuously ever since 1943, even though the war that prompted its creation ended more than 62 years ago. And that system\u2019s perpetuation has contributed greatly to nourishing the postwar Leviathan state.<\/p>\n
At this point, the federal government spends $25,100 per year per U.S. household, according to Brian Riedl at the Heritage Institute. $21,600 of that is financed through tax collections, while the remaining $3,500 per year is simply borrowed.<\/p>\n
Let\u2019s stipulate for the purposes of argument that the $5,200 per household spent on \u201cdefense\u201d is fully justified, as is the $935 per household spent on federal employee pensions, the $742 spent on veterans\u2019 benefits, the $455 spent on highways and \u201cmass transit,\u201d the $396 spent on \u201cjustice administration,\u201d and the $298 per year per household spent on \u201cinternational affairs.\u201d<\/p>\n
That still leaves $8,668 per household per year spent on Social Security and Medicare; $3,752 spent on other \u201cantipoverty programs\u201d including Medicaid and food stamps; $692 on health research and regulation; $578 on government schooling (that\u2019s just the federal 9 percent share), and $305 on \u201cnatural resources and the environment.\u201d<\/p>\n
What that last list of five allocation categories have in common is that not a penny of that spending is authorized under the Constitution. Charity is a wonderful thing, but not when it\u2019s made mandatory on penalty of imprisonment, and certainly not when the armed goons seizing the money from our paychecks to do these \u201cgood works\u201d have no authorization for them.<\/p>\n
Please don\u2019t give me the tired old \u201cgeneral welfare\u201d stuff. James Madison, who wrote the Constitution, made it clear in his \u201cReport of 1800\u201d that \u201cMoney cannot be applied to the General Welfare, otherwise than by an application of it to some PARTICULAR measure conducive to the General Welfare. Whenever, therefore, money has been raised by the general Authority, and is to be applied to a particular measure, a question arises whether the particular measure be within the enumerated authorities vested in Congress. If it be, the money requisite for it may be applied to it; if it be not, no such application can be made.\u201d<\/p>\n
Jefferson heartily agreed that if the Congress could spend money on anything a majority held that day to be \u201cfor the general welfare,\u201d there would have been no point in listing their enumerated powers; we would then have an unrestricted \u201cgeneral government\u201d no different from that of the tyrant Bonaparte.<\/p>\n
\u201cOur tenet ever was …\u201d Jefferson wrote to Albert Gallatin on June 16, 1817, \u201cthat Congress has not unlimited powers to provide for the general welfare, but were to those specifically enumerated; and that, as it was never meant they should raise money for purposes which the enumeration did not place under their action; consequently, that the specification of powers is a limitation of the purposes for which they may raise money.\u201d<\/p>\n
In other words, if you can\u2019t find an enumeration in Article I Section 8 — right there next to the powers to build a Navy and coin money — of a specific congressional power to administer or pay the citizens\u2019 old age pensions, to pay their medical bills or buy them Fluffernutters or school their children or muck around with the price of peanuts, then you are plumb out of luck.<\/p>\n
Zero out just those five forbidden spending categories — note that we haven\u2019t even gotten to farm subsidies, the Department of Energy, or NASA — and we can deduct $13,995 per household in federal tax \u201cneeds.\u201d Do that and you get an instant bonus — since revenues now vastly outpace expenditures there\u2019s no longer need to borrow money by issuing any more \u201ctreasury bills,\u201d and we could soon also start to reduce the $2,090 per household currently spent merely paying interest on the fedgov\u2019s $5.4 trillion to $9.6 trillion in debt. (The higher figure drops toward the lower if you stop pretending they\u2019re ever going to \u201cpay back\u201d the mythical \u201cSocial Security Trust Fund.\u201d)<\/p>\n
Either way, we\u2019ve just cut federal spending in half, by eliminating just five major spending categories, none of which is authorized by the Constitution. Any new president could do this with a stroke of the pen, reminding the other branches \u201cI just swore an oath to protect and defend the Constitution, not to spend all the money you guys can figure out how to loot with a tax which you won\u2019t even identify as either \u2018direct\u2019 or \u2018indirect,\u2019 giving us some hint as to how it can be legally collected.\u201d<\/p>\n
As Charlotte Twight notes in her 2002 book, \u201cDependent on D.C.\u201d, \u201cWithholding is the paramount administrative mechanism that since 1943 has enabled the federal government to collect, without significant protest, sufficient private resources to fund a vastly expanded welfare state.\u201d<\/p>\n
The Treasury itself acknowledges, in a fact sheet on the history of the U.S. tax system posted at its Web site, that wartime withholding not only \u201cgreatly eased the collection of the tax,\u201d but \u201calso greatly reduced the taxpayer\u2019s awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.\u201d<\/p>\n
Maybe that helps explain why, in 2005, more than 130 million individual income-tax forms were filed, yielding the federal government $1,108 billion in revenue, with $787 billion (71 percent) of that amount already having been \u201cpainlessly\u201d deducted from wage-earners who never saw it, through the \u201cmiracle\u201d of the withholding tax, devised with the help of that great champion of personal liberty, Milton Friedman.<\/p>\n
We gave them the money; they promptly found \u201cneeds\u201d and \u201cdemands\u201d which they assure us we are barely covering.<\/p>\n
If you want to end the income tax and replace it with some simpler and more equitable revenue method — whether \u201crevenue neutral\u201d or designed to trim federal revenues approximately in half, which would be a good start — just get rid of the withholding tax, requiring all taxes to be paid in full on an actual \u201ctax day.\u201d<\/p>\n
Then — as long as you\u2019re going that far — re-set \u201ctax day\u201d from April to the first Monday in November, allowing voters to go to the polls freshly reminded of all those things for which they wish to give their elected office-holders their heartfelt thanks.<\/p>\n","protected":false},"excerpt":{"rendered":"
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