The Road to Taxpayer Rights

The first federal individual income tax in America debuted during the Civil War with the Revenue Act of 1861. That act provided for a single tax rate of 3 percent levied on incomes above $800. After the war, the income tax was repealed and the feds relied on tariffs for funding. But tariffs are regressive and hit the middle class with higher prices. So in 1894 Congress passed the Wilson–Gorman Tariff Act, which included the first peacetime federal income tax: 2 percent on incomes over $4,000. But the new income tax was declared unconstitutional in Pollock v. Farmers' Loan & Trust Co. The Supreme Court found that it violated Article I, Section 9, Paragraph 4: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”

So, if our federal overlords were to have their income tax, they would need to amend the Constitution, which meant they would need a little cooperation from the states. And that they got, but only after nearly two decades. The 16th Amendment reads: “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.”

That’s it, one little sentence, and it’s pretty much a blank check for Congress to tax as they like.

Even before the advent of the income tax in 1913, the power to tax was broad. With capitation (i.e. the head tax), the Constitution allows Congress to levy a tax on Americans merely because they exist. The top income tax rate in 1945 was 94 percent rate, and it stayed above 90 percent until 1964. So broad is the power to tax that recently the IRS has even taken to seizing bank accounts using civil forfeiture, “the power to seize property suspected of being produced by, or involved with, crime.”

Now, I happen to believe that an income tax can be a just and efficient way to fund government. But there needs to be limits on the power of the federal government to tax. We don’t have that right now.

I’ll throw caution to the wind here and claim that most Americans think there’s something fundamentally rotten with our tax system. But who’s going to fix it? It’s doubtful that Congress would volunteer to put any kind of restriction on any of its powers, especially the power to tax. And the judicial branch usually defers to Congress on matters of taxation.

The “several States” are partly responsible for federal taxation; the states ratified the original Constitution and the states ratified its amendments, including that blank check amendment 101 years ago. To be sure, the main culprit in federal taxation is Congress. But the states made the depredations of Congress and the IRS possible by ratifying an amendment that had no safeguards, no limits.

If, by amendment, the states paved the way for hideously high income tax rates, the despised IRS, the unfathomable Tax Code, and even the monstrous ObamaCare (which was allowed to stand only because it is a tax), then the states can rectify the situation by again amending the Constitution.

Not long ago, talk about amending the Constitution was discouraged in conservative circles -- especially an Article V convention. It was thought that such a convention could get out of control, putting the Constitution at risk for the unintended. But on April 9 in “Amend the Constitution to control federal spending,” no less than George Will broached the taboo of Article V, writing: “Many prudent people… recoil from the possibility of a runaway convention and the certainty that James Madison would not be there to make it turn out well.”

From Phoenix, Mr. Will reports on efforts to call an Article V convention led by the Goldwater Institute, “the fertile frontal lobe of the conservative movement’s brain.” Although the Institute’s amendment is primarily about balancing the budget, it does touch on taxes:

Any bill for a new or increased general revenue tax shall require a two-thirds vote of both houses of Congress -- except for a bill that reduces or eliminates an existing tax exemption, deduction or credit, or that “provides for a new end-user sales tax which would completely replace every existing income tax levied by” the U.S. government.

Whether you endorse those ideas on taxation or not, read Will’s article to learn about the Goldwater Institute’s safety measures to prevent a runaway convention.

In his 2013 book The Liberty Amendments (reviewed here at American Thinker by Thomas Lifson), Mark Levin also embraces the Article V convention, and proposes several new amendments, including an amendment that would limit taxation:

SECTION 1: Congress shall not collect more than 15 percent of a person’s annual income, from whatever source derived. “Person” shall include natural and legal persons.

SECTION 2: The deadline for filing federal income tax returns shall be the day before the date set for elections to federal office.

SECTION 3: Congress shall not collect tax on a decedent’s estate.

SECTION 4: Congress shall not institute a value-added tax or national sales tax or any other tax in kind or form.

SECTION 5: This Amendment shall take effect in the fourth fiscal year after its ratification.

Great stuff, that. I like the way Levin couches Section 1: “shall not collect more than.” That evokes effective rates, not statutory rates. But Section 4 would get a rise out of proponents of the FairTax. Moreover, it’s at odds with the Goldwater Institute’s proposal above. (This writer stands with Levin on the issues of a national sales tax and a VAT.)

The one thing I’d take exception to in Mr. Levin’s amendment is the 15 percent. I’d put it at maybe 25 percent for the top 0.01 percent of earners. During the Clinton terms, the top effective personal income tax rate for the top 1 percent was 24.2 percent. But whatever the top rate is, the important thing is that we have a cap on what the government can take -- a limit.

Getting two thirds of the states to agree to having an Article V convention, and then getting three fourths of those states to ratify an amendment seems a rather heavy lift. To pave the way for such a lift, conservatives in Congress need to come up with a new Contract with America that proposes specific limits put on taxation. It should be a solemn promise from conservatives and a continuing campaign issue until America gets a Taxpayer Bill of Rights.

But we need someone like the author of the original Bill of Rights. So will the new James Madison please stand up?

(NOTE: On April 10 on Fox Business, John Stossel had another terrific show headlined “Taxing Times”; also at YouTube. For other Stossel programs, see his full episodes webpage.)

Jon N. Hall is a programmer/analyst from Kansas City.

The first federal individual income tax in America debuted during the Civil War with the Revenue Act of 1861. That act provided for a single tax rate of 3 percent levied on incomes above $800. After the war, the income tax was repealed and the feds relied on tariffs for funding. But tariffs are regressive and hit the middle class with higher prices. So in 1894 Congress passed the Wilson–Gorman Tariff Act, which included the first peacetime federal income tax: 2 percent on incomes over $4,000. But the new income tax was declared unconstitutional in Pollock v. Farmers' Loan & Trust Co. The Supreme Court found that it violated Article I, Section 9, Paragraph 4: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”

So, if our federal overlords were to have their income tax, they would need to amend the Constitution, which meant they would need a little cooperation from the states. And that they got, but only after nearly two decades. The 16th Amendment reads: “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.”

That’s it, one little sentence, and it’s pretty much a blank check for Congress to tax as they like.

Even before the advent of the income tax in 1913, the power to tax was broad. With capitation (i.e. the head tax), the Constitution allows Congress to levy a tax on Americans merely because they exist. The top income tax rate in 1945 was 94 percent rate, and it stayed above 90 percent until 1964. So broad is the power to tax that recently the IRS has even taken to seizing bank accounts using civil forfeiture, “the power to seize property suspected of being produced by, or involved with, crime.”

Now, I happen to believe that an income tax can be a just and efficient way to fund government. But there needs to be limits on the power of the federal government to tax. We don’t have that right now.

I’ll throw caution to the wind here and claim that most Americans think there’s something fundamentally rotten with our tax system. But who’s going to fix it? It’s doubtful that Congress would volunteer to put any kind of restriction on any of its powers, especially the power to tax. And the judicial branch usually defers to Congress on matters of taxation.

The “several States” are partly responsible for federal taxation; the states ratified the original Constitution and the states ratified its amendments, including that blank check amendment 101 years ago. To be sure, the main culprit in federal taxation is Congress. But the states made the depredations of Congress and the IRS possible by ratifying an amendment that had no safeguards, no limits.

If, by amendment, the states paved the way for hideously high income tax rates, the despised IRS, the unfathomable Tax Code, and even the monstrous ObamaCare (which was allowed to stand only because it is a tax), then the states can rectify the situation by again amending the Constitution.

Not long ago, talk about amending the Constitution was discouraged in conservative circles -- especially an Article V convention. It was thought that such a convention could get out of control, putting the Constitution at risk for the unintended. But on April 9 in “Amend the Constitution to control federal spending,” no less than George Will broached the taboo of Article V, writing: “Many prudent people… recoil from the possibility of a runaway convention and the certainty that James Madison would not be there to make it turn out well.”

From Phoenix, Mr. Will reports on efforts to call an Article V convention led by the Goldwater Institute, “the fertile frontal lobe of the conservative movement’s brain.” Although the Institute’s amendment is primarily about balancing the budget, it does touch on taxes:

Any bill for a new or increased general revenue tax shall require a two-thirds vote of both houses of Congress -- except for a bill that reduces or eliminates an existing tax exemption, deduction or credit, or that “provides for a new end-user sales tax which would completely replace every existing income tax levied by” the U.S. government.

Whether you endorse those ideas on taxation or not, read Will’s article to learn about the Goldwater Institute’s safety measures to prevent a runaway convention.

In his 2013 book The Liberty Amendments (reviewed here at American Thinker by Thomas Lifson), Mark Levin also embraces the Article V convention, and proposes several new amendments, including an amendment that would limit taxation:

SECTION 1: Congress shall not collect more than 15 percent of a person’s annual income, from whatever source derived. “Person” shall include natural and legal persons.

SECTION 2: The deadline for filing federal income tax returns shall be the day before the date set for elections to federal office.

SECTION 3: Congress shall not collect tax on a decedent’s estate.

SECTION 4: Congress shall not institute a value-added tax or national sales tax or any other tax in kind or form.

SECTION 5: This Amendment shall take effect in the fourth fiscal year after its ratification.

Great stuff, that. I like the way Levin couches Section 1: “shall not collect more than.” That evokes effective rates, not statutory rates. But Section 4 would get a rise out of proponents of the FairTax. Moreover, it’s at odds with the Goldwater Institute’s proposal above. (This writer stands with Levin on the issues of a national sales tax and a VAT.)

The one thing I’d take exception to in Mr. Levin’s amendment is the 15 percent. I’d put it at maybe 25 percent for the top 0.01 percent of earners. During the Clinton terms, the top effective personal income tax rate for the top 1 percent was 24.2 percent. But whatever the top rate is, the important thing is that we have a cap on what the government can take -- a limit.

Getting two thirds of the states to agree to having an Article V convention, and then getting three fourths of those states to ratify an amendment seems a rather heavy lift. To pave the way for such a lift, conservatives in Congress need to come up with a new Contract with America that proposes specific limits put on taxation. It should be a solemn promise from conservatives and a continuing campaign issue until America gets a Taxpayer Bill of Rights.

But we need someone like the author of the original Bill of Rights. So will the new James Madison please stand up?

(NOTE: On April 10 on Fox Business, John Stossel had another terrific show headlined “Taxing Times”; also at YouTube. For other Stossel programs, see his full episodes webpage.)

Jon N. Hall is a programmer/analyst from Kansas City.