No Taxation with Misrepresentation?

If Congress passes a takeover of health care via dubious means, flouting the consent of the governed, the consequences may be far more profound than dreamed by Reid, Pelosi, and Obama. In addition to violating the spirit and perhaps the letter of the Constitution by changing the House rules to deem that the Senate Health Care Bill has passed, Speaker Pelosi is now thinking about folding the federal government's takeover of students loans into the process. I'll leave the discussion of the finer points of constitutionality of this power-grab to those with more expertise in the matter. My own thinking is that with this latest outrage, better political guidance may be found in the Declaration of Independence.  

But when a long Train of abuses and Usurpations pursuing invariably the same Object evinces a Design to reduce then under absolute Despotism, it is their Right, it is their Duty, to throw off such Government, and to provide new Guards for their future Security.

If the Congressmen who found their town hall meetings last summer contentious actually vote to pass this abomination, it's a sure bet that they ain't seen nothing yet when it comes to constituents with their dander up. Nor do I think that some citizens will be willing to wait for November's election to let the full extent of their displeasure be known. 

I am sure that I am not alone in wondering whether I have any civil obligation to obey the laws that this Congress would pass in the manner being contemplated. If they continue to express their contempt for the Constitution as they attempt to amass power, how can I adequately express my contempt with them?  

I already suspect that an all-time record number of census forms are going to be returned with all but the first question on number of persons in the household left blank. Census workers who try to follow up on such omissions are likely to run into a polite but explicitly none of this government's business stonewall. If the President and the leaders of his party in Congress do not desist with their power-grabs, that attitude may quickly spread to other areas where private citizens make contact with the federal government. In fact, there are already indications that more Americans are ignoring the income tax laws by conducting business transactions in cash and avoiding banks because of disgust with the government.  

According to a Federal Deposit Insurance Corp. (FDIC) report last December, the number of households that do not use banks has been rising. Perhaps far more troubling for the coffers of the federal and state governments is this:
Tax revenues are falling far more rapidly at the federal, state and local level than would be expected by the small drop in real gross domestic product (GDP) and changes in tax law that have occurred since the recession began. The currency in circulation outside the U.S. Treasury, Federal Reserve banks and the vaults of depository institutions -- that is, the currency held by individuals and businesses -- has grown by 13.3 percent in the last two years, while real nominal (not inflation-adjusted) GDP has not grown at all, and real (inflation-adjusted) GDP incomes have fallen by more than 3 percent. With the growth of electronic means of payment and financial service providers, it would be expected that the currency component of GDP would fall, not rise.

Some of this increased currency in circulation may reflect the desire people often have to keep ready cash around in uncertain times, but part of it is surly a rise in the underground economy because of distrust of the federal government and hatred of its rising taxation.

Many studies have shown that when people believe the taxes they are required to pay are reasonable and that the political leaders tend to spend their tax dollars wisely, tax compliance rises. And vice versa.  In the United States, there is increased evidence that many tax dollars are not being spent wisely and are often used to pay off political cronies.

Perhaps even more significant than the pork and the payoffs, or even the 1000+-page bills that no one gets to read before the vote, is the belief that this administration has a Leona Helmsley attitude toward paying taxes. From a Treasury Secretary and a chairman of the House Ways and Means committee who got wrist-slaps for income tax evasion to reports that some members of Congress have cheated Maryland and Virginia out of property taxes by claiming homeowners' exemptions meant for full-time residents of those states, the impression is that of an arrogant ruling class who consider themselves above the law.  

Adding to this feeling that taxpayers are so many chumps comes the recent story that salaries and wages of federal employees are higher than those for the same positions in the private sector in eight out of ten occupations. Even more galling is the information that federal employee fringe benefits are more than four times more generous. In fact, of the twenty-five highest median income counties in the United States in 2009, eight of them are in the Greater Washington, D.C. metropolitan area. With many states struggling with double-digit unemployment and many industries looking at increased regulatory costs that may well cause them to shed more jobs in the future, is it any wonder that public approval of congressional leaders is now at all-time lows? Or that a Rasmussen poll last month reported that only 21% of voters say that the U.S. government as a whole currently enjoys the consent of the governed?   

From a stimulus bill that did just the opposite to private-sector employment to a power-grab being marketed as health care reform, nothing about this administration is turning out to be as promised during the 2008 campaign. As for those 2006 campaign claims that giving the majority to Democrats would usher in the most ethical Congress ever, both the financial and the sex scandals continue apace. Against this background, the enactment of ObamaCare by nefarious means and against the wishes of most voters has the potential to usher in a widespread citizen revolt against what can best be called taxation with misrepresentation. 

It will be interesting to see what the final numbers are when the current income tax filing season comes to a close. Will the trend of tax revenues dropping faster than GDP continue? The CBO did report a 17% drop in fourth-quarter estimated tax receipts from individual taxpayers not subject to withholding, from January 2010 over January 2009. Such taxes are most often paid by two types of people: the self-employed and wealthy investors. Self-employed people with smaller operations may decide to go underground either in part or entirely. Wealthy investors have opportunities to reduce their current taxes by sheltering some income and by deferring gains.

Another thing to watch for is the error rate on returns to increase. Boxes left unchecked, schedules left unattached, or transposed numbers can be a form of protest by people who would never consider actual cheating. It is akin to not answering all the questions on the census form, only better. That's because when the IRS contacts the taxpayer about the mistake, it can serve as an excuse to write that letter asking them to please excuse the inadvertent mistake. You known, just like they did with Tim Geithner. 

Societies that are open, just, and foster civic-mindedness tend to have small underground economies and high rates of voluntary compliance with tax laws. Those that are filled with corruption and which disregard the will of the citizens tend to have large underground economies and much tax evasion. Historically Americans have very high levels of voluntary compliance. 

In their quest to force an unsustainable European-style health care system on America, Obama, Pelosi, and Reid may end up creating something entirely unexpected: American ingenuity and can-do attitude wedded to an Italian sensibility towards tax evasion. Should that attitude take hold as more than a short-term reaction to an injustice that can be corrected with the next election, this nation may well become ungovernable.