The Economy and the Taxpayer
January 7, 2003
Would a tax cut be good for the
economy? Economists are having their usual eye-glazing
debate over this question, without bothering to define their terms. The
Bush administration wants to cut taxes a little tiny bit over the next
decade, insisting it will help the economy; their opponents
say that even a little tiny tax cut could hurt the economy.
What do they mean
by the economy? Is it a single thing, or a whole lot of disparate
things lumped together into a misleading abstraction?
The first thing to
notice is that Americans didnt use to talk this way. In the first
century of the U.S. Governments existence, when Federal budgets
were in the millions, not trillions, taxes were very low, the country
prospered as no other country had, individual freedom was unprecedented,
and Europeans flocked here. There was no welfare state; the immigrants
didnt come to live off the taxpayer, but to reap rewards for their
own efforts in a system of free exchange. Nobody spoke of a monolithic
economy as the governments concern.
During the Civil War
the Lincoln administration imposed the first national income tax. The
rates were low, 3 to 5 per cent. After the war the tax was ruled
unconstitutional. Eventually the Sixteenth Amendment, ratified in 1913,
gave the Federal Government a court-proof power to impose taxes on
income. But the rates were still, at first, low: a single man with no
dependents had to make $50,000 a year (in todays money) before he
paid 1 per cent in taxes. The top rate was 7 per cent.
Prescient voices warned, however, that the
Amendment gave the Federal Government a potentially limitless power to
tax; moreover, it created new possibilities of tyranny, by making every
U.S. citizen directly answerable to the Federal Government for his
personal finances. An intrusive bureaucracy would result, eliminating
The worst scenarios
have been surpassed. Today the ordinary taxpayer pays at rates higher than
the Rockefellers and Morgans used to pay. Add in state and local taxes, and
we now pay nearly half our income to the government. This is to say
nothing of downright illegal abuses, like using the tax bureaucracy to
target political opponents of presidents. And the Federal courts have ruled
that the taxpayer, in his dealings with that bureaucracy, doesnt
enjoy the full protection of the Bill of Rights against unreasonable search
and seizure and self-incrimination.
If Americans had
realized what the Sixteenth Amendment would entail, it would never have
been ratified. It has inured us to a new form of involuntary
servitude not to private masters, but to the government.
The courts have never recognized taxation, however onerous, as
involuntary servitude as forbidden by the Thirteenth
Amendment. So even if the government took all your earnings, you
wouldnt be, in its eyes, a slave!
Such matters, alas,
dont interest the economists who tangle themselves in arguments
over whether a tax cut would be good for the economy. They
have no criteria for judging whether taxes are unjust to the people who
pay them. They acknowledge no moral limits on the taxing power. They
only know it can be dangerous to the economy to let people
keep too much of their own money. In principle, all our earnings seem to
belong to the government. And pragmatic experts are at
hand to warn it against excessive generosity to us.
Perish the thought
that the government already takes far too much from us, that it spends our
money for unconstitutional purposes, that it heaps debt on politically
defenseless future generations. The Sixteenth Amendment is one of the
few parts of the U.S. Constitution the government still takes seriously,
construing its taxing power as broadly as possible so broadly, in
fact, as to nullify the rest of the Constitution.
A century ago Hilaire
Belloc predicted the emergence of the Servile State
a social order in which some men are systematically forced by the state
to support others. That is what a limitless taxing power leads to, and has
already led to: a soft servitude, in which liberty is hardly
more than a legal fiction and the slaves of the state barely sense what
they have lost.
How unfair of
Bushs opponents to accuse him of trying to restore too much of our
freedom! Even if he gets his way, there is no danger that Americans will
be as free as they were in 1913. Neither party wants that.